WHAT IS A SHORT SALE?

After reading “What is a Short Sale?”, read also “Are Strikes and Lockouts in Hospitals, Clinics, and Similar Medical Institutions Prohibited?”

• A short sale is a sale of a security that the seller does not own, or a sale consummated by the delivery of a borrowed security of the seller or for the account of the seller.

• Directors, officers or principal shareholder of a corporation cannot make a short sale in securities of the corporation in which he is a director, officer, or principal shareholder.

• Whenever the Securities and Exchange Commission, motu proprio or upon recommendation of the Exchange, prohibits short selling indefinitely or for such period as it may deem proper for the protection of the investors or as an emergency measure or whenever such short selling is necessary or appropriate in the public interest.

A short sale may include the following:

1. Any sale of a security, which the seller does not own; or
2. Any sale which is consummated by the delivery of a security borrowed by or for the account of the seller or securities borrower to return or deliver said securities or their equivalent to the lender on a determined or determinable future time. (Rule 24.2-2.1, 2015 Implementing Rules and Regulations of the Securities Regulations Code)

 

The law says:

 

Rule 24.2-2 of the 2015 Implementing Rules and Regulations of the Securities Regulations Code defines short sale in the following manner:

Rule 24.2-2.1. Definition of Short Sale. The term “short sale” shall mean any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of the seller with the commitment of the seller or securities borrower to return or deliver said securities or their equivalent to the lender on a determined or determinable future date. A person shall be deemed to own a security if: (1) he or his agent has title to it; (2) he has purchased, or has entered into an unconditional contract, binding on both parties thereto, to purchase it and has not yet received it; (3) he owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange; (4) he has an option to purchase or acquire it and has exercised such option; or (5) he has rights or warrants to subscribe to it and has exercised such rights or warrants provided, however, that a person shall be deemed to own securities only to the extent he has a net long position in such securities.

 

Is there an absolute prohibition on short sales?

            There is no absolute prohibition on short sales except in the following instances:

1. Directors, officers or principal shareholder of a corporation cannot make a short sale in securities of the corporation in which he is a director, officer, or principal shareholder;
2. Whenever the Securities and Exchange Commission, motu proprio or upon recommendation of the Exchange, prohibits short selling indefinitely or for such period as it may deem proper for the protection of the investors or as an emergency measure or whenever such short selling is necessary or appropriate in the public interest. (Rule 24.2-2.10, 2015 Implementing Rules and Regulations of the Securities Regulations Code)

 

What are the acts that are considered unlawful with respect to the purchase and sale of securities?

            Section 26 of the Securities Regulations Code states that “it shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to:

1. Employ any device, scheme, or artifice to defraud;
2. Obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person.

---

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

[email-subscribers-form id=”4″]