Robson Lee, a partner in the legal firm of Shook Lin & Bok LLP, contributed this article to NextInsight. (2016 update: Robson Lee is presently a partner in Gibson Dunn & Crutcher LLP)
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SGX and MAS’ joint consultation paper and response |
a) Minimum Trading Price (MTP) of at least S$0.20 for SGX Mainboard Issuers
Mainboard Issuers are now required to ensure that their shares trade above a MTP of S$0.20 each.
The MTP requirement seeks to maintain price (and market) stability, as it is widely believed that stocks tend to be more volatile when prices are low. US regulations, for instance, impose a minimum bid price per share of US$1.00.
The MTP requirement will constitute a continuing listing requirement and will come into effect in March 2015.
A Mainboard Issuer’s volume weighted average price, or VWAP, must not fall below the MTP within a 6-month period. Mainboard Issuers whose share prices fall below the MTP will have a 12-month transition period (Transition Period) to comply. Those failing to comply by the end of the Transition Period will be placed on the SGX watch-list and given a 36-month cure period to take remedial action. Failure to exit the watch-list at the end of the cure period will result in the delisting of the Mainboard Issuer concerned.
Affected Mainboard Issuers are encouraged to take appropriate steps to preserve their listed status.
The preferred approach is to undertake a share consolidation exercise. To illustrate, a Mainboard Issuer with 10,000 shares in issue might consolidate on a 1-for-10 basis, reducing the number of its issued shares to 1,000. Each of its shareholders would then own a reduced number of shares, though the percentage shareholding remains largely unchanged. Post-consolidation, the market price of the shares should rise to reflect the greater 'ownership' each share represents in the Mainboard Issuer.
A share consolidation is a relatively straightforward exercise. The Mainboard Issuer would have to first announce its plans for a share consolidation. An additional listing application for the consolidated shares would be submitted to the SGX, together with a draft circular containing key information relating to the share consolidation (such as the pro forma post-consolidation capital structure and the books closure date for determining entitlements to the consolidated shares). Following the receipt of SGX’s approval in-principle for the share consolidation, the circular would be despatched to shareholders, and a general meeting convened. The share consolidation will commence on an “effective trading date” following the receipt of shareholders’ approval for the share consolidation. The share consolidation process, barring any unforeseen complications, typically takes about two to three months to complete.
To assist Mainboard Issuers to comply with the MTP requirement, SGX will waive corporate action fees for share consolidation from 1 August 2014, and extend this waiver for a period of two years after the start of the Transition Period.
Given that share consolidations may result in “pricier” stocks which may then be less attractive or accessible to certain retail investors, SGX will also reduce the standard board lot size for SGX-listed shares from 1,000 shares to 100 shares from January 2015. Further details are expected to be announced by end-August 2014.
b) Minimum Collateral Requirements (MCR) for securities trading
Securities intermediaries (such as banks and brokerages) will be required to collect a minimum of 5% collateral (in cash, securities or bank guarantees) from customers for trading of listed securities.
The MCR seeks to control the practice of contra trading in Singapore. Contra trading is a practice allowing investors to take advantage of the settlement period where securities can be bought and quickly on-sold within the settlement period, to realise a contra or “paper” gain without actually paying the full purchase price for the securities. This practice is common in penny-stocks trading due to the low costs involved and the potential to make high profits, though it necessarily involves a fair degree of speculative behavior.
Collateral must be collected from customers by the end of the trade day on which the trade occurs. Collateral can be collected upfront, or will be deemed collected if customers can show reasonable proof of a successful funds transfer to the intermediary concerned. Acceptable funds transfers include EPS payments, GIRO credit transfers, or instant inter-bank transfers.
Institutional investors and low settlement risk trades (e.g. trades using Central Provident Fund and Supplementary Retirement Scheme funds and delivery-versus payment trades) are exempted from the MCR.
This measure will be implemented in mid-2016 to give securities intermediaries sufficient time to implement appropriate collateral management processes.
c) Short position reporting requirements
Short selling involves selling securities that one does not own at the time of sale. In March 2013, the SGX introduced a marking regime where participants must mark short sell orders before submission to SGX. This improved transparency in the daily level of short selling activities.
To complement the marking regime, the MAS and SGX will implement aggregate short position reporting. Investors with net short positions exceeding the lower of 0.05% or S$1 million of issued shares in a listed company would be required to report weekly to a MAS-administered system. Derivatives will be excluded from the scope of reporting. Aggregated information will be released weekly without revealing any investor’s identity.
The short position reporting regime is expected to be implemented in mid-2016. This will bring Singapore in line with jurisdictions such as Australia, Europe, Hong Kong and Japan, which have implemented both short position reporting and short position marking.
d) Transparency of trading restrictions imposed by securities intermediaries
Securities intermediaries presently impose varying trading restrictions on their customers based on their in-house requirements. Some intermediaries impose trading restrictions on all customers, while others target specific customers with large outstanding positions. Intermediaries also differ in their methods of disseminating information on such trading restrictions. This has led to concerns regarding information asymmetry.
To enhance the transparency of trading restrictions imposed by intermediaries, the SGX and MAS have resolved to adopt a market solution in lieu of regulations. The Securities Association of Singapore (SAS) will be responsible for developing industry guidelines. Such industry guidelines will provide guidance on publication of the trading restrictions and their rationale. This will also promote consistent industry practices among SAS members.
The industry guidelines are expected to be introduced by end-2014.
e) Reinforcing the SGX listings and enforcement framework
To reinforce the SGX listings and enforcement framework, three independent committees (Listings Advisory Committee, Listings Disciplinary Committee and Listings Appeals Committee) will be established, and SGX will be empowered to impose a wider range of sanctions for breaches of listing rules.
SGX will, for instance, be empowered to require remedial action for non-compliance by issuers, such as undertaking compliance or training programmes, appointment of independent advisers, or conducting an independent review of internal controls and processes. For minor transgressions or breaches of the listing rules, SGX will be empowered to make offers of composition (which shall not exceed S$10,000 for each breach).
These measures will take place in early 2015.
Implementation of the initiatives will be phased in over the next 24 months, and MAS and SGX have announced that they will continue to work closely with industry players on the implementation details. Further consultations on the regulatory requirements and operational rules may be undertaken, if required.
These measures and reforms look set to enhance the robustness and resilience of Singapore’s securities market, and instil greater investor confidence. This represents a significant milestone in Singapore’s journey to become a leading financial centre and investment venue of choice in Asia.
The Chinese version of this article is here.
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