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Social e-commerce firm YuuZoo was reprimanded by SGX on Friday for issuing an optimistic research report on its shares on SGX-Net. That release was dated 21 May 2015; a little over a week later on 29 May 2015, I wrote a commentary based on a blog posting in which I said I wasn't comfortable with firms issuing research reports as SGX announcements. I also said "in my view, SGX’s website is not the appropriate place for companies to feature any sort of investment research about their own shares, paid or otherwise. Instead, the correct place is the companies’ own websites or any one of dozens Internet chat sites or forums''. Attached below is that commentary.
On 3 June 2015 SGX wrote to YuuZoo saying "SGXNet is not a platform for rendering investment advice based on third party expectations and assessments of a listed company's valuation or share price. There are other forums for such releases...We reserve our right to further review your company's compliance with the Listing Rules''.
Friday's reprimand was obviously the exchage exercising that right. In particular, SGX highlighted Listing Rule 704 (4). read with paragraph 25(c) of Appendix 7.1 which requires a company's announcement to be "balanced and fair, and to avoid among other things-
a) presentation of favourable possibilities as certain, or as more probable than is actually the case; and
b) presentation of projections without sufficient qualification or without sufficient factual basis.
I guess that ends the YuuZoo saga. My only remaining question is why it took more than a year for the reprimand to be issued since it appeared to be quite straightforward once the exchange ruled that its website had been misused. Still, better late than never, I guess.
BT Commentary on 29 May 2015-
Are companies allowed to post positive research reports - whether paid or independent - about themselves on the SGX website?
MAYBE it's only me, but I'm not comfortable with e-payments firm YuuZoo posting a positive research report about itself as an official release on the Singapore Exchange’s (SGX’s) website, especially when YuuZoo paid for the research in the first place.
If all companies start doing what YuuZoo did, then where do we draw the line? Should companies be allowed to post broker reports as well? Since broker reports are not paid research and are purportedly independent, why not? But what if the reports - paid or independent - are negative? In the interests of consistency, should companies also feature them?
This leads to a more pertinent question: Shouldn’t SGX’s website be only for information relevant to investment decision-making, like material and relevant business-related developments such as earnings announcements, corporate fund-raising, significant purchases and divestments, and changes in key officers?
Or are we now to understand that relevant investment decision-making information includes broker reports that may or may not be commissioned by companies?
On May 21, e-payments firm YuuZoo released a press statement headlined "New Edison Investment Research Report on YuuZoo Sees Significant Upside on Share Price, Puts Fair Value At Up To S$1.83 In View Of New Signed Agreements''.
Given that the stock was trading at around S$0.22 at the time, I'm sure that many people would have seen the headline figure of S$1.83 and jumped in to buy. As a result, the stock gained more than 50 per cent in a week in high volume.
The press release, however, did not disclose the all-important fact that YuuZoo commissioned Edison to do the research. Also, Edison did not actually make a formal investment recommendation - perhaps understandable given that YuuZoo paid for its preparation - and the S$1.83 price is based on the company's business growing very rapidly, ie under the most optimistic business conditions which may or may not pan out in the future.
There are two places where YuuZoo’s relationship as a client of Edison is disclosed - at the bottom of Page 1 of the report and at the end, in fine print under the disclaimers.
Technically, I don't think any listing rules have been broken, so YuuZoo's actions appear above board. But what if SGX itself one day posts a "strong buy'' issued by a big investment bank on the SGX stock? Would the investing public frown upon it as a practice not to be condoned?
I'm sure the public would. How many times, for example, have we seen blue chips such as Singtel, Singapore Airlines, Singapore Press Holdings or Keppel Corporation issue a release on the SGX website drawing attention to a very positive - even if independent - research report? In 23 years as a journalist, I'd have to say “never”.
However, let’s assume for argument’s sake that there’s nothing wrong with companies posting research reports about themselves as official releases to the exchange. If the report was paid for by the issuer, should the rules then be tweaked to make sure this fact is stated in the press release? Or is a sentence at the bottom of Page 1 of a report and another - in fine print - at the end-page sufficient disclosure?
In my view, SGX’s website is not the appropriate place for companies to feature any sort of investment research about their own shares, paid or otherwise. Instead, the correct place is the companies’ own websites or any one of dozens Internet chat sites or forums.
In YuuZoo’s case, an interesting precedent has now been set and, if you like, a Pandora’s box opened for SGX to deal with because by allowing it to pass for more than a week now, the exchange appears to have given tacit permission to companies to post positive reports on their shares on SGX’s website.
Even more disturbing is that there looks like there’s no need to differentiate between paid research and those independently generated by brokers.
A version of this article originally appeared on Write on the Money, a blog on The Business Times website. For more, visit bt.sg/write_mone