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SGX Buy In - S$900,000 in Just One Day on the 12 May


icecreamstrawberry I went to the SGX website today and saw a CDP Buy in announcement.

Being a kay-poh (nosey parker for those not acquainted with Singapore speak), I went in to take a look at the PDF document.

When I saw the figures being quoted, I did a double take.

$893,214 for just one day.

I think this goes to show the huge amounts that contra/short players are punting in the market. This is just a fraction of those sums of money being placed by these players (I wouldn’t call them speculators nor investors, they are more gamblers than anything).

That almost 900k is for those who probably got so many short or contra positions that they forgot to cover, or worse they don’t have the shares to do so and let the exchange do the buying in.

What is a buy in?

According to the details on the SGX it is:

If an investor does not have the required shares in his account on the due date (the third market day following the trade day), CDP will buy-in shares on the market to satisfy the delivery obligation.

Buying-in starts the day after the due date, and will start at two minimum bids above the closing price of the previous day, the current last done price or the current bid, whichever is the highest.

The investor will pay the difference between his selling price and the buy-in price, including brokerage and other costs.

So if you ever sold short, (which I did accidentally or stupidly, depending on whose version you believe, mine or my wife’s) remember to buy in yourself to cover. If you wait till the exchange does the buy in, it will be at a higher cost to you if the market goes up that day. And plus the fact that the buy in is at two minimum bids above the closing price of the previous day.

If you don’t understand all the above, it is alright. Just make sure you never sell the wrong counter or wrong number of shares to have to buy in shares.

And if you ever think that you know for sure the market is going to go down and sell short. Well, good luck to you. You’d need it.



1. Buy in announcement by SGX-CDP on 12 May.

2. What if I fail to deliver my shares?

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Andy said...
May 20, 2010 at 1:14 AM  

nice post...

sorry, i am not very well-versed with this... may i ask:-

1) if i sell short today and buy back tomorrow, then the concept of 'buy in' won't apply to me right?

2) I heard that there is a facility for us to borrow shares so we can hold on short positions longer. But in the above example where i sell today and buy back tomorrow, I won't have to 'buy-in'?

3) Is it legal to sell short without borrowed shares? Or can we just go out and sell any share even if we don't own them? Any collateral/security needed to sell short?

Your insight would be greatly appreciated. Nice blog btw... :)

Lemizeraq said...
May 24, 2010 at 9:43 PM  

Hi Andy,

1) Not sure that every broker will let you buy in the next day. I know some brokers have an extra day for you to buy back, but it is not advised. You may want to check out CFDs- Contracts For a Difference, which allows a longer period for short selling, at the expense of a fee and margin.

So you should check with the broker. Don't end up with a situation where you buy in the next day and the SGX does it too via your brokers on the same day too.

2) Yes, that is CFDs or you can use the Share Borrowing facility that some brokers provide. But again, there is a fee for this.

3) It isn't legal, but i think it is not encouraged. You can sell short a share within your own sell limit set by your broker.

I wouldn't encourage you to sell short on a 1 day frame, you could try it out with CFDs or Share Borrowing which has a longer time frame. So if your analysis bear fruit, the share will go down.

But as Peter Lynch the investor said, even lousy company shares can keep going up for longer than you can hold a short position. So I wouldn't advise it.

Thanks for visiting.


Andy said...
May 26, 2010 at 11:16 PM  

thanks :)

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