TTI query, trade caution a regulatory overkill?

It appears that in the wake of last October’s penny stock crash and the measures to strengthen the market that have been proposed since, the Singapore Exchange (SGX) may be going into misplaced regulatory overkill. One case that stands out is TT International (TTI) - the company having been queried on Monday about a surge in volume traded of its shares, which was then followed by a “Trade With Caution” warning.

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Guanyu said…
TTI query, trade caution a regulatory overkill?

R Sivanithy
19 March 2014

It appears that in the wake of last October’s penny stock crash and the measures to strengthen the market that have been proposed since, the Singapore Exchange (SGX) may be going into misplaced regulatory overkill. One case that stands out is TT International (TTI) - the company having been queried on Monday about a surge in volume traded of its shares, which was then followed by a “Trade With Caution” warning.

Before going into details, note that when the exchange explained why it did not query Olam International during Olam’s six-week-long, 40 per cent share price surge, it said over the weekend that it takes into account several factors when deciding whether price movements are unusual.

“These include macroeconomic factors, market sentiment, specific industry outlook and trends, company financials and company developments and analyst reports. SGX will issue a public query when trading activities cannot be explained by these factors,” said the exchange.

Set aside for now the fact that the only explanation SGX offered for Olam’s massive outperformance relative to the whole market as well as its peers in the commodities sector were a few analyst reports (which presumably set one-year target prices that were achieved in less than two months), the explanation by itself is entirely logical because it essentially says that before asking companies why their shares have moved by a large amount or why volume has spiked, or both, the exchange first explores many possible avenues.

It would be safe to presume then, that SGX’s first port of call in this exploration would be announcements posted on its own website since this is the main source of publicly available information.

So say for example, if a company’s shares were to rise after - and not before - it releases a few significant positive announcements on SGX’s website, one might reasonably conclude that no query would be needed since the increase was probably simply due to the market reacting to the news.

On the other hand, if there had been a large rise or heavy trading before the announcements - as was the case with Olam - then yes, a case could be made for closer scrutiny. But if the rise and/or heavy trading came post-announcement, then probably not. Fair and straightforward? Not so.

Consider TTI’s case. The company was on Monday queried for reasons for the unusual volume activity in its shares. On that day and seen in percentage terms and in isolation, the share price rise was moderately large - it went from Friday’s close of 16.1 cents to 17.5 cents on Monday, up 1.4 cents or 8.7 per cent.

Volume did rise sharply, from an average of about 6.3 million per day the previous week to 59.7 million on Monday. To be honest, among low-priced issues, these figures are not entirely unusual, percentages being exaggerated by the low base, though they arguably warrant a query - provided of course, the company did not make any prior announcements.

The problem is, on Wednesday and Thursday last week. TTI issued two releases on SGX-Net which could well explain its share price rise and and volume increase - first, that its Big Box integrated warehouse retail project in Jurong will open by the fourth quarter of this year and second, that France’s Habitat has signed a 15-year master franchise agreement with TTI.

Included in the first announcement was that Big Box is committed to deliver at least $200 million in annual turnover by the fifth year of operation under the Warehouse Retail Scheme run by the Economic Development Board.

Furthermore, it would be fair to say that TTI has struggled with the Big Box project for a few years and that news of its opening came as a big relief to the market, and this relief is what boosted its shares on Monday.
Guanyu said…
It is vital to note that in contrast to the case of Olam, there was no movement in TTI’s shares before last week’s news, the price having hovered between 14 and 16 cents since the start of the year. The company obviously took great care to keep the news under wraps so if everything was above board and the increase in activity was probably explained by the announcements, was a query really needed? Did SGX really check “corporate developments” as it said it did in the Olam clarification?

And what of the “Trade With Caution” notice? This warning was issued because SGX said that when TTI was queried, TTI replied that it did not know of reasons to explain the play on its shares.

Strictly speaking, this is not what TTI said. It said that it did not know why its shares were in play, other than the announcements it made last week.

Is it fair to the company to then say that because TTI cannot explain the interest in its shares, the public should be careful in trading TTI’s shares?

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