Singapore Exchange Looks Into Potential Derivatives Spoofing

  • Exchange's chief regulatory officer ponders need for new rules
  • SGX received complaints about suspected spoofing recently

Singapore’s stock exchange is evaluating possible incidents of spoofing in its flourishing derivatives market, following complaints over the dishonest trading practice.

Singapore Exchange Ltd. has received complaints that some market participants maybe making orders and then canceling them before they can be executed. As both the regulator and the operator of Southeast Asia’s largest equities and derivatives markets, SGX, as the exchange is also known, is reviewing these possible incidents of spoofing, according to its chief regulatory officer.

“With the sort of volumes that we have in the derivatives market, there are bound to be instances where you see what appears to be unusual trading” in any exchange, Tan Boon Gin, a lawyer who studied at Harvard and Cambridge universities, said in an interview. The cases haven’t been definitively classified by SGX as spoofing, Tan said.

The level of such activities isn’t higher than those at other international exchanges, the former prosecutor said, adding that the Singapore bourse’s review is part of its usual market surveillance.

Tan is examining whether Singapore’s existing false-trading laws are strong enough to prosecute spoofers.

“One of the things that we’ll be looking at very carefully is whether or not there’s a need for a spoofing law,” he said.

Derivatives Volume

SGX is still living with the consequences of an as-yet-unexplained stock crash in 2013. Two years later, share trading in the city-state, where SGX enjoys a monopoly, has yet to recover. Volume remains 25 percent lower than before the tumble. Derivatives accounted for 41 percent of its most recent quarterly revenue amid soaring demand for futures and commodities contracts including China A50 Index, Nikkei225 and iron ore. That compared with 32 percent a year ago.

Spoofing has gained prominence recently, especially with a series of high-profile cases involving the U.S. futures markets.

On Tuesday, a jury of eight men and four women in a Chicago federal court took about an hour to find Michael Coscia, head of Panther Energy Trading LLC, guilty on spoofing charges. His trial was the first use of an anti-spoofing law after the 2010 Dodd-Frank Act made it illegal to manipulate prices in the U.S. by placing orders without intending to trade on them. The law also provided an easier standard of proof to try cases.

In what may be the next spoofing trial, Chicago federal prosecutors are seeking extradition of a U.K. trader on charges tied to the May 2010 flash crash, which temporarily wiped out almost $1 trillion in value of U.S. equities. The defendant, Navinder Singh Sarao, is fighting the extradition bid.

New safeguards

Singapore introduced safeguards last year to protect investors from a similar crash to the 2013 event. If the move in a stock reaches a certain threshold, circuit breakers automatically bring trading in the security to a halt, hopefully stopping a spiral of falling or rising share prices.

Tan led the Commercial Affairs Department investigation into the 2013 stock rout probe before joining SGX in June. During a spell at the Monetary Authority of Singapore, he worked on the central bank’s first civil lawsuits on stock rigging and insider trading.

SGX in September had its enforcement powers expanded. It can now fine listed companies and their directors and suspend the activities of financial advisers. The strongest action it had previously been able to take was the ability to publicly reprimand a company or delist the shares.

The exchange needs to “make sure that we’re on our toes but also to keep the
market on its toes,” Tan said. "That’s really key to preserving market confidence.”

Under Tan’s watch, SGX is also reviewing listed companies’ compliance with the corporate governance code and introduced listing committees to boost its regulatory process to ensure investors keep faith in the market.

“Trust is everything,” Tan said. “Anything that will undermine confidence in the market, that keeps me up at night.”

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