SIDC Module 6 Securities offences question: Mutiara Bhd shares

SIDC Module 6Securities offences

Daniel instructs his dealer's representative to sell 10,000 Mutiara Bhd shares that he neither owns nor has borrowed, planning to buy them back before settlement. Under CMSA s.98, the sale is:

A Prohibited if the sale pushes the Mutiara price down, but otherwise permitted as an ordinary day trade
B Permitted, provided his dealer's representative tags the order as a short sale when keying it in
C Prohibited, as he has no presently exercisable and unconditional right to vest the shares in the buyer
D Permitted, as long as he buys back the same number of shares before the trade is due for settlement on T+2

Show the answer and explanation

Answer: C. Prohibited, as he has no presently exercisable and unconditional right to vest the shares in the buyer

Section 98(1) says a person must not sell securities unless, at the time of sale, he has (or believes on reasonable grounds that he has) a presently exercisable and unconditional right to vest them in the buyer. Daniel owns nothing and has borrowed nothing, so the sale breaches s.98(1). Intending to buy back before settlement does not create that right. Tagging an order as a short sale helps only for a sale within the s.98(4)(c) exception, which requires a class of securities and a manner of sale permitted by the exchange's rules; an uncovered sale is not one. The price effect of the sale has nothing to do with s.98. Source: CMSA 2007 s.98(1), (4)(c), (6) (as at October 2026).

Common mistake

Candidates think an intention to cover before settlement, or simply labelling the order, makes a naked short sale lawful.

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Original study material mapped to the public SIDC Module 6 syllabus. Unofficial, not endorsed by SIDC or the SC. Verify figures and rules against current guidance before relying on them.