Market greets proposed rule changes with thoughtful 'hmm'

Investors take regulators' measures in their stride, negating fears of repeat of HK's big penny stocks sell-off in 2002

[SINGAPORE] Singapore investors gave a measured response yesterday to regulators' proposals for fundamental and wide-ranging changes to the securities market.

Trading volumes were a quiet 1.5 billion shares worth $885 million as the the blue-chip Straits Times Index nudged 0.1 per cent higher to 3,017.2. The FTSE ST Mid Cap index slipped a tad, by 0.04 per cent, while the FTSE ST Small Cap index eased 0.3 per cent on the day.

Regulators had been concerned that the measures, announced late last Friday, could trigger a repeat of Hong Kong in 2002, when a consultation paper on setting a minimum share price there triggered a massive selloff in penny stocks.

"They were worried it would turn out like Hong Kong," said DMG & Partners head of research Terence Wong. "About 10 years ago they released this Big Bang, or Mini Bang, in Hong Kong. The way I look at it, the reaction shouldn't be that large now. If you look at all the various measures, it's not really harsh."

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) are seeking public feedback on a number of proposals aimed at improving orderly trading, transparency and listings in the securities markets.

Among the key suggestions are measures to end the practice of uncollateralised speculative trading commonly called contra; to impose minimum share prices for mainboard companies; and to create independent bodies that will have a say in new listings and disciplinary matters.

Also for public consultation are possible rules to broaden the disclosure requirements for short positions and to require disclosure of brokers' trading restrictions.

It helped that Singapore investors could be more receptive to stricter regulation compared to Hong Kong in 2002, given that markets here are still smarting from last October's penny stock selloff - an event that triggered the review leading to the latest consultation. Whatever reservations there are about short- term pains, there was a sense that the market would eventually adjust.

"It's just like the property cooling measures," Mr Wong said. "Over time, people will just get used to it - like it's a way of life."

The contra trading proposals were expected to have an impact on overall trading activity in the short term, given that contra accounted for 31 per cent of turnover in the year to October 2013.

But other changes, such as reduced clearing fees, were seen as possibly cushioning the blow, leaving the actual impact a question that is very much in the air.

Nevertheless, Carol Fong, chief executive of CIMB Securities, described the proposals targeting contra trading as "measured".

"This tries to strike a balance," she said.

The proposal to impose a minimum share price for Mainboard companies also garnered generally positive reviews with expectations of muted market impact.

"The market's focus on penny stocks has changed the market structure in terms of average trade value per share, which has fallen below the 10-year band from 2001," said a senior broker. "The consultation paper, if implemented, should hopefully see a reversal to the 50-cent to $1.50 band. This, in turn, may help leveraged products pick up."

Industry observers also expected the creation of an independent listing advisory committee to lead to better initial public offerings (IPOs) in Singapore, citing the experience of other markets such as Hong Kong and Toronto.

"The intent behind the proposed changes, including having a committee with industry and expert representation, is to further strengthen the listings framework and ensure better investor confidence," said OCBC's head of group investment banking Gan Kok Kim.

"To this end, we believe that the measures will help raise the quality of new listings here with the Singapore market continuing to appeal to issuers that are promising and sound."

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