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Singapore – SGX And MAS Conduct Consultation On Changes To The Structure And Practices Of The Securities Market.

26 February, 2014

 

Legal News & Analysis – Asia Pacific – Singapore  Capital Markets

 

On 7 February 2014, the Monetary Authority of Singapore (“MAS”) and the Singapore Exchange (“SGX”) jointly issued a Consultation Paper on Review of Securities Market Structure and Practices (“Consultation Paper”). It proposed a range of policy changes affecting issuers, securities intermediaries, and investors for consideration and feedback.

 

The following proposed changes will impact issuers and potential issuers in particular:

 

  • Issuers should be subject to a continuing listing requirement that an issuer’s volume weighted average share price does not fall below a specified minimum trading share price for 180 consecutive calendar days;
  • A Listings Disciplinary Committee and a Listings Appeals Committee should be established; and
  • The SGX’s powers for enforcing compliance with the listing rules should be enhanced by empowering it to make offers of composition in respect of certain types of breaches, and by empowering it to require non-compliant issuers to take specific remedial actions.
 

The following proposed changes will impact securities intermediaries and investors:

 

  • A Listings Advisory Committee should be established to consider listing policy issues and listing applications in respect of the following types of listing matters:
    • Matters that present novel or unprecedented issues;
    • Matters that require specialised expertise; or
    • Matters that involve matters of public interest;
  • Securities intermediaries are to impose minimum collateral requirements on their customers for contra-trading in both SGX-listed and foreign listed securities;
  • Short position reporting should be implemented and two alternative methods— aggregate position reporting or public disclosure of short positions—have been proposed; and
  • Restrictions imposed by securities intermediaries on all their customers in respect of specific counters should be announced on the SGX website.

 

Proposed Changes Affecting Issuers And Potential Issuers

 

Minimum Trading Price For Issuers Listed On SGX Mainboard

 

The Consultation Paper has proposed that a requirement of a price to be minimum trading price should be introduced for all shares listed on the Mainboard of the SGX. The requirement is proposed to be implemented as follows:

 

  • It will be a continuing listing requirement that an issuer’s volume weighted average share price does not fall below a specified minimum trading share price for 180 consecutive calendar days.
  • The minimum trading share price could be set at around S$0.10 to S$0.20.
  • The issuer will be given a reasonable period of time (e.g., 36 months) (the “cure period”) to comply with the minimum trading price requirement. He may, for example, carry out a share consolidation exercise or a share buyback.
  • If an issuer is unable to comply with the minimum trading price at the end of the specified cure period, the issuer may be delisted from the Mainboard.
  • To enable investors to exit their investments, the issuer may be required to provide an exit alternative as currently specified under Rule 1309 of the Listing Manual. Alternatively, an alternative trading facility could be established to allow the shares to be purchased after delisting, with periodic auctions to be conducted for this.

 

The Consultation Paper explained that the rationale for setting a market stability minimum trading price is to maintain market stability: markets tend to be more volatile when share prices are low. In view of the upcoming move towards smaller board sizes, setting a minimum trading price will help to counter higher volatility.

 

Strengthening The Process Of Enforcement Of Listing Rules

 

The Consultation Paper also proposes the establishment of the following two independent committees, each with the following roles: 

 

  • The Listings Disciplinary Committee (“LDC”) will hear formal charges brought by the SGX against parties who are alleged to have breached listing rules and be empowered to impose regulatory sanctions for breaches of the listing rules. These parties will include issuers, directors, key executive officers, and issue managers.
  • The Listings Appeals Committee (“LApC”) will hear appeals from: o Parties against whom the LDC’s decisions are made; o Issuers against the SGX’s decisions to delist them; and o Issuers against the SGX’s decisions in respect of certain listing rules (e.g., rejection of an application to exit the watch-list, and rejection of a trading resumption proposal).

 

The LDC and LApC will be given the SGX’s existing enforcement and LApC powers for breaches of listing rules and also new powers to:

 

  • Impose a fine not exceeding S$250,000 on issuers for each breach of the listing rules (subject to a cap of S$1 million for any series of breaches resulting from the same hearing or conduct); and
  • Impose restrictions or conditions on activities that the issuers may undertake, including the denial of market facilities for a specified period (e.g., issuers may be restricted from conducting secondary fund-raisings).

 

In addition, the following enhancements to the SGX’s enforcement powers are proposed:

 

  • The SGX should be given the discretion to make an offer of composition in relation to breaches of the listing rules that do not constitute breaches of the Securities and Futures Act and are relatively minor, and are administrative or technical in nature.
  • The SGX should be further empowered to require remedial action for non-compliance by issuers, including any of the following:
    • Requiring a compliance programme to be undertaken;
    • Requiring the appointment of an independent adviser to minority shareholders;
    • Requiring a mandatory education or training programme to be undertaken by directors or key executive officers of an issuer; and
    • Requiring an independent review of internal controls and processes.
 

Proposed Changes Affecting Securities Intermediaries And Investors

 

Strengthening The Process For Admitting New Listings

 

To mitigate any potential or perceived conflict of interest arising from the SGX’s position as regulator and as a commercial entity, the SGX has proposed the setting up of an independent Listings Advisory Committee (“LAC”) which will consider listing policy issues and listing applications in respect of the following types of listing matters:

 

  • Matters that present novel or unprecedented issues;
  • Matters that require specialised expertise; or
  • Matters that involve matters of public interest.

 

The SGX will retain responsibility for deciding on listings, and will continue to review and approve listing applications. The LAC may only advise the SGX on the specified types of listing matters brought to its attention. The SGX may depart from the LAC’s advice, and if it decides to do so it will refer the matter to the Regulatory Conflicts Committee (“RCC”). The RCC may in turn refer the matter to the SGX Board, presenting the LAC’s advice and the SGX’s reasons for its recommendation.

 

Collateral Requirements For Securities Trading

 

The SGX does not currently mandate that securities intermediaries must obtain collateral for contra trading. It has proposed to change this to better minimise systemic risk: securities intermediaries (including banks) authorised in Singapore to deal in securities should be required to impose minimum collateral on their customers for trading in both SGX- listed and foreign listed securities:

 

  • Intermediaries will be required to collect collateral directly from each customer based on the customer’s open position, appropriate to the volatility of the securities traded and the credit profile of the customer, subject to a minimum collateral of 5% of the customer’s open position.
  • The collateral must be collected from customers no later than the end of the trade day.
  • The collateral must be in the form of cash, marketable securities, or a guarantee from a bank operating in Singapore.
  • Securities intermediaries are to hold the collateral in trust accounts with licensed banks in Singapore at all times.
  • Customers that are institutional investors will be exempt from the collateral requirements.
 

Short Position Reporting Requirements

 

The Consultation Paper has proposed that the current system of marking short-sell orders as such be enhanced by requiring short position reporting. It suggests two short position reporting options as follows:

 

  • Aggregate position reporting: Investors with net short positions that are the lower of 0.05% or S$100,000 of issued shares of a listed entity would be required to report weekly. The aggregated short positions would be published on a weekly basis without revealing investor identity.
  • Public disclosure of short positions: Short position holders would be required to report their net short positions by T+2 days, if their net short position exceeds 0.5% of issued shares, and for every subsequent change in position of 0.1% or more. The identity of short position holders and their net short positions would be published on an ongoing basis.

 

Transparency of Trading Restrictions Imposed By Securities Intermediaries

 

Currently, when securities intermediaries impose trading restrictions on trading in certain securities, there is no obligation for them to notify the market generally. The level of dissemination of this information is uneven as different intermediaries adopt different practices.

 

 To deal with this, and to ensure a more transparent market, the Consultation Paper has proposed that trading restrictions imposed by securities intermediaries (including banks) on all customers for any security listed on the SGX are to be announced through the SGX website. The requirement will not apply to cases where the intermediary may want to impose specific control measures to manage its exposure to certain customers only.

 

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For further information, please contact:

 

Rachel Eng, Partner, WongPartnership

rachel.eng@wongpartnership.com

 

Annabelle Yip, WongPartnership

annabelle.yip@wongpartnership.com

 

Gail Ong, WongPartnership

gail.ong@wongpartnership.com

 

Joy Tan, WongPartnership

joy.tan@wongpartnership.com

 

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