SGX suspends minimum trading price rules to consider addition of market cap test

THE Singapore Exchange (SGX) is imposing a moratorium on its minimum trading price (MTP) requirement while it seeks feedback on adding a market capitalisation test to existing criteria.

Under SGX's proposal, mainboard-listed companies will no longer be added to the MTP watch list and face potential delisting simply because their six-month volume weighted share price falls below 20 Singapore cents. Those companies whose share prices are too low will only be added to the MTP watch list if their market capitalisation is also below S$40 million.

SGX is also proposing to lengthen the review frequency for both the MTP watch list and the Financial Entry watch list, which puts on notice companies whose market cap fall below S$40 million and that report three straight years of losses. The two watch lists will remain separate.

SGX wants to review both entry and exit from both watch lists twice a year instead of quarterly, in order to align the timing of the reviews with their six-month look-back periods.

The public consultation is open until Sept 23. If the proposals are accepted, SGX expects implementation to take place by June 2017.

While the consultation is going on, SGX will not add any new entrants to the MTP watch list; the scheduled September review will therefore be put on hold for watch list additions.

Companies already on the MTP watch list will not face delisting while the moratorium is in place. If the new proposals are implemented, companies that remain on the MTP watch list will have their cure deadlines reset to 36 months from the implementation of the new criteria; if the proposals are rejected, however, the clock for exiting will resume for existing MTP watch list companies once the moratorium is lifted.

SGX will continue to review existing MTP watch list companies for exit on a quarterly basis during the moratorium. The Financial Entry watch list will continue to ooperate as normal.

Under SGX's current rules, mainboard-listed companies will be placed on the MTP watch list if their six-month volume weighted average price is below 20 Singapore cents when a quarterly review takes place.

A separate watch list, the Financial Entry list, is for mainboard-listed companies that report three straight years of losses and whose market cap is below S$40 million.

Companies on either watch list have 36 months to resolve their status, or they could face delisting.

SGX cited the changes as an attempt to fine-tune the controversial MTP requirement.

"The MTP requirement remains relevant to addressing the risks associated with lower priced securities," SGX chief regulatory officer Tan Boon Gin said in a statement. "We have been considering market developments and feedback in the implementation of the requirement and made refinements along the way. We are now proposing further refinements to make it more targeted and effective."

SGX said that an analysis of historical data showed that among the companies with a six-month volume weighted average share price of less than 20 Singapore cents, those with a market value of at least S$40 million "showed better liquidity characteristics and lower volatility" than those whose market cap fell below that threshold.

"This thus suggests that the market capitalisation test as an MTP entry criterion will complement the existing requirement to more precisely achieve the goal of reducing excessive speculation and potential manipulation," SGX said in a statement.

The moratorium will bring respite for an estimated 125 companies that are expected to be on the MTP watch list if the review were to take place as scheduled in September. Of those, 53 have already been on the MTP watch list since it was created in March 2016. Another 64 would have been added out of 67 companies that received extensions from SGX, for various reasons, to comply with the MTP requirement. The final eight are companies whose six-month volume weighted average prices fell below 20 Singapore cents since June and did not receive any extensions from SGX.

If the new proposals were in place as at Aug 1, 16 of the 55 companies currently on the MTP watch list would exit the list. Of those, two are expected to exit anyway in the coming September review because they have managed to raise their share prices sufficiently.