Breaking Views Singapore toughens up with overdue market overhaul

by **Cals** Mon 10 Feb 2014, 14:28

Breaking Views Singapore toughens up with overdue market overhaul

Business & Markets 2014

Written by Reuters

Monday, 10 February 2014 14:15

HONG KONG (Feb 10): Singapore's overhaul of its stock market is overdue. The city-state has proposed a raft of new trading rules in response to last year's painful crash in penny stocks. Though welcome, the joint proposals from the Singapore Exchange (SXG) and the Monetary Authority of Singapore (MAS) look mostly like playing catch-up with Hong Kong.
The Singapore exchange's dual role - it is both market regulator and a commercial entity - may help explain why its reforms have lagged behind some of its regional peers. Daily average trading volumes are already languishing at one tenth of the level of Hong Kong, where the market is regulated separately by the Securities & Futures Commission (SFC).
However last year's penny-stocks debacle, which wiped around $8 billion off the value of three listed companies in two days, has shown the limits of a laissez-faire approach. The proposals should prevent a repeat, if only because penny stocks will disappear. Introducing a minimum price for listed stocks of at least S$0.10 would force around 130 companies to consolidate their shares or delist.
A proposal requiring retail investors to post 5 percent collateral on open positions would discourage them from placing orders and then selling out before the original trade is settled. Such "contra trading" currently accounts for almost one-third of activity by value in Singapore. The only other big exchange in the region that allows the practice is Malaysia.
Singapore is also abandoning its relaxed approach to the disclosure of short-selling. At the moment, investors are only required to flag individual short trades. The new rules would require them to report net short positions in excess of, say, 0.5 percent of a company's issued shares, and potentially reveal their identity. That would put Singapore ahead of Hong Kong, which currently only publishes aggregate short positions for each stock on an anonymous basis.
For all the reform, Singapore isn't taking its eye off new listings. It's proposing an independent committee that would vet new issuers and have the power to implement fines against those that breach market rules. At the same time, however, it may still relax a ban on dual-class voting structures which are popular with tech companies. Singapore's overhaul is welcome, but the race between rival exchanges to attract initial public offerings is still on.
CONTEXT NEWS
- Singapore proposed new measures to strengthen the country's stock market on Feb. 7 following a high profile crash in penny-stocks last year.
- The proposals, jointly issued by the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX), include imposing a minimum trading price for stocks of around $0.10-$0.20; introducing a collateral requirement for stock trading equivalent to 5 percent of open positions, and shortening the settlement time for share trades from three days to two by 2016.
- The MAS and SGX will also seek feedback on two proposals for the disclosure of short-selling positions.
- In addition, Singapore is proposing to establish an independent listings advisory committee to vet applications, with the power to impose fines on issuers that breach listing rules. The SGX is the regulator of the city-state's stock market as well as its commercial operator.
- The proposals follow a sudden crash in October of penny-stocks Asiasons Capital Limited, Blumont Group, and LionGold Corp which wiped out around $8 billion of market value in just two days after a huge run-up in their share prices.
- Separately, effective March 3, companies listed on the exchange will be required to notify the SGX when they are in talks that could lead to a takeover, reverse takeover or very substantial acquisition.
- The consultation period will last for 12 weeks. - Reuters