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What You Need To Know About Singapore Exchange Limited’s New Minimum Trading Price Rule

Stock exchange operator Singapore Exchange Limited (SGX: S68) has been busy introducing initiatives in recent months to improve the accessibility of Singapore’s stock market as well as to bump up protection for retail investors.

One important recent change by the bourse operator is the reduction in the board lot size from 1,000 units to just 100 units in January this year; the change has made it much easier for retail investors to invest in companies with high share prices (for instance, a company with a S$10 share price would require a minimum capital outlay of S$10,000 under the previous rule; under the current one, the minimum sum has been reduced to just S$1,000).

There’s a minimum price to meet now

Another interesting change the Singapore Exchange has implemented in recent months is a minimum trading price (MTP) for stocks listed on the Mainboard exchange. There are a few phases when it comes to this new rule so here are some of the important highlights:

  1. From March 2015 to March 2016:
    New companies that are planning to list on the Mainbaord exchange must do as at a MTP of at least S$0.50. For companies that are already listed on the Mainbaord, they must have a six-month average MTP of S$0.20; those that are unable to fulfil the requirement have until March 2016 to meet the new standard. It’s important to note that investors can still continue to trade the shares of affected companies on the Mainboard.
  2. From March 2016 to March 2019:
    In this three-year window, companies that can’t fulfil the six-month average MTP requirement of at least S$0.20 will be placed onto a watch-list which is published every quarter. These companies would have up to 36 months to pursue corrective actions so as to break free from the watch-list; they’d also have to provide investors with quarterly updates on their plans to hit the MTP requirement. Again, investors can still continue to trade the shares of the affected companies on the Mainboard.
  3. March 2019 onward:
    Companies that have entered the watch-list on March 2016 would be delisted from the Mainboard; for the sake of clarity, companies that entered the watch-list on April 2017 and May 2017 (and so on) would be delisted after 36 months on April 2020 and May 2020 (and so on), respectively. Investors who own shares of delisted companies would still remain as shareholders. But, it’s important to note that delisted companies are under no obligations to comply with the disclosure and transparency standards that are required of listed companies.

There are a number of actions that companies can take in order to comply with the MTP if they happen to be affected by it:

  1. Share consolidation:
    Share consolidations reduce the number of shares outstanding for a company by combining many shares into one. It’s important to note that the fundamentals of a company will not change with a share consolidation. Here’s an example of how a share consolidation might work: Let’s say you own 1,000 shares of a company with a share price of S$0.10. To meet the MTP requirement and to give itself some buffer, the firm decides to undertake a 5-for-1 share consolidation which would “combine” five shares into just one. After it’s done, you’d end up owning 200 shares of the same company but with a price of S$0.50 each.
  2. A transfer to the Catalist board:
    Companies can transfer its shares to the Catalist board. There are some differences in the listing requirements between the Catalist board and the Mainboard, but the key here is that the former does not have any MTP requirements.
  3. Restructuring the business:
     According to the Singapore Exchange, a company that’s affected by the MTP ruling “can consider other appropriate corporate actions such as restructuring, acquisitions of businesses, [or] reverse takeovers.”

What it means for investors

The rationale for having the MTP, according to the Singapore Exchange, is to help improve “the overall quality of Singapore’s stock market” given that “low-priced securities tend to be more volatile and therefore more susceptible to speculation and market manipulation.”

These are noble intentions, but I’m worried that the new MTP rules might bring about unintended consequences. For example, would the implementation of the MTP rule unwittingly place a psychological floor of S$0.20 for the price of any stock in the minds of investors?

It’s worth noting too that a low share price need not necessarily mean that a company’s of poor quality or that it is tiny in size. The reverse is also true – having a high stock price says nothing about the quality of a company’s business nor its real size.

As an example, shares like Golden Agri-Resources Ltd (SGX: E5H), Fragrance Group Limited (SGX: F31), and SIIC Environment Holding Ltd (SGX: 5GB) all have prices that are lower than S$0.50 but yet have billion-dollar market capitalisations.

Table for companies with low prices and high market caps

Source: S&P Capital IQ

It would be interesting to see how the market would eventually react to the new MTP requirement over time.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.