Reprieve on minimum trading price as SGX tweaks calculation method

Singapore

THE Singapore Exchange (SGX) gave Mainboard-listed companies on the margins of a coming minimum-trading-price rule some wiggle room on Tuesday.

About 20 of these companies will have an additional six months to meet the price requirement in light of January's market volatility, the market operator announced on Tuesday.

SGX will also change its formula for calculating the minimum price to now adjust historical data for share consolidations. Doing so will align the formula with "international data companies", it said.

SGX said about 20 companies have experienced for the first time a dip in their six-month volume-weighted average share price (VWAP) to below the regulatory minimum of 20 Singapore cents due to extreme market volatility in January.

Those companies, which will be notified by SGX directly, will have until Sept 1, 2016 to raise their prices above the threshold, failing which they will be placed on a watch list.

The current deadline for the rule, which affects only Mainboard-listed companies, is March 1, 2016. Companies on the watch list for share prices that are too low have three years to cure the breach or face delisting.

In terms of how the VWAP is calculated, SGX said it will now follow industry norms and adjust historical prices for share consolidations. As an illustration, historical prices of a 10-cent stock that undergoes a consolidation of four shares into one will therefore be adjusted as if the share was always a 40-cent stock.

This means that companies will enjoy the full impact of the share consolidation immediately upon completion, instead of having to offset the remnant effect of the unadjusted historical prices by waiting a few months, or by consolidating at more aggressive ratios.

Shook Lin & Bok partner Dayne Ho said: "It should mean that the minimum trading price, using the new methodology, would now be potentially less volatile and reduce the potential for a company's minimum trading price dipping below the requisite threshold too quickly, which is a good thing."

As at end-January, 86 of 181 companies likely to be affected by the minimum trading price had either acted or announced plans to comply, SGX said. And of the 86, 74 have decided on share consolidation; among them, 57 have completed the consolidation.

SGX head of listing compliance June Sim said in a statement: "We have listened to feedback from the public and are adjusting the VWAP calculation methodology.

"The VWAP of the shares of companies will now reflect fully the impact of a completed share consolidation. This will reduce the risk of companies having to consolidate shares at extremely high ratios, or to go for repeated corporate actions.

"We are also giving companies which might have been unduly impacted by the market volatility in January time to react."

David Gerald, president of the Securities Investors Association of Singapore, views the tweaks as SGX recognising that "companies are facing adverse market conditions".

"This is the right thing to do," he said. "We are facing an unusual global downturn."

Harry Elias managing partner Philip Fong said many companies have probably taken a "wait-and-see" approach to compliance, given the uncertainties in the markets.

"The latest changes to the minimum-trading-price requirement would be welcomed by such companies to decide whether to undertake share consolidation, transfers to the Catalist board, or other corporate actions."

Following the 2013 penny stock crash, the minimum-trading-price requirement was last year formally written into the rules, on the argument that higher-priced stocks are less vulnerable to manipulation.

The rule has generated a fair bit of controversy, particularly with critics who point to the large number of companies who are at risk of breaching the rule.

Partly in response, SGX has been modifying the rule, including earlier offering a similar six-month extension to companies that had just completed consolidations.

Shook Lin & Bok's Mr Ho said: "The bigger takeaway though, is that the SGX has shown its willingness to adapt its approach as it implements the minimum-trading-price requirement; that should give companies confidence that the SGX is a partner with them during this transition period and that it listens to feedback."

This article was first published on February 3, 2016.
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