17 brokerages urge SEC and SET to review rules on short selling and naked shorting
Brokerages have urged regulators to abolish the Locate system, citing risks and market inequality, while calling for urgent short-term controls, tighter oversight to prevent Uptick Rule evasion, and audit processes based solely on verifiable documents.
- A group of 17 securities firms has formally requested that Thailand's SEC and SET address unclear and inconsistent regulations concerning short selling, naked shorting, and securities borrowing and lending (SBL).
- The brokerages recommend abolishing the "Locate" requirement for short selling, citing risks such as over-commitment of shares, market inequality favouring foreign investors, and practices that could constitute illegal naked shorting.
- As an interim measure, the group proposed immediate controls, including better shareholder notifications, systems to prevent over-allocation of borrowed shares, and equal margin requirements for local and foreign investors.
- The firms also called for stricter enforcement of the Uptick Rule to prevent circumvention and urged for more rigorous auditing practices based on verifiable documents rather than informal confirmations.
The Stock Exchange of Thailand (SET) disclosed that on September 24, 2025, a group of 17 securities firms submitted a letter to the Securities and Exchange Commission (SEC) and the SET for the second time, seeking updates and solutions to issues concerning short selling and naked short transactions.
The group noted that it had earlier petitioned regulators to review oversight of such transactions. Following that request, the SET held a member-relations meeting on 21 August, where proposals for monitoring short sales and naked shorts were presented to brokerage members. SEC representatives also attended to hear feedback.
In the latest letter, the firms thanked the SET and SEC for engaging with market participants and acknowledged the benefits of joint discussions in developing a regulatory framework aligned with the realities of Thailand’s capital market.
However, they expressed ongoing concerns about the lack of clarity in transaction monitoring, rule interpretation, and consistency across related announcements from both the SET and SEC.
In particular, they highlighted uncertainty around short selling, securities borrowing and lending (SBL), and practices that may constitute naked shorting. Current announcements were described as insufficiently clear and consistent, making it difficult for all brokerage firms to comply uniformly. This, they argued, could result in operational discrepancies and diverge from the intent of the Securities and Exchange Act 1992, which aims to ensure stability, transparency and fairness in the securities market.
The group of 17 securities firms has recommended that regulators abolish the Locate requirement for securities borrowing in short selling, citing structural constraints in Thailand’s capital market and ambiguities in current regulations issued by both the SEC and SET.
In particular, they pointed to SET Regulation TorThor 47/2009, Clause 6, which requires brokers to “secure a borrowing source before executing a short sale.” In practice, they argued, the rule has created risks that undermine market stability.
The firms highlighted major risks:
1.1 Over-locate and double allocation – The same external source of shares is sometimes cited to back multiple short sale orders before they are matched, meaning no delivery obligation arises. This can lead to over-commitment.
1.2 Market inequality and price distortion – Foreign institutional investors enjoy greater advantages than domestic investors, while requiring Locate in illiquid markets can create false market.
1.3 Legal concerns under the Securities Act – Allowing short sale orders without actually borrowing shares, and cancelling the borrow if the order is not matched, may effectively constitute naked short selling. Such cases are not exempted under the Securities and Exchange Act.
2. While regulators consider permanently abolishing the Locate system, the brokerages urged immediate short-term controls to preserve fairness, transparency, and reduce systemic risk. Their recommendations include:
2.1 Notification to shareholders – Brokers must inform shareholders whenever their shares are used as a Locate source for short sale orders, regardless of whether the order is matched. Notifications should include a status symbol and confirmation of returns and rights.
2.2 Controls against over-locate and double allocation – Systems must be in place to prevent the same shares from being allocated to multiple orders simultaneously, which could create false market signals.
2.3 Fair fee payments – Even if a short sale order does not match, brokers should pay a fee to the shareholder, with full details disclosed in contracts and customer confirmations.
2.4 Restriction on hedged Block Trade shares – Shares used as hedges in Block Trade transactions must not be made available for Locate, to avoid conflicts of interest and unfair treatment of long futures clients. (If outright prohibition is not possible, firms conducting Block Trades should at least disclose transparently that hedged shares may be used for Locate.)
2.5 Retrospective transaction checks – Authorities should review Locate transactions to confirm that genuine borrowing occurred, whether over-locates existed, and whether fees were paid at appropriate rates.
2.6 Margin requirements – Currently, foreign investors are only required to post 100% collateral on borrowed shares, while local investors must post 150%. The group proposed revisiting this rule to ensure equal treatment in SBL transactions.
3. The broker group called for stricter supervision of short sale transactions that may exploit loopholes in the Uptick Rule. A key concern is that clients can borrow shares once and then repeatedly sell them without marking transactions as short sales (Flag “S”), thereby avoiding Uptick restrictions. This allows sales to hit the bid side even during periods when short selling is officially prohibited.
For greater transparency, the group proposed that any shares borrowed should remain classified as short sales until they are fully returned. Even if a client temporarily buys back the shares, subsequent resales should still be treated as short sales and flagged “S” each time. Such measures, they argued, would ensure the Uptick Rule is effectively enforced and prevent technical workarounds that undermine market fairness.
4. The broker group also raised concerns about the “netting” approach to short sale audits, as discussed at the August 21, 2025, SET meeting. They warned that accepting opening balances based solely on email confirmations from staff, without verifying loan contracts or share-borrowing documents, could result in inaccurate records being recognised.
They proposed that only verifiable documents, such as official borrowing contracts, trading records, and consent from the actual shareowners, should be accepted as audit evidence. Reliance on verbal statements or unsupported emails, they argued, undermines the credibility of the review process.
To safeguard confidence in Thailand’s capital market and ensure fairness among investors, the group requested that the SET provide a formal response to all four of their proposals within 15 days.
