MAS and SGX Propose Changes to Singapore’s Stock Market

Last year in October, shares of Asiasons Capital Limited (SGX: 5ET), Blumont Group (SGX: A33) and LionGold Corp (SGX: A78) were the talk of the town when they crashed, wiping off around S$5.2 billion collectively from their market capitalisation.

Quite a number of traders were buying those shares on “contra”. This means that traders can purchase shares without any cash payment upfront and sell them within three days, pocketing the difference if there is a profit or paying the difference if there is a loss.

Such speculation could be curbed in the future if the latest proposal by the Monetary Authority of Singapore (MAS) and stock exchange operator Singapore Exchange (SGX: S68) comes to fruition. In a joint consultation paper released on Friday, the MAS and SGX have proposed some changes to curb speculation and beef up the securities market.

The proposed changes are as follows:

  1. Introducing a minimum trading price
  2. Having collateral requirements for securities trading
  3. Changing the short position reporting requirements
  4. Having more transparency of trading restrictions imposed by securities intermediaries
  5. Reinforcing the SGX listings framework
  6. Strengthening powers to enforce regulatory actions against breaches of listing rules

SGX may also implement a minimum trading price of around S$0.10 to S$0.20 per share for shares listed on the Mainboard exchange. Back in August 2012, there was already a change in the rules by SGX  to only allow new listings on the Mainboard exchange to have a share price of at least S$0.50.

In any case, 130 to 230 firms may be potentially affected by the possibility of the change of having a minimum trading price take place. If a share consolidation has to occur for those affected-shares to align with the proposed rule, SGX is prepared to waive all corporate action fees payable by firms for two years.

Another change proposed is that brokerages may require clients to put up collateral of at least 5% on any unsettled purchases. For example, if an investor wants to purchase 1,000 shares of Keppel Corporation (SGX: BN4) at its current price of $10.37 per share, he/she has to put up $518.50 (0.05 x 1000 x $10.37) as collateral.

Furthermore, the settlement period is to be cut from transaction plus three days (T+3) to T+2 days by 2016. This means that investors have a day lesser to pay for the shares that they do not want to purchase via “contra”.

To know more, interested readers can take a look at SGX’s website here. A direct link to the consultation paper can be found here where detailed information of the proposed changes can be obtained.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.