Better guidelines needed for lifting of trading halts
When Indonesian coal miner Resources Prima Group (RPG)
requested on Thursday last week for its trading halt to be lifted after the
company announced it had received two legal letters of demand, the time for
trading to resume was seven minutes later.
Comments
R. Sivanithy
25 July 2016
When Indonesian coal miner Resources Prima Group (RPG) requested on Thursday last week for its trading halt to be lifted after the company announced it had received two legal letters of demand, the time for trading to resume was seven minutes later.
On June 7, when digital satellite firm AddValue Technologies submitted its request to lift its trading halt after announcing that a major asset sale that had been delayed more than two years looked like it was nearing completion, trading was to resume 14 minutes later.
On July 1, when beauty products maker Best World asked for its trading halt to be lifted after announcing it had been granted a direct selling licence in China, the time for trading to resume was 29 minutes later.
We could present more examples but the point should be obvious - there is no consistency in the timing of the lifting of trading halts. Is seven minutes sufficient, as in the case of RPG's announcement? Or should it be closer to 30 minutes, like Best World?
None of these companies breached any rules, we hasten to add, for the simple reason that there are none to breach. Companies today are free to ask for trading halts to be lifted with little or lengthy notice, creating what many observers feel is unnecessary uncertainty in the market.
When we first wrote about this more than three years ago ("Greater certainty needed when trading halts are lifted", BT, Hock Lock Siew, Jan 24, 2013), the example cited was air-con firm Natural Cool, which had submitted a request to the Singapore Exchange (SGX) to lift its trading halt 28 seconds after the request.
Like the companies mentioned earlier, Natural Cool did nothing wrong, but what if every trading halt is lifted only a few seconds following the filing of requests? If 28 seconds is OK, how about five seconds?
How reasonable is it to expect traders and investors to scan SGX's website every few seconds to see when halts are to be lifted?
Granted, most companies seem to allow an average of 15-30 minutes between the time they request that their halts be lifted and the actual lifting - arguably a reasonable and sufficient amount of time in today's market, given that investors usually would have had a few hours to digest the contents of the announcement that had prompted the halt in the first place.
But the absence of consistency and guidelines is troubling because in extreme cases, it could give an advantage to those lucky enough to have checked SGX's website at the exact time a company puts in its request for its trading halt to be lifted a mere few seconds later.
As we wrote in 2013: "It is much better to make sure all parties have equal opportunity to react to company announcements by coming up with clearer guidelines relating to when trading can resume, even if this means extending the period of the halt''.
One solution is to fix the times at which trading can resume, say, 9am and 2pm. A halt in the morning followed by an announcement that same morning automatically means trading will restart at 2pm; a halt in the afternoon and an announcement that same afternoon means trading will restart at the next available time, which is 9am the next day.
A better system is to require companies to state at the end of their announcements when they want their halts to be lifted. In other words, instead of companies having to put out three releases - a request for a halt, the announcement, then a request for the lifting of the halt - they need only make two: a request for a halt and the announcement which includes the time at which trading will resume.
Not only are two announcements administratively more efficient than three, this arrangement affords greater certainty to the market - everyone reading the announcements will know exactly when the halts are to be lifted. Which is not the case now.