SGX seeks public feedback on scrapping minimum trading price

OVER three years after the minimum trading price (MTP) for stocks to remain listed on the mainboard came into effect, the Singapore Exchange Regulation (SGX RegCo) announced on Wednesday that it is seeking public feedback on a proposal to scrap the rule.

The possibility of a public consultation to do away with the share price hurdle first surfaced in The Business Times (BT) in July. 

Under the rules that were first adopted in 2016 and then modified and effected in 2017, a mainboard-listed company must maintain a six-month volume-weighted average share price of 20 Singapore cents and a six-month average daily market capitalisation of at least S$40 million.

Companies that do not fulfil the criteria will be placed on the SGX watch list. Once on the watch list, firms have three years to raise their share price and their market cap, or they will be forced to delist.

The proposal to scrap the MTP has been put up for public consultation till Dec 27, and a decision is expected to be made within the first half of 2020.

In the meantime, a moratorium is placed on the three-year period for delisting companies currently on the watch list. There will also be no new entrants added to the list.

Prior to the announcement of the consultation, some 11 companies would have entered the watch list in the next review scheduled in early-December, based on data from SGX as at Nov 28. 

Despite extensive feedback gathered before the MTP was imposed, there were two things the regulator was not aware of, SGX RegCo chief executive Tan Boon Gin told the media on Wednesday.

"We did not know how the implementation of MTP will play out, since then we have seen that there are unanticipated consequences that affected companies and therefore shareholders," he said.

"Second, we have since developed tools and solutions that are much more effective in addressing possible manipulation," Mr Tan added.

The initial intent of the MTP was to address concerns that low-priced securities are more susceptible to potential market manipulation. This came in the wake of the penny stock crash that wiped out billions from the Singapore stock market in 2013.

Since then, SGX has recognised that the MTP framework "is a blunt tool in addressing the risk of manipulation". Based on the regulator's review, 92 per cent of the 100 companies on the watch list have not been subjects of the "Trade with Caution" (TWC) alert, neither were they referred to MAS for suspected stock manipulation.

The rule reversal will allow the market operator to avoid delisting up to 54 companies come June 2020.

In the consultation paper, SGX noted that "delisting all companies on the MTP watch list is excessive and may be detrimental to investor interests".

Explaining why it may be challenging for companies to exit the watch list, Mr Tan said: "We have received feedback about the unintended consequences and one of the things we realised is that once you're placed on the watch list, you face certain business constraints such as difficulties borrowing from banks and developing business relationships.

"And there is always the real threat of delisting," he added.

As a result, even with share consolidation efforts, none of the companies have managed to successfully exit the list by raising its share price. But based on SGX's review as at Nov 28, Mirach Energy will be making an exit. On the other hand, four companies previously on the MTP watch list have transferred to SGX's sponsor-based Catalist board: Hatten Land, Matex, Allied Tech and Nippecraft. 

In place of the MTP, SGX said that it has taken on other approaches and enhanced its tools to detect and prevent manipulation in a more direct, targeted manner. 

For instance, the Trade Surveillance Handbooks and Members' Surveillance Dashboard were launched to raise awareness of market misconduct and set out guidelines to improve internal surveillance. 

In August this year, SGX also collaborated with the Monetary Authority of Singapore (MAS) to launch a MAS-SGX Trade Surveillance Practice guide to help firms develop and implement trade surveillance operations.

In addition, regulatory actions like the TWC alerts were also enhanced to make them more informative for investors. These alerts now contain details gathered from SGX's review of trading activities. 

In response to whether retracting the framework will affect market confidence in regulators, Mr Tan said: "I think what is important is that when measures do not work the way they were intended to work, we were willing to make changes along the way."