Sharp price movements don't always warrant trading curbs: Sgx

PHOTO: Sharp price movements don't always warrant trading curbs: Sgx

The Singapore Exchange (SGX) tried to calm a nervous market on Wednesday by explaining why it had not imposed trading curbs on a stock that has plunged in value.

Earlier this month, the SGX imposed rare, tough curbs on three stocks whose share price had run up quickly and then crashed.

The restrictions imposed on the three stocks led to a broader market rout among penny stocks.

Nervous market players worry more mayhem may be in the offing, after logistics firm Sky One nosedived 80 per cent this week to 8.2 cents on Wednesday - it hit 48 cents only a fortnight ago.

Other penny stocks are highly volatile too.

But the SGX said curbs are not always appropriate. "Not all sharp price movements, whether up or down, warrant a suspension of the stock," it said in a statement.

In Sky One's case, the SGX said the circumstances revealed "no threat to fair, orderly and transparent trading", so it had not been suspended and curbs were "not necessary".

Curbs like a requirement for cash payment up front were imposed on the stocks "designated" by the SGX - Asiasons Capital, Blumont and LionGold. "Each occurrence has to be evaluated on its own merit in the context of circumstances of the case," it added.

In the case of the trio, a review showed "disorderliness in the market and a lack of transparency" which could threaten the fairness of trading. The curbs were aimed at helping the market find its own equilibrium, it said.

"For Blumont, Asiasons and LionGold, after the end of designation, the forces of supply and demand have reasserted themselves to determine the prices of the stocks. Normal trading conditions have resumed," it said.

But this week, a new crop of penny stocks again rattled the market with wild price gyrations.

Market jitters increased after several stockbroking firms imposed trading curbs on many of these penny stocks, triggering panic selling. The most drastic was by UOB Kay Hian, which has restricted trading on 56 counters.

"Restricting trading on stocks is a big risk management call. It's not something broking houses want to do as they are forgoing business," said a broker.

Construction firm Swee Hong and engineering company Tritech Group dipped by about 40 per cent over this week. OKH Global fell 14 per cent this week, though its price recovered on Wednesday, closing up 5 per cent to 64.5 cents.

Some market players worry about wider repercussions. "This episode has led to a loss of market confidence, as reflected by trading volumes. If traders don't know how to discriminate the good from the bad counters, we could see a dead market over the next two years," said a former head of a big stockbroking firm.

anitag@sph.com.sg


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