Three-Month Short-Selling Limits Could Give Singapore IPOs Time to Find Their Price

A proposed three-month seasoning period for newly listed shares would aim to temper early trading pressure while giving companies time to demonstrate progress against the plans described in their prospectuses. The proposal, set out by Lim Kok Ann in a letter to the editor, would restrict short-selling to covered positions and apply an uptick rule. Whether that balance would help Singapore’s IPO market depends on how the limits affect both trading liquidity and price discovery.

Lim connects the debate over Singapore’s IPO market with the role of short-selling. He argues that disorderly short-selling can damage sentiment, particularly in a stock’s first month, when investors are still assessing the company and trading history is limited. His suggestion is for the Singapore Exchange and the Monetary Authority of Singapore to consider temporary measures lasting three months.

What the proposed limits would do

The first measure would allow only covered short sales. A trader selling shares would need to own them or borrow them before the sale. That would rule out the kind of intraday position Lim describes as an “uncovered short”: selling shares without arranging delivery, with the aim of buying them back during the same trading day.

The distinction matters because a sale that cannot be settled may add immediate pressure to trading without reflecting a plan to deliver the shares. Requiring ownership or borrowing before a sale would tie short positions to available shares. Lim says Hong Kong applies this requirement, with limited exceptions for authorised market makers. That comparison indicates the approach is already used in another market, though it does not establish how the same restriction would affect Singapore listings.

The second measure is an uptick rule for borrowed shares. Under Lim’s description, a short sale could not be made below the stock’s current best-asking price. The intended effect is to prevent short sellers from accelerating a downward move by repeatedly placing sales at lower prices. Lim says Hong Kong and many other markets require such a rule.

The proposal would be temporary, applying during a three-month seasoning period after listing. That gives the newly listed company some time to establish a trading record and lets investors compare its early performance with the information in its prospectus. The first month is a particular focus in Lim’s argument because he considers sentiment then especially fragile.

The case for time, and the cost of restrictions

For a company, the early weeks of trading can shape how investors interpret its listing price, business prospects and execution. Lim says that, in his experience, shares that fall below their listing price in the first few trading days can find it difficult to recover to that level. His proposal is meant to reduce the chance that early selling dynamics overshadow the company’s ability to show whether it is meeting the expectations it set out before listing.

That argument has limits. A falling share price can also reflect investors’ reassessment of a company’s valuation or prospects. Restricting some forms of short-selling may change the way that information enters prices, but it cannot make a company’s underlying performance stronger. Nor does a temporary trading rule, by itself, ensure that investors will have enough information to judge progress.

The design would therefore matter. The restriction would cover the first three months, while covered short sales would remain possible. That distinction is central to Lim’s case: he argues that shares he sees as overpriced or tied to a poor-quality IPO could still face selling pressure. In his view, keeping covered shorts and the uptick rule in place would preserve price discovery while curbing the most disorderly activity.

For shareholders, the proposal could mean a different pattern of selling and potentially less downward pressure from intraday short positions. For new issuers, it could offer a period to build a public trading record. But the effect on liquidity and the speed at which prices respond to new information would need to be weighed alongside those aims. The letter makes the case for a trial period; it does not provide evidence about how these restrictions would have changed the performance of past listings.

What the debate turns on

Lim previously raised the connection between IPO conditions and short-selling while serving as president of the Securities Association of Singapore in FY2016. He refers to Ben Paul’s Oct 19 article on Singapore IPOs and a Sep 28 letter on short-selling’s role in market liquidity and resilience.

The broader question is how a market should handle the uncertain first months of a new listing. A seasoning period could give investors more time to assess a company while limiting specific trading practices, but a rule that also suppresses useful selling signals could leave prices slower to reflect doubts. The practical test would be whether the proposed restrictions moderate disorderly pressure without preventing covered short-selling from contributing to price discovery.