SGX minimum-trading-price rule kicks in

With more than a third of Singapore Exchange mainboard stocks trading below 20 cents, this has led to the Singapore market being labelled a "penny" market, or perceived as lacking quality, which could in turn hamper capital-raising efforts.
With more than a third of Singapore Exchange mainboard stocks trading below 20 cents, this has led to the Singapore market being labelled a "penny" market, or perceived as lacking quality, which could in turn hamper capital-raising efforts.ST PHOTO: LIM YAOHUI

Affected firms have one year to bring share price above 20 cents

The Singapore Exchange's (SGX) contentious new rule setting a minimum trading price (MTP) of 20 cents for mainboard-listed companies is on the books from today.

Even though this was flagged last August, few affected firms - with share prices under 20 cents - appear to have taken steps so far to address their position.

But they have a year's grace - until March 1, 2016 - to get their six-month average share price above 20 cents.

The new rule is aimed at curbing speculation and market manipulation here. Today, almost 250 out of 650 mainboard-listed stocks are trading below 20 cents.

After the grace period, those still below that level will go on a watchlist for three years, during which their shares will not be eligible for investment under the Central Provident Fund Investment Scheme. The CPF announced this move, aimed at safeguarding members' CPF savings, on Feb 10.

Meanwhile, companies that fail to comply with the MTP by Feb 28, 2019, could be delisted or have the option to transfer to the Catalist board, where there is no MTP.

The number of companies trading at 20 cents or below appears to have increased from about 220 when the rule was announced last August. Most indicated then that they would consider share consolidation, transfers to the Catalist board, or other corporate actions.

So far, only a handful have proposed share consolidations to shareholders, and all in the three weeks prior to yesterday's launch, according to SGX's website. They include Top Global, Aztech Group, Global Testing Corp, Hotung Investment Holdings, Captii, and CEI Contract Manufacturing.

"Some are still adopting a wait-and-see, and holding out for market forces to push their share prices above 20 cents," remisier Alvin Yong said. "Those trading below two to four cents will definitely do share consolidations if they want to remain listed."

Share consolidation props up the share price by reducing the number of shares in the market, he said. "If you own 100,000 shares of a company that's trading at 10 cents apiece, after consolidation to a 10:1 ratio, 10 shares will become one share. The new shareholding will be 10,000 shares and the new theoretical trading price will be $1."

"But share consolidation doesn't guarantee that stocks will stay above 20 cents. Prices are determined by market forces and the company's fundamentals."

Having more than a third of mainboard stocks trading below 20 cents has led to the Singapore market being labelled a "penny" market, or seen as lacking quality, which could hamper capital-raising efforts. SGX has said higher-priced shares tend to have better liquidity and are less susceptible to manipulation.

But critics of the rule say such regulations are unnecessary and impede trading activity.

Already, the number of companies with share prices below 20 cents has grown partly because investors and traders have been shunning such stocks, Mr Yong said. That, combined with the latest CPF move, will likely affect liquidity and further dampen share prices of such companies.

Mr Tan Choon Wee, president of the Small and Middle Capitalisation Companies Association (SMCCA), said he believes the move will increase issuers' cost of listing and confuse shareholders, as they have to recalculate the value of their holdings.

"Further, there will be many instances where investors will be left with odd lots, even with the lot size adjusted down to 100 shares, and have to incur costs to manage such lots," he said. "Another potential scenario is the share price keeps falling (despite) share consolidation, triggering the next round of consolidation."

gleong@sph.com.sg