Where's the follow-up to SGX queries on price swings?
The sudden rise in the share price of healthy-lifestyle firm
OSIM International in the days before it announced a privatisation offer
illustrates one of the most troubling governance lapses in the local stock
market - the potential leakage of material, price-sensitive information. This
has been occurring with sufficient regularity to be of concern and is an issue
on which regulators should focus their investigative energies.
Comments
R Sivanithy
08 March 2016
The sudden rise in the share price of healthy-lifestyle firm OSIM International in the days before it announced a privatisation offer illustrates one of the most troubling governance lapses in the local stock market - the potential leakage of material, price-sensitive information. This has been occurring with sufficient regularity to be of concern and is an issue on which regulators should focus their investigative energies.
Consider the case of OSIM. The company requested trading to be halted on March 2, the day after the stock hit S$1.225, up from S$0.99 on Feb 1. This was a rise of almost 24 per cent in a month, one that included a 10.3 per cent surge on March 1, the day before the halt. Over the same four weeks, the Straits Times Index recorded only a 3 per cent gain, so OSIM's performance was vastly superior.
The March 1 jump was sufficiently unusual to prompt a trading query from the Singapore Exchange (SGX); this was followed by Monday's news of a takeover-cum-privatisation offer at S$1.32 per share.
Consider also the case of Neptune Orient Lines (NOL), which halted trading last Dec 7 to announce a takeover-privatisation offer. In the four weeks before that, NOL's shares gained 22 per cent; in the three months before the announcement, the company was queried twice by SGX, with one of these queries leading to the exchange issuing a Trade-With-Caution notice.
Other similar episodes in recent memory can be recounted. Shares of Olam International for example, jumped 13 per cent two days before the announcement last August that Mitsubishi had bought a 20 per cent stake; 17 months earlier, between February and March 2014, Olam's shares gained a stunning 40 per cent in five weeks leading up to a takeover offer from Temasek Holdings.
To some market observers, a rise or fall in share prices ahead of a significant announcement is part of normal market functioning, and is only to be expected in a reasonably efficient market. Stock prices can thus rise or fall in the days leading up to an earnings release for example, depending on whether the market thinks the figures will be above or below expectations.
Granted, some degree of regulatory latitude should be exercised when it comes to unusual price and volume movements. For instance, determining what qualifies as "unusual" is often a matter of judgement and discretion. The exchange has made it clear that there is no fixed percentage guideline that it follows when deciding whether to issue a query.
Moreover, it would not be practical to expect every single odd price or volume change to be queried and investigated, as this would stretch limited resources to the maximum, as well as stifle much-needed speculative activity that drives all markets.
However, when the volume and/or price movements draw a query from the exchange, then it is reasonable to assume they are abnormal and warrant closer attention; after all, if they were not, then SGX would not have bothered.
If such instances are then followed shortly after by the release of material announcements by the companies which were queried, then surely there has to be greater scrutiny of the events and trades in the days immediately preceding the release of the news, and the market should quickly be informed about whether there had been a leak. It is the very least that investors should expect in a market which prides itself as being well-governed and strongly regulated.
The problem however, is that in almost all such examples, there has been no visible follow-up action after the initial query. Why this is the case is not known; it could be that after the exchange flags the incident as unusual with its query, the data is then handed over to other regulators, who then need plenty of time to perform thorough investigations.