MAS warns of risks in stock trading fuelled by online discussions

A GameStop store in the Manhattan borough of New York City. Stocks of firms such as video game retailer GameStop have been in the spotlight in the United States |for their volatility.
A GameStop store in the Manhattan borough of New York City. Stocks of firms such as video game retailer GameStop have been in the spotlight in the United States |for their volatility.PHOTO: REUTERS

Investors should be on heightened alert to risks related to securities trading fuelled by online discussion forums and social media chat groups.

The Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) said yesterday they are closely monitoring market activities for signs of false trading or other forms of misconduct.

They noted investor interest in Singapore in recent activities in United States markets relating to stocks such as GameStop, cinema chain AMC Entertainment Holdings and software firm BlackBerry.

"Discussions in online websites and platforms suggest the possibilities for similar speculative activities in the Singapore stock market," said MAS and SGX RegCo.

Certain people may exploit this interest for their own benefit through "pump and dump" activities that can amount to market misconduct under the Securities and Futures Act (SFA), they said.

"Pump and dump" refers to the fraudulent practice of encouraging investors to buy shares in a company in order to inflate the price artificially, and then selling one's own shares while the price is high.

People may set up positions in certain securities and use social media chat groups to prod investors into buying them, in a manner similar to how individual investors collectively pushed up certain share prices in the US, said MAS and SGX RegCo.

Once the prices of these securities have risen to specific levels, the perpetrators may then sell the securities they had earlier accumulated, without alerting other investors.

Any conduct that intentionally, knowingly or recklessly creates a false or misleading appearance about the active trading, market or price of securities is prohibited under the SFA, added the regulators.

Other prohibited acts include the creation or dissemination of false or misleading statements; fraudulent inducement to deal in securities; and the employment of manipulative and deceptive devices.

"Investors should make sure they refrain from conduct that could infringe the SFA. Firm action will be taken against those who breach the SFA or other laws and regulations," said MAS and SGX RegCo.

They said restrictions may be placed on the trading accounts of those suspected of such misconduct, and the relevant securities may be placed under designation or suspension.

Stocks of firms such as video game retailer GameStop have been in the spotlight in the US for their volatility as retail investors drove up their prices and sent professional short sellers scrambling to cover their losses.

A version of this article appeared in the print edition of The Straits Times on February 03, 2021, with the headline 'MAS warns of risks in stock trading fuelled by online discussions'. Subscribe