Stiff penalties for short-selling near
A bill that will increase penalties for illegal short-selling is to be gazetted tomorrow.
Under the Securities (Amendment) Bill 1999, the maximum penalty for illegal short-selling would be a fine of $100,000 and two years' imprisonment.
At present, the maximum penalty is a $10,000 fine and six months' imprisonment.
Illegal short-selling occurs when investors fail to borrow stocks to cover their positions before they sell their securities short.
The tougher penalty for illegal short-selling was one of 30 proposals announced by the Government September last year to strengthen the securities market and fend off speculators, Secretary for Financial Services Rafael Hui Si-yan said.
The measures were spurred by widespread delay of settlements during the Government's market intervention from August 27 to 28 last year.
The Securities and Futures Exchange has investigated 244 brokers who failed to settle trades worth $14.67 billion on August 28 last year alone.
The extensive delay of settlements is believed to be the result of illegal short-selling.
'While recognising the market functions of short selling, we believe it is equally important to have in place proper regulation of such activities,' Mr Hui said.
Mr Hui said a harsher penalty for illegal short-selling was needed, as the activity was subject to abuse by market manipulators.
The Securities Bill would also strengthen reporting and disclosure regulations for covered short-selling, Mr Hui said.
Covered short-selling was legal as long as investors borrowed stocks ahead of their short sales, he said.
'The present proposals will further strengthen the reporting and disclosure regime for covered short-selling and help ensure the fairness and transparency of such activities,' he said.
In addition, the bill would empower the SFC to make rules to require investors to disclose to brokers when they close outstanding short positions.
Any unreported short-selling would be a criminal offence under the proposed bill, Mr Hui said.
The bill would also allow the SFC to impose record-keeping requirements on stock lenders.
The bill is scheduled to be tabled in the Legislative Council for first and second readings on January 5.
It has already been approved by the Executive Council.