Prevent next market debacle, not just fix it

SWEEPING changes to Singapore's securities trading landscape are coming, following regulators' decisions to pursue most of the proposals in an earlier consultation. But while collateral requirements for contra trading, independent rules committees and minimum share prices will help to diffuse the impact of future debacles such as the 2013 penny stock collapse that sparked the consultation, the changes need to go further when it comes to actually trying to prevent another incident.

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) this month responded to a February public consultation in which the regulators proposed numerous changes to the way securities are listed and traded in Singapore. The changes are generally positive, but they are mostly focused on treating the symptoms of a major incident rather than actually preventing the event in the first place.

For example, collateral requirements for the practice of contra trading - or buying and selling shares before trades are settled - are an important step in ensuring that investors are not over-leveraged and exposed to trades that go south. Requiring brokers to disseminate trading restrictions that are imposed on individual stocks will also eliminate one form of information asymmetry that has benefited only insiders.