The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX), after an extensive review in response to recent share price volatility of several SGX-mainboard-listed issuers, have jointly issued a consultation paper setting out three major enhancements to strengthen the securities market and protect investors from speculative and market manipulative behaviour:
- promoting orderly trading and responsible investing by:
- stipulating a minimum trading price for mainboard-listed issuers,
- ending un-collateralised “contra” trading, and
- requiring reporting of short positions;
- improving transparency of intervention measures; and
- strengthening the new listings admission process and enforcement of rule breaches by creating three independent bodies:
- the Listings Advisory Committee (LAC) to assess unprecedented listing applications,
- the Listings Disciplinary Committee (LDC) to take over SGX’s adjudicatory functions, and
- the Listings Appeals Committee (LApC).
The business press has approved these proposed measures, believing the enhancements will improve transparency, attract quality listings and level the field for retail investors, while being aligned with SGX’s disclosure-based regime. Early comments on the consultation paper expect the enhancements will not only tackle volatility and deter speculative behaviour but also prevent a repeat of past issues arising from broker-imposed trading curbs, attacks by short-sellers (the Olam/Muddy Water’s episode) and regulatory challenges posed by S-chips.
The consultation paper details the proposals to give effect to these enhancements:
- Minimum Trading Price
Recognising that speculators are more likely to target low-priced securities, or “penny” or “small-cap” stocks, as a small change in share price can result in a high percentage gain or loss, and anticipating plans to reduce lot sizes from 1,000 to 100 units may exacerbate such speculation, SGX and MAS propose extending the existing requirement of S$0.50 as the minimum initial public offering price to a continuing requirement for issuers to maintain a minimum trading threshold of between S$0.10 to S$0.20. This requirement may affect between 130 to 230 penny stock issuers, which must maintain their volume weighted average share price above this minimum for 180 consecutive days or effect a 10 to 1 share consolidation (corporate action fees to be waived). The issuer will have a further 36-month proposed “cure period” after which it will be de-listed and the delisted shares traded at an alternative facility, as summarised in the consultation paper flow chart.
Click here to view flowchart.
Ending un-collateralised “contra” trading
MAS and SGX note the opposing views on contra trading, that it causes speculative activity or that it facilitates efficiency and contributes to market liquidity. To deter speculation by discouraging contra punts and encouraging longer-term investing, and also to reduce the systemic risks faced by remisiers should investors fail to settle their trades, they propose requiring investors to post a minimum 5% baseline collateral, to be held in trust accounts by remisiers. This is in addition to existing plans to shorten transaction settlement cycles from T+3 to T+2 by 2016. MAS and SGX will allow securities intermediaries to require more collateral or MAS can impose this requirement on an intermediary with inadequate risk management or is over-exposed to its customer’s trades. MAS and SGX will exempt institutional investors, important as market makers and liquidity providers, which settle their trades simultaneously. Securities industry commentators note that, if this proposal is implemented, Singapore will cease being an exception to the general global practice of collateralised trading.
- Reporting short positions
SGX currently meets one of the International Organization of Securities Commissions’ two suggested disclosure objectives by requiring short sell orders to be marked as such. MAS and SGX now propose to also meet the other objective of reporting net short positions by proposing adoption of either of these options:
- "aggregate position reporting”: investors with net short positions of 0.05% or S$100,000 (whichever is lower) of an issuer’s shares are to report weekly to SGX which will publish an aggregate of these short positions (keeping investors’ identities confidential); or
- "public disclosure”: SGX will regularly publish individual short positions, including the names of each investor exceeding 0.5% of issued shares and for each subsequent change of 0.1% by T+2.
- Transparency of intervention measures
To avoid asymmetrical information dissemination when securities intermediaries and banks use diverse channels — such as posting to their public website or contacting their affected customers directly, or by other means — to announce trading restrictions, MAS and SGX propose all announcements should be made through SGX’s website outside trading hours. This proposal will not apply if the control measures are targeted to only certain customers.
- 3 new bodies: the Listings Advisory Committee (LAC), the Listings Disciplinary Committee (LDC) and the Listings Appeals Committee (LApC)
To address concerns that SGX’s commercial, for-profit concerns may conflict with its roles as listing authority and regulator of issuers, and to improve the transparency of the disciplinary process and provide an avenue of appeal, MAS and SGX propose to establish:
- a MAS- and SGX-appointed, 15-member LAC to consider listing policies and assess those listing applications which meet the normal admission criteria but also present novel or unprecedented features or structures requiring specialised expertise; or involving matters of public interest;
- an independent LDC to take over SGX’s adjudicatory functions. SGX, as investigator, will present charges against issuers, directors, key executive officers, issue managers and other parties to the LDC for regulatory sanction; and
- the LApC, structurally similar to other SGX rulebook appeal committees, for dissatisfied parties to appeal against LDC sanctions or SGX regulatory decisions.
MAS and SGX also propose to give LCD and LApC the same enforcement powers as the SGX and extend to all three additional powers to fine issuers S$250,000 for each breach of the listing rules, with a cap of S$1 million for a series of breaches, and denial of market facilities for a specified period.
Given the scope of the proposals, industry commentators expect any implementation of the accepted proposals to take at least 12 months after the feedback period closes on 2 May 2014. Analysts expect the decrease in speculative retail trading may lead to a short-term drop in trading volume, but have the longer-term effect of a healthier market.
The proposals should also be referenced to other related measures currently being implemented by SGX:
- introduction of circuit breakers on 24 February 2014 to apply to all stocks with a first reference price at or exceeding $0.50. Acceptance of an offer made at a price over 10% of reference price (the last traded price at least 5 minutes earlier) will trigger circuit breakers and trading in the next 5 minute cooling-off period will be restricted within a price band 10% above or below the reference price;
- lowering clearing fees for retail trades, effective 2 May 2014, to cushion retail investors against collateral requirements and the absence of penny stocks for trade;
- introducing changes to SGX queries on 4 March 2014, with a “trade with caution” announcement for those companies which cannot explain unusual activity affecting their share prices.
The consultation paper “P001-2014: Review of Securities Market Structure and Practices” may be found at the following link: