New measures proposed to strengthen Singapore stock market

New measures proposed to strengthen Singapore stock market

Friday, February 7, 2014 – 19:18

Alvin Foo

The Straits Times

SINGAPORE – A slew of changes is being proposed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) to strengthen the local stock market, in the wake of last October’s penny stock crash.

Read the full statement from the Monetary Authority of Singapore:

MAS AND SGX PROPOSE MEASURES TO STRENGTHEN THE SECURITIES MARKET

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) today released a joint consultation paper setting out proposals to strengthen the securities market in Singapore.

The proposals follow an extensive review by MAS and SGX of the securities market in Singapore. The review concluded that while the securities market remains sound, there were three areas for improvement:

– promoting orderly trading and responsible investing;

– improving the transparency of market intervention measures; and

– strengthening the process for admitting new listings and enforcing against listing rule breaches.

Promoting orderly trading and responsible investing

Minimum trading price. MAS and SGX are considering the possibility of setting a minimum trading price for issuers listed on the SGX Mainboard. Low-price securities are generally associated with high volatility, which in turn makes them more susceptible to speculation and potential market manipulation.

Introducing a minimum trading price as a continuing listing requirement will help to address these risks. MAS and SGX recognise that the move to a minimum trading price will have to be carefully considered and managed, and look forward to views from the industry and investing public.

Collateral requirements for securities trading. Having carefully considered the various views expressed against and in support of contra trading, MAS and SGX have concluded that the focus should instead be on reducing the credit risk exposures of market participants.

It is proposed that securities intermediaries impose minimum collateral on their customers for trading in both SGX-listed and foreign listed securities, based on the customers’ open positions and credit risk management practices.

SGX also intends to shorten the settlement cycle from T+3 to T+2 days by 2016. Taken together, these measures will enhance the robustness and resilience of the securities market.

Short position reporting requirements. MAS and SGX recognise the role of short selling in the price discovery process. To further enhance transparency in short selling, MAS and SGX propose a short position reporting regime.

This will complement the marking regime introduced by SGX last year, where participants are required to mark short sell orders. Under a short position reporting regime, there are two options, namely aggregate position reporting and disclosure of significant individual short positions.

MAS and SGX seek feedback on the pros and cons of each option given the different reporting thresholds and the type of information that would be made public.

Improving the transparency of market intervention measures

Transparency of trading restrictions imposed by securities intermediaries. MAS and SGX propose to require trading restrictions imposed by securities intermediaries for securities listed on SGX to be announced through the SGX website.

Since trading restrictions by intermediaries can have a market impact, it is important to ensure fair and transparent dissemination of information on such restrictions.

Strengthening the process for admitting new listings and enforcing against listing rule breaches

Reinforcing the SGX listings framework. To address perceived and actual conflicts of interests in relation to SGX’s role as the listing authority, MAS and SGX propose that an independent Listings Advisory Committee be established to consider listing policy issues and listing applications that meet specified referral criteria.

This will supplement SGX’s existing listing review process and introduce practitioner experience to the decision-making process.

Strengthening powers to enforce regulatory actions against breaches of listing rules. To improve the transparency of SGX’s disciplinary process and ensure fair administration of sanctions for listing-related matters, MAS and SGX propose to establish an independent Listings Disciplinary Committee and Listings Appeals Committee.

It is also proposed that the range of regulatory sanctions for listing rule breaches be expanded to include powers to impose fines, restrict the activities that issuers may undertake, as well as to make offers of compositions for minor and technical breaches.

Measures to strengthen transparency

SGX today separately announced measures to strengthen market transparency, effective from 3 March 2014. These include:

(a) an issuer’s board of directors will be required to approve the issuer’s reply to a public query by SGX.

(b) SGX will publish a “Trade with Caution” announcement whenever issuers are unable to explain the trading activities which SGX is querying.

(c) issuers will be required to notify SGX of discussions or negotiations that are likely to lead to a takeover, reverse takeover or a very substantial acquisition.

10 SGX has also published FAQs on its website regarding the use of its regulatory powers to suspend and designate a stock. These two tools are used sparingly by SGX in exceptional cases where anomalies in trading are observed.

Mr Lee Chuan Teck, Assistant Managing Director, Capital Markets, MAS, said, “These changes have to be viewed in the context of a securities market that is fundamentally sound. A recent assessment by the International Monetary Fund affirmed that our securities market’s compliance with international standards is generally high, and Singapore’s regulations are among the best in the world.

This consultation allows us to have a conversation with all stakeholders on how to make the market stronger and more mature. We will consider all views carefully before making any decision.”

Mr Magnus Bocker, Chief Executive Officer, SGX said “This joint consultation and enhancements to SGX’s regulatory tools encompass structural and regulatory aspects crucial to a well-functioning securities market. Today’s world is fast-changing and we need to strengthen Singapore’s securities market to meet the expectations of investors and companies.”

Given the breadth of the proposals, MAS and SGX have set the consultation period at 12 weeks. Interested parties are invited to submit their views and comments on the proposals made in the consultation paper by 2 May 2014.

 

Singapore May Add Trading Restrictions After Penny-Stock Crash

Singapore may introduce a minimum price for mainboard shares and impose collaterals for some trades after a slump in the stocks of three commodity companies erased $6.9 billion in market value over three days in October.

The city may also set up an independent listing committee and boost enforcement, according to a joint statement from the Monetary Authority of Singapore and Singapore Exchange Ltd. (SGX) today. The central bank has been reviewing its market structure since Blumont Group Ltd. (BLUM), Asiasons Capital Ltd. (ACAP) and LionGold Corp. tumbled at least 87 percent over three days in October.

The declines spurred a 20 percent drop in Singapore equity trading last quarter from a year earlier as brokerages restricted investments in riskier small-cap stocks. SGX, Southeast Asia’s biggest bourse, will add circuit breakers this month to protect investors from excessive price swings. The benchmark Straits Times Index slid 4.9 percent this year after ending 2013 with the smallest gain among developed markets.

“Today’s world is fast-changing and we need to strengthen Singapore’s securities market to meet the expectations of investors and companies,” Magnus Bocker, Singapore Exchange’s chief executive officer, said in the statement.

Regulators worldwide have evaluated safeguards since the May 2010 plunge known as the flash crash erased more than $800 billion from the value of U.S. equities in minutes. Exchanges in that country have implemented a limit-up/limit-down initiative that prevents market makers from quoting shares at prices deemed too far above or below current levels.

Penny-Stock Crash

In Singapore, “many investors have stayed out of the market since the penny-stock crash,” Jimmy Ho, president of the Society of Remisiers in Singapore, said before the announcement. “Whether new rules will help to restore confidence in the market will depend on the implementation of these rules. Regulators need to ensure that such rules are followed.”

Singapore also plans to shorten the settlement period to two days from three by 2016 and impose more transparency for short selling, according to the statement today. So-called contra-trading accounted for 31 percent of market turnover in the year ended October, the regulators said. The exchange and central bank have set a May 2 deadline for industry feedback on the proposed changes.

“Trading on unsecured credit can introduce systemic risk to the securities market,” according to the statement.

Nations around the world are cutting processing times, giving investors faster access to cash when they sell stocks. All European Union countries must settle trades in two days by the start of 2015, and U.S. securities firms are considering trimming settlement periods.

Caution Warning

Starting March 3, Singapore Exchange will issue a “trade with caution” announcement whenever companies can’t explain queries on share trading, according to the statement. Companies will also be required to inform the bourse when they’re in takeover talks.

Singapore is Asia’s eighth-biggest stock market by value, and the second-biggest when measured against the size of each nation’s economy, according to data compiled by Bloomberg.

The value of stock trading in Singapore dropped to a daily average of S$990 million ($780 million) in the three months ended Dec. 31 from S$1.23 billion a year earlier, according to data compiled by Bloomberg.

Blumont, which invests in minerals and energy, had soared more than 1,000 percent last year through the end of September to lead gains on the FTSE Straits Times All-Share Index, prompting the SGX to investigate the surge. The shares plunged 97 percent from an all-time closing high of S$2.45 on Sept. 30 to 7.1 Singapore cents today.

Asiasons slumped 97 percent from its record close of S$2.83 on Oct. 1 to 9.8 Singapore cents today. LionGold tumbled 92 percent from its peak on Aug. 29 to 14 Singapore cents.

The proposals will help in “promoting orderly trading and responsible investing” and “improving the transparency of market intervention measures,” the central bank and exchange said in the statement.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Andrea Tan in Singapore at atan17@bloomberg.net