Using the Securities Borrowing and Lending Scheme (SBL), I have successfully shorted Sinograndness (SFIG) today at 0.700. Here were some takeaway from this first experience.
1. Long Processing Time
Being my first experience, I asked to short SFIG on 7 June 2016 @ 1030 hrs, thinking I could execute the trade immediately at 0.770. Unfortunately, my trading representative informed me the process was not immediate and they had to put up inquiry with CDP to borrow the shares first and then deliver to me.
The whole process took almost a whole day and it was only at 8 June 2016 @0915hrs, was I informed the shares have been delivered to me. I had to endure the long wait and eventually settled for a short order at 0.700. All in all, I have learnt that using SBL to short is a tedious process. And if I needed shorting to be done soon, it is wise to borrow the shares from SBL, probably one day in advance and which you will incur an upfront $21.40/- processing fee.
2. Higher Rates
To short a share using SBL, it has to be done offline. This meant a higher commission incurred from brokerages (approx 0.5% of contract value or minimum of $40 + GST, whichever is higher), this is way higher than CFD/online brokerage rates.
3. Lower Finance Cost for Less Popular Shares
The saving grace was the finance charge for SBL at 8% p.a. It is less than CFD rates for less popular shares which can range from 8 -12%. For shorting blue chip stocks, my opinion is that using CFD is clearly the better choice; however be careful of the use of leverage as it can kill you dearly when things go wrong.
Conclusion
Nothing much, but in my opinion using SBL for even less popular shares is a tedious and expensive process; now I probably understand why CFD is still popular and why no single share of mine in CDP has been lent out since 2010.
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