Brokerages snowed under by cash influx
For two weeks, they had to verify money source for purchase of ‘designated’ stocks
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For two weeks, they had to verify money source for purchase of ‘designated’ stocks
Goh Eng Yeow, Straits Times
23 October 2013
Vast sums of physical cash passed through broking houses in the fortnight the Singapore Exchange (SGX) allowed only cash transactions on three stocks - Blumont Group, LionGold Corp and Asiasons Capital.
Investors were turning up at brokerages with large bags of cash - one man carried $200,000 - to meet the SGX requirement designed to stamp out speculative trading and create price stability.
A back-of-the-envelope calculation indicates about $181 million worth of these three stocks changed hands in the two weeks before the trading restrictions were lifted on Monday.
Brokerage staff were sometimes unable to cope with the cash influx and a requirement to ensure the money was untainted.
One remisier said: “The first day was especially hectic. There was only one cashier handling the payments and she could not cope with the number of people turning up with cash to pay for their purchases. She was so busy she did not have time to ask where the money came from.”
Trading was particularly hectic on the first two days of the trading curbs, with about $27 million of Asiasons shares, $30 million of LionGold shares and $33 million of Blumont shares changing hands respectively.
That accounted for about half of their total trades in the two weeks when the three counters were “designated”.
As a rule, most broking houses do not let any client make cash payments for stock purchases costing more than $20,000 to conform with the Monetary Authority of Singapore’s guidelines on anti-money laundering.
But the SGX’s “designation”, or trading restrictions, on the three former market darlings forced them to accept cash payments - sometimes in hundreds of thousands of dollars - from their clients to settle their transactions.
The Monetary Authority of Singapore said the anti-money laundering laws do not prohibit financial institutions from accepting cash payments to settle trades.
However, it requires financial institutions to have policies and procedures to monitor large cash payments.
If the financial institution believes there are no valid reasons for the large cash transaction, it should file a suspicious transaction report with the Commercial Affairs Department, the white-collar crime-buster, it said.
OCBC Securities executive director Yeow Chin Wee said: “We generally encourage customers to settle trade payments via electronic modes such as Giro and Electronic Payment for Shares (EPS).
“Where cash settlements are involved, we have in place due diligence measures that include ascertaining the source of funds as part of OCBC’s anti-money laundering policy.”
In a note to its remisiers, Phillip Securities said that clients planning to pay via EPS must make sure that their funds are credited by 9pm the previous day before they can make any purchases.
Remisiers must see details of the fund transfer before allowing their clients to buy the shares, it added.
But some traders noted that it may sometimes be difficult to have hard and fast rules on accepting cash payment for purchases on the three counters.
One remisier said: “I was told to ask my clients for their cash withdrawal receipt to show the source of funds. But if I know that my client runs a food business and keeps plenty of cash in his safe, I will explain to my back office this is where the money comes from.”
Still, there is no denying that the two weeks - especially the first few days when Blumont, LionGold and Asiasons were “designated” by the SGX - were challenging times for broking houses as they struggled to cope with the sudden deluge of cash hitting their payment counters.