Singapore overhauls trading rules after penny stock crash

07 August 2014   Category: News, Asia, Global, Singapore   By Derek Au

Financial authorities in Singapore have tightened trading rules for its equities market, including introducing a minimum trading price, in a move to bolster investor confidence after a penny stock slump in October wiped billions of dollars in market value off of a number of listed companies.

According to a joint statement from Singapore Exchange (SGX) and the Monetary Authority of Singapore (MAS), the regulators will put in place a minimum trading price of S$0.20 (US$0.16), which is applicable to companies listed on the main board of the bourse. This is because low-priced securities are more susceptible to excessive speculation and market manipulation. The companies will have a transition period of 12 months to meet the new requirement.

The city state’s regulators also require securities intermediaries to collect a minimum 5% of collateral from their customers before they trade in stocks, as a way to mitigate the risk of excessive leverage assumed by investors. Market participants, such as institutional investors and those who settle trades through the delivery-versus-payment mode, will be exempted from this measure, which is expected to be implemented in mid-2016.

Short-selling activities also fall under the scope of regulatory reforms. The MAS requires short sellers to report their net short positions in case of reaching the value threshold of the lower of 0.05% or S$1 million of issued shares. The regulators will also reduce the board lot size for securities listed on the bourse from the existing 1,000 shares to 100 shares in January next year, to give retail investors easier access, particularly to blue-chip stocks.

Commenting on the tightened regulatory requirements, Lee Boon Ngiap, assistant managing director, capital markets at MAS, said: “An independent assessment by the International Monetary Fund last year affirmed that our securities market’s compliance with international standards is generally high. MAS’s enforcement philosophy relating to the securities markets and financial intermediaries was also assessed to be cogent, outcome-focused and well developed. These proposals will further enhance the robustness and resilience of our securities market and instill greater investor confidence in our marketplace.”

Magnus Bocker, chief executive officer at SGX, added: “These enhancements are yet another significant milestone in Singapore’s journey to become a leading financial centre and investment venue of choice. We will continue to work closely with MAS to bolster the local securities market so as to serve the needs of investors and companies.”

The MAS and SGX have launched a probe into the penny stock crash, which badly hit the turnover of the city state’s equity market. The regulators published a joint consultation paper on the review of the securities market structure and practices in February this year, which formed the foundation of the latest regulatory reforms.