Technical Note No. 1/2018 - Clarification on Short Selling in Relation to a Rights Issue Exercise
17 May 2018
This Technical Note provides clarification on the short selling of shares in a Rights Issue Exercise before the said Rights shares are listed on Bursa Malaysia Securities Bhd (the ‘Exchange’) for trading.
Essentially, Subsection 98(1) of the Capital Markets and Services Act 2007 (CMSA) prohibits a person from selling shares unless, at the time when he sells them —
he has a presently exercisable and unconditional right to vest the said shares with the purchaser; or
he believes on reasonable grounds that he has a presently exercisable and unconditional right to vest the said shares with the purchaser.
In the case of a Rights issue exercise, any person—
having subscribed and fully paid for the Rights shares; and
having reasonable grounds to believe that the Rights shares will be allotted to him,
is deemed to have a presently exercisable and unconditional right to vest the said shares with him or in accordance with his directions, pursuant to Paragraph 98(3)(a) of the CMSA.
If a person chooses to sell such Rights shares upon fulfilment of paragraphs 3(a) and (b) above, he would not contrive the short selling provision as provided in Subsection 98(1) of the CMSA.
Notwithstanding paragraphs 3 and 4 above, in the event the Rights shares are not available for settlement for any reason whatsoever, Investors who sell the Rights shares must understand that they are subject to and will bear the risk of buying-in provided under the Rules of the Exchange1.
For the orderly settlement of shares, Participating Organizations may establish internal policies, procedures, controls and requirements catering for the sale of Rights shares pursuant to this Technical Note.
Please note that the clarification provided in this Technical Note will not apply to a subscription of excess Rights shares. Excess Rights shares refer to applications for subscription of shares beyond that which a shareholder is entitled in a Rights issue exercise. This is because the award of such excess Rights shares is at the absolute discretion of the management of the company.
1The relevant rules of the Exchange essentially provide that a seller of shares is required to deliver the said shares for settlement within T+3 (please refer to Chapter 9 of the Rules of Exchange).
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.
