The Securities Regulation Code (SRC) allows for short selling in the securities markets, subject to certain restrictions. SRC Rule 24.2-2 of the Amended Implementing Rules and Regulations outlines the limits for short selling, which include (i) delivery within three business days; (ii) sale at a price higher than the last sale; and (iii) in case of non-delivery, mandatory close-out through cash or delivery of similar securities on the next business day after the settlement date.

The SRC also gives exchanges the authority to prohibit short selling if it is deemed necessary for the protection of investors. The Securities and Exchange Commission (SEC) may also bar short selling in any exchange to guard public interest.

Although permitted, short selling has not traditionally been used as a trading strategy due to the absence of rules on securities borrowing and lending until recently. The SEC issued its Rules on Securities Borrowing and Lending in June 2006. Specific rules for the bond market are being drafted by the Philippine Dealing & Exchange Corporation for review by the SEC.

Most large Philippine commercial banks, known as universal banks, have regular derivatives licenses, which allows them to offer simple interest rate and currency swaps. Banks with expanded derivatives licenses offer more complicated interest rate swaps.