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On the right track to improve health of the market
THE proposed scrapping of the minimum trading price (MTP) for mainboard-listed companies, as reported in BT (July 19), is a good move by Singapore Exchange.
Members of the stockbroking community (1,200 signatures) had written to then Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam in January 2015 about the state of our capital markets and made several recommendations to improve the market confidence.
We proposed that the MTP policy be withdrawn as it would do little to help confidence in our markets. A group of us had several meetings with the Monetary Authority of Singapore and conveyed our views that, based on our years of market experience, the MTP policy will only sap market sentiment and the liquidity of the smaller-price firms. Our call to withdraw the MTP rule went unheeded.
The market is now bearing the consequences of this policy. Market confidence has been greatly weakened, with much reduced participation from retail investors. Granted, not all policies implemented can work out as planned, even with the best of intentions.
What's key is to acknowledge where policies have not achieved the desired goals, review and rectify in a timely manner.
Policymakers should be responsible enough to take ownership of failed policies and take the necessary corrective action.
They must not let failed policies fester for too long for fear of reprimand, thus causing extended damage to the markets, which is what we are experiencing right now. Heads need not necessarily roll but timely corrective action is of prime importance.
We had also made several other recommendations like widening of bid-ask spreads; review of caveat emptor (buyers beware) rule by bringing better quality companies to market; increasing the public float for newly listed companies; review of algorithmic trading, etc.
We, from the stockbroking community, sincerely hope the authorities would heed our clarion call to improve the health and prospects of our long-suffering moribund market.
SGX's review of the MTP policy is a good first step that gives us some confidence that we are on the right track to bring back the much-needed confidence and ensuing liquidity to our markets.