Singapore’s overhaul of its stock market is overdue. The city-state has proposed a raft of new trading rules in response to last year’s painful crash in penny stocks. Though welcome, the joint proposals from the Singapore Exchange (SGX) and the Monetary Authority of Singapore (MAS) look mostly like playing catch-up with Hong Kong.
The Singapore exchange’s dual role – it is both market regulator and a commercial entity – may help explain why its reforms have lagged behind some of its regional peers. Daily average trading volumes are already languishing at one 10th of the level of Hong Kong, where the market is regulated separately by the Securities & Futures Commission (SFC).
However last year’s penny-stocks debacle, which wiped around $8-billion Singapore ($7-billion) off the value of three listed companies in two days, has shown the limits of a laissez-faire approach. The proposals should prevent a repeat, if only because penny stocks will disappear. Introducing a minimum price for listed stocks of at least 10 cents would force around 130 companies to consolidate their shares or delist.
A proposal requiring retail investors to post 5 per cent collateral on open positions would discourage them from placing orders and then selling out before the original trade is settled. Such “contra trading” currently accounts for almost a third of activity by value in Singapore. The only other big exchange in the region that allows the practice is Malaysia.
Singapore is also abandoning its relaxed approach to the disclosure of short-selling. At the moment, investors are only required to flag individual short trades. The new rules would require them to report net short positions in excess of, say, 0.5 per cent of a company’s issued shares, and potentially reveal their identity. That would put Singapore ahead of Hong Kong, which currently only publishes aggregate short positions for each stock on an anonymous basis.
For all the reform, Singapore isn’t taking its eye off new listings. It’s proposing an independent committee that would vet new issuers and have the power to implement fines against those that breach market rules. At the same time, however, it may still relax a ban on dual-class voting structures which are popular with tech companies. Singapore’s overhaul is welcome, but the race between rival exchanges to attract initial public offerings is still on.