SGX proposes reforms to curb speculative trading
Measures target contra trades and short-selling, among others
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Measures target contra trades and short-selling, among others
Alvin Foo
08 February 2014
Share trading in Singapore could be headed for some major changes in the wake of last October’s penny stock crash if new proposals by regulators go ahead.
It could curb the speculative nature of so-called “contra trading”, a practice unique to Singapore and Malaysia.
This involves traders buying shares without cash upfront and reselling them within three days, pocketing or paying up the profit or loss rather than the full sum.
Critics say this practice encourages highly speculative trading. Contra trading formed 31 per cent of local market turnover.
The changes being proposed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) are designed to strengthen the local market.
The proposal that could lower the credit risk of contra trading would require traders to lodge 5per cent collateral of unsettled positions by the end of a trading session. This means an investor wanting to buy 1,000 DBS Group Holdings shares costing $16,350 needs to put 5 per cent of that sum, or $817.50, in collateral either in cash or stocks or bank guarantee, with the brokerage.
SGX also plans to shorten the share settlement period from three days to two days by 2016 to reduce its credit risk exposure.
Another suggestion is to have investors’ short-selling positions disclosed. Short-selling is selling shares one does not own.
Also under consideration is a minimum trading price of, say 10 to 20 cents for mainboard-listed shares to curb excessive speculation. This could affect 130 to 230 listed firms, which will be given three years to get ready for the change if implemented.
A public consultation paper has been issued. Interested parties have until May 2 to give feedback.
Mr Lee Chuan Teck, MAS assistant managing director of capital markets, said the consultation was aimed at making the market “stronger and more mature”. SGX chief Magnus Bocker said it encompassed “structural and regulatory aspects crucial to a well-functioning securities market”.
Industry players such as OCBC Securities managing director Raymond Chee said the proposed minimum collateral requirement would promote prudent investing and lower the financial exposure for brokerages from such trades.
Mr David Gerald, president of Securities Investors Association (Singapore), said it would “discourage a gambling mentality and encourage an investing mindset”.
But UOB Kay Hian senior executive director Esmond Choo also noted that this could restrict the ease of trading here, especially for small amounts. There is also the concern of how to administer the collateral collection, he added.