SGX wants to tweak minimum trading price rule by adding market cap floor

SGX proposes tweaking 20-cent-a-share rule so firms with over $40m value can stay off list

A Singapore Exchange signage is pictured at their premises in Singapore.
A Singapore Exchange signage is pictured at their premises in Singapore. PHOTO: REUTERS

The Singapore Exchange (SGX) has proposed changes to its minimum trading price (MTP) rules that will allow companies with larger market capitalisation to stay off the watch list.

The MTP rules, which took effect from March 1, dictate that a mainboard-listed company will be put on the watch list if its six-month volume-weighted average price is below 20 cents.

Changes proposed yesterday add an extra criterion: The company must have also had a six-month average daily market capitalisation below $40 million before it is placed on the SGX watch list.

"We found that, using the $40 million market cap as data point, the companies above the mark have narrower bid-ask spread, lower volatility and higher liquidity," said SGX chief regulatory officer Tan Boon Gin yesterday. "We felt this presented us with an opportunity to refine the MTP (rules)."

There are 55 companies on the watch list as they did not make the 20-cent MTP requirement in the March review. They have 36 months to either meet the 20-cent criterion and be removed from the list or drop down to the Catalist board.

However, under yesterday's proposed changes, 16 of the 55 companies would not be on the list, going by market data as at Aug 1.

One of these is architectural and real estate company Rowsley.

Chief financial officer Tan Wee Tuck welcomed the adjustment: "By also looking at companies' market cap, it makes the MTP framework more intelligent. For companies like ours, it also takes away the pressure on us to consider the last resort of share consolidation."

Since the MTP rules were first introduced, 122 companies have conducted share consolidation exercises, which have the effect of pushing up stock prices.

"But since the MTP announcement, the global markets have been largely negative. For some companies, the consolidation only led to a decline in share value," Mr Tan said.

The disruption of company value and impact on retail investor sentiment were among market gripes about the MTP rules, which were aimed at curbing excessive speculation and market manipulation.

But the existing rules have been too "blunt", TSMP Law joint managing director Stefanie Yuen Thio said. She noted: "Twenty cents is really just a price, a figure that doesn't necessarily show the strength of a company's governance. The share price is also subject to variations of the market. So it's good to have a more calibrated approach.

"It's also encouraging to know that the SGX is constantly relooking its rules and thinking of a better way to regulate the market without being overly stringent."

Other tweaks proposed include changing the frequency of the watch list review from quarterly to half-yearly, on the first market day of June and December.

These changes are expected to be implemented by June next year. Until then, there will be no new entrants to the existing watch list.

SGX's Mr Tan told reporters that the new proposals do not negate the MTP regime as there are still companies below the threshold.

SGX data shows that up to 71 companies would still be on the watch list under the adjusted framework, based on share prices and market caps as at Aug 1.

"We also need to look at the entire suite of measures. For instance, we have introduced trade with caution... to make the market a harder target for manipulation," Mr Tan said, referring to an alert system introduced in 2014 that automatically generates warnings when a queried firm did not give a clear answer.

Still, some were not sold on the the new MTP rules.

"Another objective of the MTP rule is to reduce the perception of our market being a penny stock market... We are talking about the mainboard, which should be a quality board," corporate governance expert Mak Yuen Teen said. "I am in favour of an MTP for the mainboard regardless of market cap, and 20 cents does not sound too high to me."

A version of this article appeared in the print edition of The Straits Times on August 24, 2016, with the headline 'Low-priced stocks with higher market cap can avoid watch list'. Subscribe