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
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Kenneth Lim
17 April 2014
In June, the Singapore Exchange (SGX) will enjoy a boost in liquidity as lowered fees and new discounts and rebates entice market makers and high-speed traders to set up shop here.
That’s the plan, at least. But depending on who you ask, high-frequency traders are either harbingers of doom for capital markets or herald a new age of liquidity.
The truth, as is often the case, is a little more nuanced. High-frequency or algorithmic trading can be good or bad for the market, and the answer pivots on two points.
The first is whether SGX can properly police the new players it wants to attract. And second, will those players find it worthwhile to continue providing liquidity in this market?
SGX this month revealed that it hoped to sign on eight to 10 market makers and 15 to 20 liquidity providers as the exchange prepares to roll out a number of changes to its securities trading fees regime. Among those changes will be lower clearing fees and discounts or rebates for market makers, who have to provide bid-ask quotes, and liquidity providers, who have to trade a minimum value in specific stocks.
Those moves, which are partly aimed at improving the liquidity of the market, come amid intense global scrutiny of high-frequency trading. In the United States, regulators are poised to investigate some of the practices highlighted in Michael Lewis’ critical new book, Flash Boys: A Wall Street Revolt.
SGX, which has been cautiously inching towards opening its doors to high-frequency traders for more than three years since it contemplated a trading engine upgrade, has sought to ease fears by stressing two points.
First, the most popular and controversial practices carried out by high-frequency arbitrageurs in the US cannot happen in Singapore. For a start, inter-exchange front-running is a non-starter because SGX is the only securities market in Singapore. SGX will also impose minimum participation hurdles to ensure that the market makers and liquidity providers are providing quotes and trades over a sufficient amount of time.
Second, SGX president Muthukrishnan Ramaswami has said that the market operator will not allow order types that can create an unfair playing field.
The first point is correct, and the second is assuring. Traders and investors should therefore take comfort in the fact that SGX is addressing those issues.
But the best-designed and most well-intentioned rules and regulations are ultimately meaningless unless the last mile of surveillance and enforcement is covered. The market is especially sensitive to this aspect of regulation amid the ongoing investigations into the penny stock sell-off sparked by the collapse of the shares of Asiasons Capital, Blumont Group and LionGold Corp late last year.
Do SGX and the Monetary Authority of Singapore (MAS) have the technical know-how to understand the algorithms and technology powering these new players on the block?
Financial market players are nothing if not resourceful when it comes to finding ways to make money. While the current framework may address the most egregious practices of high-frequency traders, can the regulators stay ahead of a fast-adapting industry?
The challenge for the exchange is to allow players to make money by exploiting market inefficiencies and injecting liquidity, but to do so without damaging the integrity of the market or hurting retail players.
There is a valid argument being made that high-frequency trading is a momentum-driven technique that ignores fundamentals. And supporting such an activity does nobody any good.
That is only partially true.
Fundamentals-driven investing is the philosophical gold standard. But there is a role for arbitrage strategies even if they are purely technical in nature because they do remove inefficiencies from the system. Properly regulated, activities which add liquidity to the system should be good for most investors.
That is part of the ongoing global debate. But in Singapore the stakes are extremely high. Push too much against the high-frequency players and they will abandon or avoid this market. That will leave SGX back at square one, with a costly, high- speed, idling trading engine and a relic of a market.
But give too much to the high-frequency shops, and the reputation and trust that has long been a bedrock of the Singapore financial markets could be fractured.
It is a tough call.