There has been a tremendous spike in new retail stock trading account openings and short-term day trading since Covid-19 rocked the stock markets in March.
Many were trying to catch the recovery after the huge price fall, buying biopharmaceutical and technology stocks, even if some of them were loss-making or yet to validate their business model profitability.
Short-term punting mentality has come back into play, spurred by rock-bottom commissions and a wide range of markets and instruments to trade with (Bad habits die hard for investors, Aug 2).
The last thing we want is another stock market correction that exacerbates the financial burden when these individuals find themselves caught holding underwater investments and having to meet repayment deadlines.
The Monetary Authority of Singapore should look into working with the relevant industry bodies to implement certain financial risk backstop measures:
• Mandatory investor education on investment risks as a precondition for opening a stock trading account and account maintenance.
• Documented risk assessment by securities companies before granting trading credit.
• Banning of share margin trading, where investors buy more stocks than they can afford to, or impose a minimum 50 per cent collateral.
• Enhance the Singapore Exchange's existing circuit breaker, an automatic price control, to cover all counters listed on the exchange.
The exchange's existing circuit breaker does not apply to stocks with a first reference price below 50 cents.
Over the past months, we have witnessed extreme volatility in many penny stocks without sound considerations. Any price movement in excess of 10 per cent in any trading session should trigger the circuit breaker. No trading would be allowed until the end of the next trading session, or after the issuer makes an announcement under the listing rule.
The "cooling-off period" would allow unsophisticated retail investors to be alerted to the sudden price movement and to assimilate incoming information and make better-informed trading decisions.
We may not see Covid-19 go away any time soon. The last thing we want is to see more retail investors losing their retirement nest egg when the music stops abruptly.
Ee Teck Siew