The Singapore Exchange (SGX) announced on 7 February 2014 that it is enhancing its regulatory tools in line with international standards, by refining its query process and introducing new requirements. The following is a summary of these enhancements which will take effect from 3 March 2014.

Enhancement to public query process

If the SGX detects unusual trading activity in a stock which cannot be explained by existing public information or prevailing market conditions, the SGX will issue a public query to that listed company. Such a public query aims to serve the dual purposes of: (i) extracting undisclosed price-sensitive information from the listed company that can explain the unusual trading behaviour; and (ii) alerting investors to trade with care in light of the unusual trading activities observed in that stock.

To establish accountability, the board of directors of the listed company will be required to approve the company’s response to the SGX’s public query.

Introduction of a “Trade with Caution” announcement

If a listed company, when queried by the SGX, responds to say that it is unaware of any reasons for the unusual trading activities observed in its stock, the SGX will publish a “Trade with Caution” announcement.

Such an announcement is intended to remind investors to be cautious when trading in the listed company’s stock, and will also serve as a warning that the trading activities in such stock could be caused by market forces other than the corporate developments of the listed company.

Additional notification requirement for prescribed transactions

During the course of market surveillance, the SGX has observed instances where movements in a stock price occurred before a material announcement was made, which could indicate possible information leaks.

In support of closer monitoring of trading activities, listed companies will be required to:

  1. notify the SGX where its board of directors is:
    1. made aware of discussions or negotiations on a potential proposal; or
    2. in discussion or negotiation on an agreement or document, which may lead to a takeover or reverse takeover of the listed company, or a very substantial acquisition by the listed company (“Prescribed Transaction”); and
  2. maintain a list of names of the persons privy to such transaction, and provide such privy list to the SGX upon request.

The same obligations apply to a controlling shareholder of a listed company where the controlling shareholder is carrying out discussions or negotiations without the knowledge of the listed company, and such discussions or negotiations are likely to result in a Prescribed Transaction.

If such discussions or negotiations shall subsequently cease, the SGX must also be notified.

Notifications and the privy list are to be provided using the respective formats prescribed by the SGX and will be kept confidential. The notification template can be found here and the privy list template can be found here.

These amendments are reflected in an updated Practice Note 7.2 (Monitoring and Querying Unusual Trading Activity) for Mainboard companies (found here) and Catalist companies (found here).