Naked short selling is the selling of a stock without prior ownership of the stock. In other words, one sells a stock which he does not owned or has not borrowed. This is often done in an attempt to profit from the difference in the selling price or buying price. For example, if you sold 1 lot of a counter at $1.00 and buy back 1 lot of the same counter later at $0.90, you will gain a profit of $0.10 per share or a total profit of $100.

SGX has imposed rules on naked short selling. If the naked short selling results in failed delivery of the shares to CDP, SGX will impose penalties on the person who perform this transaction. The penalty currently stands at 5 percent of the value of the transaction or a minimum of $1,000. Additionally, SGX will buy back the shares on the third day of the transaction from 1130am onwards on behalf of that person with a processing fee of $30. After the completion of this buying in, SGX will publish the list of securities which have been bought, the volume and dollar-value at 8:30 am the following business day.

My advice to those who wish to carry out short selling is do not use naked short selling. There are other cheaper and better ways of carrying out short selling. This includes the use of Contracts for Difference or CFD in short, Securities Borrowing & Lending or SBL in short, which is available through some brokerages, or the Extended Settlement Contracts or ES contracts in short, which has been introduced by SGX not long ago.