Periodic regulatory updates needed for TWC stocks

There should, therefore, be periodic updates on the status of these stocks, say every six months. If investigations are still ongoing, then that should be said. The alternative is silence that can drag on for years, which runs counter to the imperatives of a disclosure-based market.

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Guanyu said…
Periodic regulatory updates needed for TWC stocks

R Sivanithy
24 May 2016

The Singapore Exchange (SGX) over the past year has stepped up its efforts to strengthen local corporate governance - its Trade with Caution (TWC) notices now come with more targeted information, it has set up independent committees for listings and disciplinary actions, and last week it announced it will provide updates every six months on latest developments on companies whose shares have been suspended for years.

These are all creditable moves that should strengthen the disclosure-based governance framework in force here. To be sure, more information is always preferable to little or none and the move towards greater independence for important issues such as listings and discipline are necessary to answer critics who have long questioned the exchange's dual role - as a listed profit-driven bourse operator vested with regulatory functions.

However, without concurrent improvements in many other areas relating to governance, there is a danger that SGX's initiatives may end up having only marginal benefits.

Whilst providing updates every six months to shareholders who have been holding on to shares for years that may or may not be worthless is undoubtedly a step in the right direction, it is arguably not critically urgent because trading in these companies ceased a long time ago.

Knowing what efforts and negotiations are underway to rescue or resuscitate these companies will provide encouragement to long-suffering shareholders and offer hope that some of their investments could be recouped, but there is no element of "buyer beware" at stake here. Shareholders stuck with the shares have long come to terms with the hard truth that the shares they bought in such companies had very little going for them, investment-wise.

In contrast, shares of companies that have had a TWC issued or are connected to ongoing official investigations are still trading and in many cases, are actively punted every day.

On Monday last week, for example, several familiar speculatives spiked up for reasons unknown, only to fall back a short while later, possibly because of online trading restrictions quickly imposed by broking firms. As the sudden burst of interest demonstrated, "caveat emptor" is very applicable - there is after all, still active daily buying and selling. Yet, in order for the market to make informed decisions about whether to properly buy or sell, it should have sufficient information on what is happening on the regulatory front. This is currently not the case.

In the case of LionGold, Asiasons (now Attilan) and Blumont which have the dubious honour of triggering the penny crash of October 2013, 31 months have passed but other than speculation and unsubstantiated hearsay that these counters had been gradually ramped by manipulators over the years, the market has received no official updates.

Similarly, over the past 12 months, TWCs or regulatory announcements have been issued on CEFC, IHC, Koyo International and Zhongmin Baihui, all essentially containing the warnings that small groups of connected individuals were responsible for most of daily volume, implying that these stocks had been manipulated.

All these notices also carried the disclosure that SGX is working with other regulators, which suggests that there are probes going on behind the scenes. The big questions are: to what end, and how long will it take before details are known? Without answers to these questions, it is impossible to form any rational investment conclusion regarding any of these counters and the longer this continues, the greater the number of buyers who will have to beware.
Guanyu said…
At this juncture, it should be acknowledged that official enquiries can take a long time to complete because of legal difficulties and jurisdictional challenges. So it is necessary to cut regulators some slack - for example, trades can be routed through offshore accounts or nominee names, which would make it tough for investigators to unravel accurate pictures of who the beneficial parties are.

But for a disclosure-based regime to function properly, it is important to bear in mind that information has to be released reasonably promptly, and, in the case of the TWC stocks listed above, this is all the more pressing because they are still trading.

There should, therefore, be periodic updates on the status of these stocks, say every six months. If investigations are still ongoing, then that should be said. The alternative is silence that can drag on for years, which runs counter to the imperatives of a disclosure-based market.

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