COLOMBIA: New rules on Colombia short selling

Tuesday September 15 2015

The Colombia Stock Exchange has announced that effective 14th September, rules on short selling have entered into effect in the market.

Please find details of the changes below:

Short selling definition
Short selling will be defined as: “each sale of securities in which the seller does not have ownership of the securities is subject to the operation at the moment of the same sale. In any case, the seller must carry out the necessary operations so as not to leave the short sale naked and to grant the former liquidation within the same day of the short sale.” Additionally, sales on which seller has ownership over the securities are not considered as short sales, whether it is a previously carried out the opposite operation (purchase) or an operation through which the security was acquired unconditionally subject to the sale even if it is a pending liquidation.

Carrying out transactions and relevant securities
Brokers will be permitted to carry out short sales operations by themselves or through third parties in the authorized instruments by the BVC which will be published quarterly in the Regulatory Bulletin on the 15th of January, April, July and October. These will include securities and holdings in trade funds, classified in Liquidity Groups A, B, C, D, E and F; securities with the cash market making program; and securities that are carried out in initial public offerings or undergo democratization processes.

Order marking
Short sale orders will be required to be marked as such in the order book on the exchange.

Price restrictions
There will be price restrictions in place, including an “uptick” rule. The price of short sale orders entered into the System must be, at a minimum, equal to the last trading price of the trading registered in BVC and that which has set. In case there is no trading price that has set a price during the day, the System will reject the order entry. During the volatility and closing auctions, short sale orders cannot be entered. The short sale orders previously entered into the System will lose their validity at the moment that the auction starts, and they will be eliminated definitively and automatically.

Cover
Naked short selling will be prohibited and short sales must be covered. On the same day of the short sale, the brokers must carry out the necessary operations so as not to leave the sale naked. In order to comply with this obligation, the firm may issue any type of authorized operation in the Regulations of the Systems administered by the BVC (sales purchases, securities transactions), and those issued as securities that correspond to the ADR program or that are simultaneously listed in the local market and in exchanges or trading securities systems recognized internationally by the Financial Superintendence of Colombia. Brokers must maintain the short sale covered from the day of the sale to the completion of the trading. Therefore, they must rely on the internal mechanisms, procedures or functionalities that will guarantee the fulfilment of this obligation.

Reporting
There are no short position reporting requirement, however the Exchange will publish the volume of the short sales signed in the System in the Regulatory Bulletin daily, indicating the price and the securities that were carried out in the sale.

Click on the above link for more details.