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SINGAPORE Exchange's (SGX) role as a frontline regulator is mainly prevention and containment, and to disrupt crimes such as the creation of false markets as early as possible.
To this end, its "Trade with Caution" (TWC) has evolved from being a general cautionary warning about odd price movements in shares of companies which reply to an initial SGX query in the negative, to more targeted announcements which contain greater details gleaned from the exchange's surveillance.
In an interview with BT, SGX's chief regulatory officer Tan Boon Gin said regulation is traditionally seen as the promotion of desirable qualities such as market integrity and transparency, while law enforcement focuses on the reduction crime. "It is easier and faster to disrupt a harmful thing early by focusing on one or two weaknesses, compared to constructing a good thing that is strong in every single way," said Mr Tan.
"Hence, thinking in terms of reducing corporate malfeasance and market abuse can produce more surgical solutions than thinking in terms of constructing a fair, orderly and transparent market, particularly because these harms have a strong law enforcement dimension. SGX as the frontline regulator is perfectly placed to be a disruptor."
Since Mr Tan assumed his position in SGX last June after leaving the Commercial Affairs Department (CAD), the exchange has thwarted suspicious activity in four stocks - CEFC International, International Healthway Corp (IHC), Koyo International and Zhongmin Baihui.
In the case of petrochemical trader CEFC, SGX in August last year issued a statement pointing out that CEFC undertook a share placement at S$0.35 after the price had risen from S$0.034 on July 10 to S$0.365 on Aug 6, and that buying volume was concentrated in a small number of offshore accounts.
In September 2015, SGX's Surveillance department issued a warning about trading in IHC's shares, noting that the price had remained steady between S$0.29 and S$0.32 for about six months, including the month of August when the general market suffered volatility.
It said a handful of individuals who appeared to be connected to each other were trading IHC shares through various accounts and their trades accounted for more than 60 per cent of volume between April and September 2015. Since then, IHC's shares have crashed more than 80 per cent to around S$0.06.
In January this year, SGX's Surveillance warned the public to be careful when dealing in shares of Koyo International, pointing out that the price had remained steady between Oct 26 and Jan 14 despite the broad market falling and that a small group of individuals was responsible for 60 per cent of trading during this period. Koyo's shares have since lost almost 90 per cent at around S$0.06 and now hardly see any volume.
Koyo later announced that its managing director is being investigated by the Monetary Authority of Singapore and the CAD for possible offences under section 197 of the Securities and Futures Act, which deals with false trading and market-rigging transactions.
While the CEFC and IHC statements were general regulatory announcements, the Koyo warning was the first TWC notice that was enhanced with more information to make them more targeted and detailed.
The second came earlier this month, when the exchange urged caution when trading shares of China-based retail store operator Zhongmin Baihui as the share price had remained steady between Oct 26 and Feb 4 when the broad market weakened. It said a small group was responsible for more than 90 per cent of the on-market buy volume and these individuals appear to be connected to each other. The stock crashed 30 per cent to S$1.20 and, like Koyo, now hardly trades.
"We issued 47 Trade With Cautions (TWCs) last year and received feedback about the high volume of TWCs with little new information," said Mr Tan. "By thinking in terms of reducing harms such as false markets, we were able to narrow down the TWCs that we needed to issue and the additional pieces of information that we needed to include in order to disrupt any such activity."
He added that the market may have the misconception that since he is an ex-policeman, he is keen on enforcement.
"I would be perfectly happy if I didn't have to enforce at all," he said. "I would much rather work together with market participants and stakeholders on early intervention upstream . . . We would also like to work with brokers to improve their trade surveillance so that we can intervene at an even earlier stage, before we need to issue a TWC."
READ MORE: Q&A with Tan Boon Gin