Singapore is bringing in tougher rules for its equity market to help restore investor confidence after a penny-stock slump erased $6.9 billion in market value from commodity companies over three days in October.
Regulators will impose a minimum trading price of S$0.20 for mainboard shares because low-priced securities are more susceptible to excessive speculation and potential market manipulation, according to an Aug. 1 statement from the Monetary Authority of Singapore and Singapore Exchange Ltd. The city-state will start requiring investors to lodge collateral worth 5 percent of trades and provide more information about short positions. It also plans to reduce the lot size for transactions.
The collateral rule will help stockbrokers “better manage their business risks, which in turn will lead Singapore to a more solid financial market and preserve its market integrity,” Loh Hoon Sun, managing director of Phillip Securities Pte, said by phone today. “I expect that there will be adverse reaction initially to these new measures, resulting in lower trading volume. However, the market should soon adjust and get used to these new trading rules.”
Singapore will reduce the lot size of listed securities in January to 100 shares from 1,000 shares currently, MAS and the exchange said in the statement. While the reduction will allow smaller investors to afford more expensive shares, it won’t increase trading volume because they will redirect that money from lower-priced shares rather than buying more, Loh said.
More than 200 listed companies on SGX’s mainboard whose shares trade less than the S$0.20 minimum price requirement will have to meet the new criteria by March 2016, the exchange said in an e-mailed response to query.
Regulators have been reviewing Singapore’s stock market structure since Blumont Group Ltd., Asiasons Capital Ltd. and LionGold Corp. tumbled at least 87 percent over three days in October. SGX, Southeast Asia’s biggest bourse, added circuit breakers in February to protect investors from excessive price swings.
The new rules “will further enhance the robustness and resilience of our securities market and instill greater investor confidence,” Lee Boon Ngiap, assistant managing director of capital markets at MAS, said in the statement.
SGX’s profit fell 12 percent to S$77.4 million ($62 million) in the three months to June 30 from a year earlier, the bourse said last week, as share trading volume shrank following the penny-stock rout. Stock trading on the Singapore bourse dropped 30 percent to a daily average of S$1.12 billion during the quarter from a year earlier, according to data compiled by Bloomberg.
The exchange’s shares fell 0.1 percent to S$7.16 as of 11:58 a.m. local time, while the benchmark Straits Times Index slipped 0.6 percent.
The initiatives will be implemented in phases over the next two years, according to the statement. SGX will set up three committees to introduce a wider range of sanctions for breaches of listing rules, it said.
The measures “won’t prevent such fiascos from happening again,” said Gabriel Yap, a former broker who now manages his own investment advisory co., GCP Global Pte. “What authorities should do is ban trading of stocks that have been manipulated.”
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.
“The measures will encourage more retail investors participation in the market,” David Gerald, president of the Securities Investors Association of Singapore, said by phone. “Small investors can now buy blue chip such as Singapore Airlines, Keppel and the banks with the lowering of the board lots. The requirement of collateral is also a good move as this will encourage investors to be responsible investors.”