The practice of "portfolio pumping" to artificially inflate prices of selected stocks at quarter-ends and year-ends is not as prevalent in Singapore as people think, said a report released yesterday.
It concludes very little market manipulation occurs in the Singapore stock market using this method owing to effective deterrent and enforcement measures.
However, the report notes that stocks on the local bourse tended to register "abnormal positive returns" in the days leading up to the end of every quarter. Such price surges were not followed by any reversion the next day.
The Chartered Financial Analyst (CFA) Institute took one year to examine the tick-by-tick data of 189 listed companies in the FTSE Straits Times All-share Index, from January 2003 to December 2013.
Report author Alan Lok said while data for those 11 years shows that the local bourse is "quite clean", he cannot rule out that there could be some level of potential manipulation in certain segments. These include the mid-caps within the $2 billion to $5 billion range, those that are less actively traded and stocks that are not part of the MSCI Singapore Index.
"We suggest increasing market surveillance to make it difficult and expensive to undertake portfolio pumping activities," said Mr Lok, director of Capital Markets Policy.
Portfolio pumping is typically done by fund managers to increase the closing prices of stocks at the end of the quarters or at the end of the year, so that they can earn higher bonuses based on the better performance of stocks they manage.
The price boost would also make the fund appear more attractive to potential investors.
Findings from the report indicate that the existing operation of the Singapore Exchange's market surveillance and the Monetary Authority of Singapore's (MAS) enforcement process have worked well at keeping potential manipulators at bay.
This research originates from the landmark court case where MAS initiated a civil suit in August 2009 against leading investment adviser Tan Chong Koay and his Malaysian unit for rigging the shares of Singapore-listed wastewater firm United Envirotech from Dec 29 to 31 in 2004. MAS won the case, and the adviser and his Malaysian unit were fined $250,000 each.
Dr Tony Tan, head of Standards and Advocacy, urged other exchanges and markets to take a leaf out of Singapore's book to "stifle potential market manipulation".
He said there are already requests from other bourses for the CFA Institute to help them do similar analyses. Given that this was a "first-of-its-kind" report, he felt that the institute may need to take some time for industry players to examine its methodology before replicating it in other markets.