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AN end to uncollateralised contra trading, minimum Mainboard share prices and an independent listings committee are among a proposed suite of sweeping changes for which the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) are seeking feedback.
The proposals are aimed at improving orderly trading, improving transparency of market intervention measures, and strengthening the process for admitting new listings and enforcing rule breaches, the regulator and market operator said in a joint statement yesterday.
Other proposals in the public feedback include shortening the settlement period to two days, requiring the reporting of substantial short positions, compulsory disclosure of trading restrictions by broking houses and a listings disciplinary committee.
Separate from the public consultation, SGX will make changes to its query system beginning March 4, requiring board approval for companies' replies to trading queries by the exchange and introducing a "Trade with caution" announcement option for SGX when companies cannot explain unusual activity in their stock.
Companies will also have to give SGX early notification of potentially major merger and acquisition deals.
To improve liquidity, SGX will cut clearing fees by 0.75 basis points to 0.0325 per cent from May 2. The existing cap of $600 for contracts of $1.5 million or more will be removed.
To discourage off-exchange deals, transfers and onward settlements from on-exchange trades will be charged a $30 fee, while those from off-exchange deals will be charged 0.015 per cent of transaction value, subject to a $75 minimum.
SGX will also introduce incentive schemes, expected to be clearing fee rebates, for market makers and liquidity providers.
The proposals come after an extensive review of Singapore's capital markets ecosystem in the wake of October's penny-stock collapse. The consultation will last for 12 weeks.
Some of the proposals could be far-reaching if implemented. A minimum 180-day volume-weighted average price of 10 to 20 cents for Mainboard companies could affect 130 to 230 issuers, according to official estimates. Most of those issuers can raise their share price through consolidation, and SGX is prepared to waive all corporate-action fees in relation to share consolidation for two years to aid compliance.
Rachel Eng, joint managing partner of WongPartnership, expects minimum prices to be positive for the overall market, noting that share consolidation should not affect a company's fundamentals.
"By having shares with higher trading prices, listed companies and their shareholders may be less exposed to large fluctuations in price caused by speculative movements," she said.
Ms Eng is also supportive of proposals requiring the reporting of substantial short positions.
"Proposing to report short positions would certainly increase transparency, especially for retail investors," she said. "I think market participants should welcome a move towards greater clarity. Other countries do already have such a disclosure mechanism, such as Australia, Hong Kong (China) and the European Union."
The proposal for brokers to collect 5 per cent of collateral for customers' open positions and shortened settlement were also seen as appropriate moves to target contra trading, a Singapore and Malaysia quirk whereby investors can take and close positions within the settlement period without putting up collateral.
About 31 per cent of total trading value in the year to October 2013 came from contra trades.
"A minimum collateral requirement promotes prudent investing, instilling greater discipline in retail investors when they trade," OCBC Securities managing director Raymond Chee said. "While this may have a dampening impact on trading activity, it helps to limit the potential for contra losses that investors may otherwise face. For brokerages, it also lowers the financial exposure they face arising from such customer trades."
David Gerald, president and chief executive of retail investor advocacy group Securities Investors Association of Singapore, added: "The introduction of collateral of minimum 5 per cent of open position will help to discourage a gambling mentality and encourage an investing mindset."
SGX will also introduce some independence into its regulatory framework, with proposals for independent listing, disciplinary and appeal committees. Those committees will allow industry input into certain decisions, as well as put some separation between SGX's enforcement and investigation roles.
Gan Kok Kim, head of group investment banking at OCBC, thought that diverse industry viewpoints will improve the quality of listings here.
"This is critical given the increasing maturity and sophistication of Singapore's capital markets where we are seeing listings across a broadened range of sectors and from issuers that span the globe," he said.