SGX to relook minimum trading price, quarterly reporting in sweeping review

Singapore - The Singapore Exchange (SGX) is looking into a raft of potential changes to the structure of the stock market, including scrapping automatic penalties for buy-in, reviewing its calculation of minimum trading prices and studying the need for quarterly reporting and dual class shares, chief executive Loh Boon Chye announced on Thursday.

Mr Loh was speaking at a dialogue session to discuss the Singapore equities market with industry stakeholders. The session was part of SGX's efforts to boost interest in its stock market.

Within the next month, the market operator will no longer charge a penalty by default when investors that short-sell a stock fail to deliver the shares for settlement, a recognition that many of the penalties are waived anyway upon appeal, Mr Loh said.

Esmond Choo, senior executive director of UOB Kay Hian, said: "Most of the buy-in trades we see relate to small trading errors by retail clients and trading representatives (TRs). This will remove a lot of unnecessary administration."

Following feedback from the market, SGX is also reviewing the way that it will calculate the minimum trading price for mainboard-listed companies. The minimum trading price, which will take effect this year, is currently set at a six-month historical volume weighted average price of 20 Singapore cents, unadjusted for stock splits and share consolidations.

SGX has also set up a team to review the need for quarterly reporting and dual class shares. For dual class shares, the exchange is waiting for advice from the independent listings advisory committee.

"We will be able to catch a cluster of high-tech, pharmaceutical companies," corporate lawyer Robson Lee of Gibson Dunn said of allowing dual-class shares. "We don't want the likes of Alibaba.com to go somewhere else."

Mr Lee said that safeguards can be added to address corporate governance concerns. "There's been a lot of literature on how you can protect minorities, so it's not a carte blanche for management to entrench themselves perpetually."

The review of quarterly reporting was welcomed by the Securities Investors Association (Singapore).

"We supported it (quarterly reporting) because we felt it would provide more timely information on a regular basis and give investors a better chance of making informed decisions," SIAS president David Gerald said. "But we're sympathetic to companies' complaints that quarterly reporting may not be cost-effective. There's merit in reviewing the need for quarterly reporting and I'm beginning to believe that twice a year should be enough."

In terms of new issues, a current proposal for a minimum retail allocation of 5 per cent for mainboard initial public offerings is under review, Mr Loh said. SGX is examining whether the retail allocation should be higher.

"Some of you may question this given current market conditions," he said. "But what this initiative aims to do is building for the future."

Mr Gerald said: "More than 5 per cent would be welcome. Given market conditions, the question is whether there will be enough interest. But if a company comes with attractive fundamentals and a performance record, there will be interest."

Mr Loh also acknowledged that there have been many regulatory changes, both recently and to come. Recognising that "too many changes in a relatively short time can be detrimental or counterproductive", Mr Loh said that SGX and the Monetary Authority of Singapore (MAS) have agreed to allow 6-12 months between the implementation of major initiatives.

In that light, implementation of a 5 per cent collateral requirement for all securities trading - which will mark the end of uncollateralised contra trading - will be pushed to 2018.

Mr Choo said: "Collateralised trading will involve a lot of monitoring and logistics and a delay until 2018 is wise as we can then let our the new post-trade system expected to be implemented this year to settle in.

"In the meantime retail investors can continue with a system which they are so familiar with. TRs are very concerned over the invading influence of other alternative platforms. The continued availability of contra trading offered to our retail clients is a key differentiating factor in providing our locals the ease and convenience in trading global equities in Singapore."

Mr Gerald, however, believed that putting an end to contra trading was still the right step.

"Personally, I'm not keen on maintaining contra. In our market, there seems to be more contra players than long-term investors so more investor education is needed. Removing contra is a good thing in the long term if the local market is to compete globally, we need investors to recognise that they must not take the stock market as a gambling den."

Beyond regulations, SGX has also teamed up with the Institute of Banking and Finance (IBF), the national accreditation and certification agency for financial sector jobs, to provide training courses for remisiers and dealers aimed at uplifting the skills in the profession. IBF has also created a new set of competency standards for those trading representatives.

The move was welcomed by brokers, but others were a little more more sceptical.

"Introducing training programmes for remisiers and dealers is needed but the more pressing question is whether the stock broker system of trading shares will be relevant in the future," said lawyer Stefanie Yuen Thio of TSMP Law Corp. "If not, then a wholesale restructuring and reinvention of the market is what is needed, with technology playing a leading role in this. We need to think big; not just improve incrementally."

Trading representatives will also receive some respite from MAS.

MAS deputy managing director Ong Chong Tee said on Thursday that the financial-sector regulator plans to exempt trading representatives from certain business conduct requirements that are more pertinent for financial advisers. The change is expected by the middle of 2016.

This article was first published on Jan 29, 2016.
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