Buy on margin and sell short transactions on the Bulgarian Stock Exchange will set out in late summer, when an ordinance relaxing requirements for these transactions is due for promulgation in the State Gazette, Dnevnik daily reported on May 14.

In short selling, investors sell securities that they do not own, but are committed to buy at some point, and is used usually when investors believe that the price of the stock will go down, allowing them to buy the security to cover the earlier deal at a lower price. Buying on margin is the practice in which securities are bought with borrowed money.

To date, an investment intermediary could broker maximum 20 per cent of all transactions of an issuer on any trading day. The new ordinance waives this restriction. A new requirement, however, stipulates that buy on margin and sell short transactions can only be performed with the equity of companies whose free float is at least 15 per cent of the capital. This criterion sifts off many companies listed on the BSE.

Eligibility of shares for such transactions would be decided on the basis of trade in the past 20 sessions. A share qualifies if it has been traded in at least 15 sessions, if at least 5000 shares have changed hands within a minimum of 30 transactions, the new criteria read. Besides, the market capitalisation of the issue during the day preceding the account date should be no lower than 20 million leva.

According to market players, buy on margin and sell short deals are expected to spur interest in the bourse, which will create preconditions for developing margin trade market.

A check into BSE performance in the last 20 trading sessions sees the equity of 11 companies eligible for buy on margin and sell short transactions.