SGX's watch list tweak replaces one inadequate rule with another

THE quality of a company is rarely, if ever, measured on a single metric. It is therefore unfortunate that the Singapore Exchange's (SGX) minimum trading price amendment has merely replaced one single-facet test with another.

SGX puts mainboard-listed companies on watch lists for possible delisting if they post three straight years of pre-tax losses or if their six-month volume weighted daily average share price falls below 20 Singapore cents. However, the recent rule change means that a company can now fail either or both tests and still stay off the watch lists as long as its market capitalisation is at least S$40 million. Previously, the minimum trading price requirement did not have a market-cap exemption.

The new amendment was a reaction to feedback that the recently introduced minimum trading price rule was too blunt of a tool. When the original rule took effect in March, as many as 126 out of the 588 mainboard companies were at risk of breaching the price requirement. The change was a tacit acknowledgement that trading price alone was not an adequate gauge of a company's quality, and too many decent companies were being swept up with the bad ones.