ROBSON LEE: On SGX’s Proposals on Introduction of Minimum Trading Price, Codification of Regulatory Tools

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) 

INTRODUCTION

Robson Lee specialises in corporate finance and capital markets transactions. He advises public listed companies on securities transactions, cross-border mergers and acquisitions and foreign joint ventures. Photo by Sim Kih.The Singapore Exchange (“SGX”) is proposing a minimum trading price (“MTP”) requirement for Main Board-listed companies (the “MTP requirement”). The existing watch-list framework will also be adjusted in light of the MTP requirement. These changes are expected to take effect in March 2016.

Separately, SGX also proposes to retain and codify the current notification and privy list requirements into the Listing Rules.

These proposals are discussed below in this article. 

I.              THE MTP REQUIREMENT 

(i)            Objective

The objective of the MTP requirement is to elevate the overall quality of Main Board-listed stocks. Lower-priced securities pose significant risks. They tend to be more volatile and susceptible to market misconduct and abuses. The relative cost impact to investors is also higher due to lower liquidity in these securities.

(ii)           Quarterly review for compliance with the MTP requirement

SGX has proposed a MTP of S$0.20 for Main Board-listed stocks. This includes real estate investment trusts (“REITs”) and business trusts (“BTs”). The MTP will be calculated using the Issuer’s 6-month volume-weighted average price (“VWAP”).

A quarterly review will be conducted to determine if issuers are in compliance with the MTP requirement. The review will take place on the first market day of March, June, September and December. Issuers that record a VWAP of less than S$0.20 over the 6 months prior to each review will be placed on the watch-list. This ensures that investors are provided a measure of transparency and early warning.

(iii)          Transition and cure period

Issuers whose shares are trading below S$0.20 can undertake corporate actions such as share consolidations. Such issuers may also consider a transfer to Catalist if it is able to engage a sponsor for its Catalist listing. Issuers will be given a one-time transition period of 12 months from the effective date of the MTP requirement (“transition period”). This allows affected issuers to undertake corporate actions to meet the MTP requirement. To facilitate transition, SGX will also waive share consolidation fees until 2017 for issuers who need to consolidate their shares to meet the MTP requirement.

Issuers who do not meet the MTP requirement after the transition period will be placed on the watch-list for at least 6 months. They will then be expected to take active steps to meet the MTP requirement within 36 months from their entry (“cure period”). Issuers will therefore have a total of 48 months (ie. until March 2019) to meet the MTP requirement when it is first introduced. Quarterly review will be conducted to assess whether the issuer is eligible for an exit from the watch-list.

The MTP requirement is an additional continual listing requirement for Main Board issuers. As such, issuers that are unable to meet the MTP requirement at the end of the cure period will be involuntarily delisted.

(iv)          Amendments to the existing watch-list framework

SGX proposes the following changes to the existing watch-list framework:

Issuers are required to make an immediate announcement upon their entry into the watch-list. While it remains on the watch-list, updates on the efforts and progress made in meeting the exit criteria must be provided.

The MTP requirement and the Financial Entry Criteria for the watch-list will be assessed independently. Issuers that fail to meet both the MTP requirement and financials criteria will remain on the watch list until both issues are resolved.

II.            CODIFICATION OF NOTIFICATION PROCESS AND PRIVY LIST REQUIREMENTS

The current notification and privy list requirement was first introduced on 3 March 2014. Issuers and/or controlling shareholders are required to notify SGX if they are aware of or involved in discussions which are likely to result in a takeover, reverse takeover or a very substantial acquisition by the issuer. In addition, issuers and/or controlling shareholders are to concurrently maintain a list of persons privy to such potential transactions (“privy list”).

The notification and privy list requirement has proved effective in enabling closer monitoring of unusual price or volume movements in shares of issuers. The notification requirement reinforces the need to keep negotiations on potential transactions confidential. The privy list has also facilitated SGX’s investigations into suspected insider trading activities.

These rules apply to issuers on both the Main Board and Catalist, and are expected to take effect from March 2015.

CONCLUSION

These proposals, if implemented, are likely to go a long way in curbing excessive speculation and potential manipulation. Going forward, Main Board issuers who will be affected by the MTP requirement may wish to seek legal advice on various corporate actions or Catalist listings.

SGX’s public consultation phase for the proposed regulatory changes ended on 16 October 2014. 


The Chinese version of this article is here. 

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