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THE ongoing affair involving the three stocks which the Singapore Exchange (SGX) has categorised as "designated securities", namely Asiasons, Blumont and LionGold, has highlighted several weaknesses in the system which should be addressed.
In most cases, this meant that the affected stocks could not be traded using online accounts. In other extreme cases, curbs mean that clients have to pay for their purchases upfront and "contra" trading is prohibited.
All of this is within the prerogative of broking houses which, when witnessing the inflation of large bubbles, might be uncomfortable with their exposure and so should act to limit their risk.
However, since news of trading curbs inevitably leads to falls in the share prices of the counters involved, the decision to restrict trading should be viewed as price-sensitive and material, and there should therefore be rules to govern the announcement of such curbs. As it stands, there are none, and parties who have advance knowledge of in-house trading curbs have an unfair advantage over the rest of the market.
There are currently four criteria for inclusion - the company has to be incorporated in Singapore; the shares have to denominated in Singapore dollars; the shares have to be listed on the mainboard; and the company has to allow CPF investors to attend its shareholder meetings.
These are not difficult conditions for many companies to satisfy so the quality bar is arguably not set very high.
In response to an article run in this column more than two years ago about the need to tighten qualifying criteria in the wake of the S-chip scandal, CPF defended the status quo, saying in a letter in BT on April 21, 2011, that "any inclusion criteria cannot guarantee that an individual stock will not run foul of regulatory, accounting or corporate governance standards throughout time". It also said that investors have to do their homework carefully before investing.
Fair enough, but if the regulatory regime is lax and given that SGX is itself a commercially driven entity, is it good enough to just say "caveat emptor" when it comes to people's retirement money?
But without strong follow-up disciplinary action and bearing in mind that manipulators rarely move prices up in large quantities at any one time, preferring instead to fly under the radar by advancing prices in small increments to avoid drawing attention to their actions, is it really such a magnificent signalling-cum-warning mechanism? Or does it occur so often without consequences that punters nowadays barely pay SGX queries any notice?
Traders were told that purchases have to be paid for and that no contra trading would be allowed, which upset many who, quite logically, argued that if shares are bought and paid for immediately, they should be able to be sold once payment is made. Greater clarity on this point would have been welcome, as would answers to legitimate questions such as: what exactly are the reasons that led the exchange to designate the three stocks (was it simply that they were plunging?); why was the halt lifted so quickly without those reasons being made known; and how long will the designated status last.
On the other, scrapping contra would eliminate a large speculative element and, in the view of its proponents, rob the market of liquidity.
It will be interesting to see what emerges from the contra debate, though this should not detract from the other issues raised earlier that also require regulatory attention. Hopefully, these issues will be resolved and the outcome will be a more efficient and transparent market for all.