Guide to Short Selling Hong Kong Stocks

Introduction to Hong Kong stock short selling

Hong Kong stock short selling is a fundamental mechanism in the Hong Kong stock market. If you anticipate a drop in a stock's value but do not currently hold shares, you can use the cash or securities in your account as collateral to borrow shares from a broker for immediate sale. Once the price drops, you can purchase the shares back at a lower price and return them to the broker. In this way, you make a profit from the high selling price and the lower purchase price. However, short selling carries unlimited potential risk, as there is no limit to how high a stock price can rise.

How to activate Hong Kong stock short selling?

• When conducting short-selling trading for the first time, you need to sign a Securities Lending Agreement with Longbridge, register with the Hong Kong Inland Revenue Department, and pay a registration fee of HKD 270. Upon application, HKD 270 will be frozen; after approval, it will be deducted. Then you can begin short selling Hong Kong stocks.
  • Note: Your application will fail if your account has no financing limit or a balance below HKD 270.

• After submission, it typically takes one month for the Inland Revenue Department to return the registration results.
  • Note: If the Inland Revenue Department rejects your registration, you will not be able to short sell, and Longbridge will not refund the registration fee.
  • If the Inland Revenue Department requires you to re-sign the Securities Lending Agreement, you can re-sign and declare it when placing a short-selling order without paying the HKD 270 registration fee again.

Securities borrowing stamp duty: collection and refund

Collection: When the registration of the Securities Lending Agreement is being processed, you are not yet exempt from stamp duty on borrowed securities. Therefore, during this period, any stamp duty generated from you borrowing or returning securities (such as short selling) must be borne by you. Longbridge will pre-deduct the relevant securities borrowing stamp duty from your securities account.

Refund: Once the registration of the Securities Lending Agreement is approved by the Inland Revenue Department, the previously collected securities borrowing stamp duty will be refunded to your securities account and can be viewed through the statement.

Special circumstances: If your registration is ultimately rejected, Longbridge is not liable, and the collected stamp duty will not be refunded.

How to place a short-selling order?

• The trading interface will display the available short-selling quantity based on the current account funds and securities.

• Hong Kong stocks eligible for short selling are marked with a dedicated icon on their stock details page. Tap the icon to view margin financing and short-selling details, including the available short-selling pool balance. If the pool balance is insufficient, your short-selling order will not be executed.

How do corporate actions affect short sellers?

1. Dividends: While long-position holders receive dividends, short sellers need to pay the corresponding amount.
   1. For the distribution of rights issues, the broker may choose to force-liquidate short positions 3 trading days before the ex-date.
2. Stock splits/Reverse stock splits: The quantity of the short positions that you need to close will be adjusted according to the listed company's stock split/reverse stock split ratio.
3. Rights Issues: Short sellers do not have the right to exercise rights issues.
4. Shareholder meetings: Short sellers do not hold voting rights for shareholder meetings.

FAQs

Q1: Why did my short-selling order fail to be placed?

-Hong Kong stock short selling does not support pre-set orders. It only supports trading during trading hours.

-Hong Kong stock short selling does not support long-term orders. Only day orders are supported.

-The price of a short-selling order cannot be lower than the best ask price.

-Hong Kong stock short selling does not support market orders/at-auction orders.

Q2: Why does my trading page show an available short-selling quantity, but the short selling fails?

-The available short-selling quantity on the trading page is calculated based on your account's buying power. However, a trade can only be executed if there are enough shares in the short-selling pool.

Q3: How long does the registration of the Securities Lending Agreement usually take?

-After submission to the Inland Revenue Department, the review generally takes about 30 days.

Disclosures

This article is for reference only and does not constitute any investment advice.