Singapore may introduce a minimum price for mainboard shares and impose rules on collateral for some trades after a slump in the stocks of three companies erased $6.9 billion in market value over three days in October.
The city-state also may set up an independent listing committee and boost enforcement, according to a joint statement from the Monetary Authority of Singapore and Singapore Exchange Ltd. yesterday. The central bank has been reviewing its market structure since Blumont Group Ltd., Asiasons Capital Ltd. and LionGold Corp. tumbled at least 87 percent over three days in October.
The declines spurred a 20 percent drop in Singapore equity trading last quarter from a year earlier as brokerages restricted investments in riskier small-cap stocks. SGX, Southeast Asia’s biggest bourse, will add circuit breakers this month to protect investors from excessive price swings. The Straits Times Index has dropped 4.9 percent this year after ending 2013 with the smallest gain among developed markets.
“The measures are aimed at orderly trading and reducing the ability to manipulate a particular stock,” said Yin Mei Lock, a Singapore-based capital markets lawyer at Allen & Overy LLP. “They go a long way in doing that and will help all retail investors.”
The regulators said they plan to reduce credit risks by imposing minimum collateral on customers for both Singapore and foreign-listed securities.
Regulators worldwide have evaluated safeguards since the May 2010 plunge known as the “flash crash” erased more than $800 billion from the value of U.S. equities in minutes. Exchanges in that country have implemented a limit-up/limit-down initiative that prevents market makers from quoting shares at prices deemed too far above or below current levels.
“Today’s world is fast-changing, and we need to strengthen Singapore’s securities market to meet the expectations of investors and companies,” Magnus Bocker, Singapore Exchange’s chief executive officer, said in the statement.
Singapore also plans to shorten the settlement period to two days from three by 2016 and impose more transparency for short selling, according to the statement. So-called contra-trading accounted for 31 percent of market turnover in the year ended in October, the regulators said. The exchange and central bank have set a May 2 deadline for industry feedback on the proposed changes.
“The proposal to have a minimum trading price is something the market will have to digest and helps reduce speculation,” said Rachel Eng, joint managing partner of Singapore-based law firm WongPartnership LLP. “Requiring collateral is a good step as investors will have some skin in the game. Hopefully this won’t damp trading.”
Nations around the world are cutting processing times, giving investors faster access to cash when they sell stocks. All European Union countries must settle trades in two days by the start of 2015, and U.S. securities firms are considering trimming settlement periods.
Starting March 3, Singapore Exchange will issue a “trade with caution” announcement whenever companies can’t explain queries on share trading, according to the statement. Companies will also be required to inform the bourse when they’re in takeover talks. The bourse will also cut its clearing fee for stocks from May to 0.0325 percent of contract value from 0.04 percent, it said in a separate statement.
Singapore is Asia’s eighth-biggest stock market by value, and the second-biggest when measured against the size of each nation’s economy, according to data compiled by Bloomberg.
The value of stock trading in Singapore dropped to a daily average of S$990 million ($780 million) in the three months ended Dec. 31 from S$1.23 billion a year earlier, according to data compiled by Bloomberg.
Blumont, which invests in minerals and energy, had soared more than 1,000 percent last year through the end of September to lead gains on the FTSE Straits Times All-Share Index, prompting the SGX to investigate the surge. The shares plunged 97 percent from an all-time closing high of S$2.45 on Sept. 30 to 7.1 Singapore cents.
Asiasons slumped 97 percent from its record close of S$2.83 on Oct. 1 to 9.8 Singapore cents. LionGold tumbled 92 percent from its peak on Aug. 29 to 14 Singapore cents.
The proposals will help in “promoting orderly trading and responsible investing” and “improving the transparency of market intervention measures,” the central bank and exchange said in the statement.