TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
Comments
R Sivanithy
07 March 2014
The controversial practice known as contra trading has been under scrutiny ever since the penny stock crash of last October. Because of claims (as yet unproven) that contra was a contributory - or perhaps aggravating - factor during that sorry episode, there have been calls to either abolish or curb the practice because allowing punters to buy stocks with no capital upfront is outdated, risky and encourages gambling.
The authorities last month proposed various new measures aimed at strengthening the local market. These include proposals to curb contra - a shortening of the settlement period to two days instead of three, and the payment of upfront collateral.
There’s no doubt that contra is an archaic practice that adds risk and probably distorts prices. Taken to its logical extreme, one could argue that it should never have been allowed in the first place all those decades ago, back when settlement was five days after the transaction day, when commissions were one per cent and when brokers could extend the contra period to a week or even more.
This was our position several years ago, that contra is an unhealthy practice that should be abolished as quickly as possible. Upon reflection though, the fact remains that contra was encouraged and it did flourish, to the point that it has now become deeply entrenched in the psyche of the local investor, that many retail investors and brokers claim they cannot do without.
No surprises then that even though the latest proposals allow some scope for contra trading - two days is still better than none - there is a nagging worry that eventually, contra will disappear altogether.
Before going further, it’s worth noting that if contra should be ditched because it is an outdated way of doing business, then as anachronisms go, there is none that is more glaring or more in need of being addressed than the existing regulatory model where the market’s frontline supervisor is a listed, profit-driven company which faces conflicts of interest every day.
This is an even more fundamental, structural issue because it impacts every aspect of the market from listing to surveillance to trading - much more so than a system that accommodates speculative punting - but hasn’t been addressed despite frequent calls for change from many quarters.
So, why should abolishing contra take precedence over revamping a regulatory structure to create a model that is more robust, credible and has no inherent conflicts?
Regulatory anachronisms aside, it could be that October’s penny collapse hastened a process that might have already been under consideration, namely the shortening of the settlement period in order to bring the local market in line with other developed markets.
If this is the case, then the adverse effect settlement shortening has on contra should be viewed as collateral damage and the practice per se may not have been the primary target of regulators.
In fact, the Singapore Exchange (SGX) has made it clear in its post-October announcements that contra is a commercial arrangement for brokers to offer and is not subject to exchange regulation.
This is the crux of the contra conundrum - if brokers can manage the risks that contra poses, if they have the necessary safeguards and credit checks in place and if they are comfortable with their exposures, then it’s perhaps okay to leave things as they are.
Collateral should be paid for larger trades in order to limit credit risk from becoming too large, but there should be allowance for individual clients with decent payment records to be granted some leeway when needed.
This is not to say that contra should be encouraged or actively promoted. However, it should be viewed in the proper perspective - as a necessary commercial evil if you will, but one that is best left to brokers to handle.