SINGAPORE (Nov 28): Kenny Yap, CEO of ornamental fish service provider Qian Hu Corporation, is all ready to pop the champagne.
Singapore Exchange Regulation (SGX RegCo) on Thursday proposed to scrap the minimum trading price (MTP) rule. This could mean that Qian Hu, along with some 105 companies on the SGX, could be taken off the dreaded MTP watch-list.
“Being on the watch-list has brought about more harm than good for most companies. It’s one of the worst tools that SGX has come up with thus far,” Yap tells The Edge Singapore.
“In the event that this watch-list is scrapped, I’ll be the first one to celebrate by popping a bottle of champagne, because it has done enough damage thus far,” he adds.
The MTP watch-list had been introduced on the back of concerns that low-priced stocks, or so-called penny stocks, are more susceptible to market manipulation.
Currently, companies with a volume-weighted average price of less than $0.20 per share and an average daily market capitalisation of less than $40 million over the last six months are placed on the watch-list.
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Speaking to reporters on Wednesday, SGX RegCo CEO Tan Boon Gin says the bourse is sharpening the tools in its arsenal to deal with market manipulation.
According to the exchange, the MTP rule was first introduced on February 2014, in the aftermath of the 2013 Penny Stock Crash.
The market manipulation scandal saw some $8 billion in market value being wiped out following the massive rise and collapse of shares in Blumont Group, LionGold Corp and Asiasons Capital (now Attilan Group).
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“SGX now has more effective and targeted tools to deal with market manipulation,” says Tan.
The regulator has also taken to a multi-step approach to promoting vigilance in a targeted and direct manner. SGX first issues public queries to a company when abnormal trading activity is detected, serving as the first “red flag” to investors.
This is followed by a trade with caution (TWC) alert – a second-level alert – should there be serious concerns on the abnormal trading activity.
These TWC alerts were refined in December 2015 to be more detailed and targeted. They were expanded to contain details gathered from SGX’s review of trading activities and aimed to deliver higher-value information to investors.
Earlier this month, SGX also directed the suspension of trading accounts involved in suspicious trading activities.
“In contrast [to these], the MTP is a very blunt tool,” says Tan.
While SGX RegCo maintains that low-priced stocks can give rise to issues including manipulation, it says that it will combat this using surgical tools instead of a simple 20-cent threshold.
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“These new tools are well calibrated to a specific type of manipulation that is occurring or a specific type of manipulation that SGX is trying to prevent,” Tan adds. He notes that following the implementation of these measures, the number of alerts triggered for manipulation has been halved.
In addition, 92% of the companies on the MTP watch-list have not triggered alerts.
“What we’re trying to highlight is that this watch-list has turned out to be an overly-inclusive tool,” says Tan. “If you’re looking at this tool as an anti-manipulation tool, then the best option is to have all the companies that are prone to manipulation on this list, which has turned out to be overly inclusive because a large majority of them are not triggering alerts.”
However, SGX RegCo is quick to stress that the removal of the framework is by no means a backtracking of its safety protocol. Instead, it stresses that this is a move to improve the watch-list in order to alert investors to financially weak companies.
“To prevent circumvention of existing requirements which a company must satisfy to exit the watch-list, SGX RegCo will take into consideration whether profits the issuer recorded were due to non-recurrent income or items generated by activities outside of the ordinary course of business, and whether its auditor has issued an adverse or disclaimed audit opinion, or a material uncertainty relating to going concern on the company’s accounts,” says SGX RegCo.
To be sure, some market watchers have had reservations about the effectiveness of the MTP framework.
Corporate governance expert Mak Yuen Teen, an associate professor at NUS Business School, says there are some “serious issues” in Singapore’s equities market.
“Do I see notices of compliance and queries as having reduced the risk of manipulation of stocks? My answer is no. I think they achieve different objectives,” says Mak. “Is our market rid of the ‘penny stock market’ label? Clearly no, because most of the stocks on the MTP watch-list have not been able to get out and have not yet been delisted yet.”
“We must be prepared for bitter medicine and short-term pain, if we want to have a sustainable equity market in the long term. Otherwise, SGX will continue to lose its relevance as an equity market,” Mak tells The Edge Singapore. “My concern is that SGX has lost its nerve and is now having second thoughts when faced with the real prospect of a wave of delistings,” he adds.
