SGX enhances regulatory tools effective March 3

Query process refined, new requirements added.

Singapore Exchange (SGX) is enhancing its regulatory tools in line with international standards, by refining its query process and adding new requirements.

As one of the few exchanges which conduct real-time surveillance of trading activities and issue real-time queries to companies on unusual trading activities, SGX regularly enhances its regulatory tools. This latest series of enhancements also follows a joint review with the Monetary Authority of Singapore (MAS).

Here are the enhancements listed in full detail:

a) Enhancements to the public query process

(i) When unusual trading activity is detected in a stock that cannot be explained by existing public information or prevailing market conditions, SGX will issue a public query to the company regarding the unusual trading activity in its stock. Such a query aims to extract yet-to-be disclosed price-sensitive information from the company that can explain the unusual trading behaviour in its stock. Public queries also serve to alert investors to trade with care given the unusual trading activities observed in a particular stock

SGX will enhance its public query by providing examples as a guide, of yet-to-be disclosed information that could explain the trading patterns. An example of the new template for the query to all listed companies is available in the Frequently Asked Questions (FAQs) at this link.

(ii) Currently, when companies are publicly queried on unusual trading activities in their stocks, most companies will seek the Board of Director’s (“Board”) approval in their responses. This is a good practice and should be codified. Moving forward, SGX will require all companies to have their replies to SGX approved by the Board. The company must state in their response to SGX that the Board’s approval has been obtained. This will establish accountability for the companies’ responses. The relevant SGX Practice Note 7.2 for Mainboard companies is found here. The Practice Note 7B for Catalist companies is found here.

b) Publication by SGX of a “Trade with Caution” announcement

SGX will introduce a “Trade with Caution” announcement in instances where a company is queried by SGX and replies that it is unaware of any reasons for the unusual trading activities observed in its stock. This announcement from SGX will remind investors to be cautious when trading in that company’s stock. It will also serve as a warning that the trading activities in that company’s stock could be caused by market forces other than the corporate developments of the company.

c) Notifying the exchange on specific transactions and privy persons

Companies have a duty to keep material information confidential, and to monitor the trading activities of their stocks closely. During the course of market surveillance, SGX has observed instances where a stock price moved before a material announcement. This could indicate a possible information leak.
In support of closer monitoring of trading activities, companies will be required to notify SGX where its Board is, either aware of discussions or negotiations of a potential proposal, or in discussion or negotiation on an agreement or document which may lead to a takeover, reverse takeover or a very substantial acquisition by the company. SGX will keep such notifications confidential. This notification template will be available in SGX Practice Note 7.2 for Mainboard companies and Practice Note 7B for Catalist companies from 3 March 2014.

At the same time, the company will be required to maintain a list of names of persons privy to the transaction. SGX may request the privy list as and when necessary. Listed companies can refer to the “Privy List Template” which will be available in both SGX Practice Note 7.2 and Practice Note 7B from 3 March 2014.