SGX needs to boost post-IPO liquidity. Here’s how it can do it

[SINGAPORE] The Singapore equity market is undergoing a clear and welcome momentum shift.

Public primary market activity has rebounded strongly, backed by decisive regulatory updates, listing rule revisions and substantial capital infusion via the Equity Market Development Programme by the Monetary Authority of Singapore.

Yet, as recent commentary in financial media highlights, post-market trading performance and aftermarket liquidity remain an important conversation to have.

While long-term equity performance is mostly driven by fundamental business growth and valuation discipline, secondary market liquidity plays an indispensable role in price discovery during the critical post-initial public offering trading window.

This is why high-growth issuers weigh vibrant aftermarket trading as a core factor when deciding whether to list publicly, and where to list.

In a purely long-only market, post-IPO secondary trading can quickly become one-sided. Once initial primary allocations are absorbed, long-term shareholders wait for target prices, while prospective buyers wait for clearer entry points.

With the vast majority of shares locked up under moratoriums, the pool of freely tradable stock is severely constrained, and marginal volume naturally dries up.

Two practical, constructive regulatory enhancements could work together to significantly boost secondary market liquidity in the immediate post-IPO period: deepening two-sided market participation, and transitioning to flexible, performance-tiered lock-up structures.

Expand equity lending

Two-sided trading mechanisms between borrowers and lenders can assist in resolving this structural bottleneck.

Efficient share borrowing enables investors to express alternative valuation views and actively facilitates market-making, whether borrowing operates through a centralised pool such as the Securities Borrowing and Lending (SBL) framework of the Singapore Exchange (SGX), or dealer-led collateralised systems common in the US.

Crucially, every short position established today represents guaranteed buying demand tomorrow, creating continuous price discovery and ongoing trading depth.

Singapore’s centralised SBL framework prioritises counterparty risk mitigation, but remains underutilised compared to global financial hubs.

The disparity in market depth is underscored by concrete data.

On Sep 22, just 2,000 Grab Singapore Depository Receipts (SDRs) were available to borrow on the SGX at an annualised rate of 7 per cent, compared with more than 10 million shares available on the Nasdaq at 0.28 per cent interest.

Similarly, while shares of virtually all S&P 500 companies are readily available to borrow at rates below 1 per cent, the rate for a constituent of the iEdge Singapore Next 50 Index such as ValueMax was quoted by The Central Depository at 4 per cent.

Modernising SBL mechanics to build on prior SGX reforms offers immediate benefits on several fronts. Shifting retail SBL enrolment, from traditional opt-in models to digitalised participation, would rapidly deepen the local lending pool.

In global markets such as Nasdaq, holders of newly public growth companies regularly earn 5 to 10 per cent annual yields, simply by lending shares.

In contrast, SGX-listed counters such as UltraGreen.ai yield 2.45 per cent to lenders via the SBL pool, and others, including Foundation Healthcare , are not yet available for loan.

Expanding local lending will create an attractive new yield stream for investors holding non-dividend growth stocks.

Furthermore, aligning local rules with international standards would significantly ease execution friction for market makers, while preserving strict safeguards against naked shorting.

For instance, the US framework requires broker-dealers to confirm a “reasonable expectation” that they are able to locate shares by settlement before lending to an investor, rather than requiring upfront physical holds.

From an issuer’s perspective, the increased liquidity associated with active two-sided markets not only boosts valuations, but also creates natural, built-in buyers for subsequent equity placements.

As Singapore continues to integrate with international exchanges through programmes such as the Global Listing Board and SDRs, aligning local SBL mechanics with global peers ensures SGX-listed equities remain equally liquid and competitive.

Rethink post-IPO lock-ups

The second area ripe for modification involves the moratoriums, or “lock-ups”, placed on pre-IPO shareholders.

Under current mainboard and Catalist frameworks, pre-IPO investors and promoters are typically subject to strict six or 12-month calendar lock-ups.

While restricting insider supply immediately post-IPO supports early market stability, releasing 100 per cent of locked-up float on a single calendar date generates artificial overhangs and concentration risk.

A more flexible, issuer-tailored moratorium framework – designed by deal participants who understand the company’s investor base and upcoming milestones – would significantly enhance post-IPO liquidity.

Modern capital markets increasingly permit underwriters and issuers to agree on multi-tranche releases or triggers tied to operational achievements, provided full disclosure is set out in the prospectus.

This includes SpaceX’s multiple-step lock-up structure tied to time, earnings releases and price benchmarks.

Bespoke lock-up structures offer several distinct advantages.

Performance-tiered releases create a tangible incentive for founders and management to drive business execution post-listing. This refers to lock-up tranches vesting, only when the company hits disclosed revenue, earnings or share-price thresholds.

By contrast, rigid calendar lock-ups can perversely encourage concentrated selling on a single expiry date, irrespective of performance.

In addition, flexibility in lock-up restrictions is a crucial factor when venture capital or private equity backers choose listing venues.

Staggering early-investor exits in the first 12 months provides predictable liquidity and allows advisors to structure streamlined, follow-on vendor placement transactions to manage selling pressure smoothly.

Crucially, when lock-up schedules are transparent and multi-tiered, institutional traders with access to deep SBL pools can hedge positions in advance.

This allows them to absorb incoming supply efficiently, move shares smoothly into long-term hands and dampen price volatility.

Synchronise supply and demand

Singapore has established the foundational pillars for primary capital market success: robust regulatory support, innovative dual-listing frameworks, and targeted institutional funding programmes.

The next logical step is to synchronise supply and demand mechanics to fully realise this potential.

Singapore can build a self-reinforcing ecosystem where predictable supply release fuels healthy, two-sided trading, by pairing a deeper, more efficient securities borrowing infrastructure with flexible, milestone-driven lock-up frameworks.

Together, these enhancements will ensure that newly listed companies not only secure a successful IPO, but also enjoy the sustained aftermarket liquidity necessary to thrive as public entities.

Both writers are from Cooley LLP. Tim Pitrelli is partner, and Steven Holm is counsel.