MAS and SGX propose measures to strengthen securities market

Three areas for improvement identified.

The Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) today released a joint consultation paper setting out proposals to strengthen the securities market in Singapore. The proposals follow an extensive review by MAS and SGX of the securities market in Singapore.

The review concluded that while the securities market remains sound, there were three areas for improvement: 1) promoting orderly trading and responsible investing; 2) improving the transparency of market intervention measures; and 3) strengthening the process for admitting new listings and enforcing against listing rule breaches.

Here are the proposed measures discussed in detail:

Promoting orderly trading and responsible investing

Minimum trading price. MAS and SGX are considering the possibility of setting a minimum trading price for issuers listed on the SGX Mainboard. Low-price securities are generally associated with high volatility, which in turn makes them more susceptible to speculation and potential market manipulation. Introducing a minimum trading price as a continuing listing requirement will help to address these risks. MAS and SGX recognise that the move to a minimum trading price will have to be carefully considered and managed, and look forward to views from the industry and investing public.

Collateral requirements for securities trading. Having carefully considered the various views expressed against and in support of contra trading, MAS and SGX have concluded that the focus should instead be on reducing the credit risk exposures of market participants. It is proposed that securities intermediaries impose minimum collateral on their customers for trading in both SGX-listed and foreign listed securities, based on the customers’ open positions and credit risk management practices. SGX also intends to shorten the settlement cycle from T+3 to T+2 days by 2016. Taken together, these measures will enhance the robustness and resilience of the securities market.

Short position reporting requirements. MAS and SGX recognise the role of short selling in the price discovery process. To further enhance transparency in short selling, MAS and SGX propose a short position reporting regime. This will complement the marking regime introduced by SGX last year, where participants are required to mark short sell orders. Under a short position reporting regime, there are two options, namely aggregate position reporting and disclosure of significant individual short positions. MAS and SGX seek feedback on the pros and cons of each option given the different reporting thresholds and the type of information that would be made public.

Improving the transparency of market intervention measures

Transparency of trading restrictions imposed by securities intermediaries. MAS and SGX propose to require trading restrictions imposed by securities intermediaries for securities listed on SGX to be announced through the SGX website. Since trading restrictions by intermediaries can have a market impact, it is important to ensure fair and transparent dissemination of information on such restrictions.

Strengthening the process for admitting new listings and enforcing against listing rule breaches

Reinforcing the SGX listings framework. To address perceived and actual conflicts of interests in relation to SGX’s role as the listing authority, MAS and SGX propose that anindependent Listings Advisory Committee be established to consider listing policy issues and listing applications that meet specified referral criteria. This will supplement SGX’s existing listing review process and introduce practitioner experience to the decision-making process.

Strengthening powers to enforce regulatory actions against breaches of listing rules. To improve the transparency of SGX’s disciplinary process and ensure fair administration of sanctions for listing-related matters, MAS and SGX propose to establish an independent Listings Disciplinary Committee and Listings Appeals Committee. It is also proposed that the range of regulatory sanctions for listing rule breaches be expanded to include powers to impose fines, restrict the activities that issuers may undertake, as well as to make offers of compositions for minor and technical breaches.

Measures to strengthen transparency

SGX today separately announced measures to strengthen market transparency, effective from 3 March 2014. These include: (a) an issuer’s board of directors will be required to approve the issuer’s reply to a public query by SGX. (b) SGX will publish a “Trade with Caution” announcement whenever issuers are unable to explain the trading activities which SGX is querying. (c) issuers will be required to notify SGX of discussions or negotiations that are likely to lead to a takeover, reverse takeover or a very substantial acquisition.

SGX has also published FAQs on its website regarding the use of its regulatory powers to suspend and designate a stock. These two tools are used sparingly by SGX in exceptional cases where anomalies in trading are observed.

Mr Lee Chuan Teck, Assistant Managing Director, Capital Markets, MAS, said, “These changes have to be viewed in the context of a securities market that is fundamentally sound. A recent assessment by the International Monetary Fund affirmed that our securities market’s compliance with international standards is generally high, and Singapore’s regulations are among the best in the world. This consultation allows us to have a conversation with all stakeholders on how to make the market stronger and more mature. We will consider all views carefully before making any decision.”

Mr Magnus Bocker, Chief Executive Officer, SGX said “This joint consultation and enhancements to SGX’s regulatory tools encompass structural and regulatory aspects crucial to a well-functioning securities market. Today’s world is fast-changing and we need to strengthen Singapore’s securities market to meet the expectations of investors and companies.”

Given the breadth of the proposals, MAS and SGX have set the consultation period at 12 weeks. Interested parties are invited to submit their views and comments on the proposals made in the consultation paper by 2 May 2014.