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I WAS in China recently and read with amusement about the recent ruling by the China Securities Regulatory Commission that shareholders of moratorium shares can sell their shares only via the block trading system should these shares to be sold exceed 1 per cent of the issuer's total issued shares (in any one-month period) after the moratorium is lifted. In addition, controlling shareholders cannot sell their shares if the date the moratorium is lifted falls within 30 days before the listed company's half-yearly and annual results are announced.
In other words, promoters of a newly listed company who plan to sell more than 1 per cent of the company's entire issued shares (no fewer than 500,000 shares) after the moratorium is lifted, can no longer sell their shares in the secondary market. They can do so only via the exchange's block trading system, an off-market transaction system operated by the exchange. The main objective is to prevent excessive shocks to the dealing automated quotation mechanism of the exchange with the sudden flooding of so many shares in the secondary market when the moratorium period is over to ensure minimal price distortions.
In Singapore, the listing rules require only that promoters (including controlling shareholders and their associates, and executive directors with less than 5 per cent interest) hold their entire shareholding at the time of listing under moratorium for six months after listing. The promoters can sell 50 per cent of their entire shareholding after the six-month moratorium period, and the remaining 50 per cent 12 months after listing.
The China ruling can also be implemented here. Although a sudden flooding of shares previously held under moratorium is more likely to occur during initial public offers and issue of new shares in relation to mergers and acquisitions of issuers, it can also occur at any time. When such share sales occur, there may be undue pressure on the stock price.
To ensure orderly functioning of the secondary market, perhaps the Singapore Exchange can study the need to require all selling of shares by substantial shareholders involving more than a certain percentage of the issuer's entire issued shares to be done only via off-market transaction, for example, through a share placement.
Chinese stock markets have made impressive growth and matured over the past years, and the China Securities Regulatory Commission has been able to formulate new regulations to meet growing needs and changing conditions. We can take a leaf from the book of Chinese regulators to ensure smooth functioning of the market, which has seen its fair share of tumultuous events recently.
Ee Teck Siew
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