MTP a way to push underperforming SGX companies to raise their game

MANY in the local market are still against Singapore Exchange's (SGX) recent minimum trading price (MTP) initiative which requires all mainboard-listed companies to ensure their shares do not fall below S$0.20. Among the common criticisms are that after companies consolidate their shares to meet MTP, liquidity dries up and, in some cases, share prices slide perilously close to S$0.20. MTP, it is argued, is nothing more than an accounting exercise that does not alter corporate fundamentals and by forcing companies to comply, shareholder value is destroyed.

The first thing to note is that as at July 30 this year, 41 out of 212 affected mainboard firms have already undertaken MTP-related consolidations, which means a reversal would not be possible. Controversial though it may be, MTP is here to stay.

Second, the alternative is to persevere with a market heavily populated by companies whose shares trade below S$0.20 and S$0.10, and to be thus known as a "penny stock" market, an unflattering label that cannot be helpful when seeking to attract big, quality listings.