The Singapore Exchange (SGX) will take regulatory action against false market breaches only if these cases cause extensive and prolonged market risks.
SGX chief regulatory officer Tan Boon Gin was clarifying the bourse's approach on deciding when to move against false trading.
In a column published online yesterday, Mr Tan said the SGX is "less likely to take action against matters that are one-off, isolated or technical breaches that do not significantly distort price or volume".
The bourse's approach is to act based on the magnitude of market risks. "The greater the threat to market integrity, the more likely we are to take action," Mr Tan noted.
A false market is characterised by distorted stock prices or trading volumes due to manipulation.
A market participant should also take note that we will not hesitate to warn the public of a prolonged false market through the issuance of a trade with caution alert, if necessary.
MR TAN BOON GIN (above), SGX chief regulatory officer, in his caution.
The column followed SGX's announcement last week that five trading representatives had been fined and suspended last year after they created a false market in the shares of five companies.
Three of the trading representatives - Mr Lim Kok Tong, Mr Yeo Lay Hoon and Mr Lim Pei Woon - were found to have executed extensive cross trades among their clients for eight months to artificially maintain the share price of Zhongmin Baihui Retail Group between January and August 2015.
"The trades accounted for 90 per cent of the market volume traded at prices between $1.825 and $1.840," Mr Tan said, illustrating the extent of the breaches in this case that triggered SGX's actions.
He urged market participants to beware of repercussions when their actions have larger impact on the market - such as trading order or volume that exceeds 30 per cent of a stock's total.
"A market participant should also take note that we will not hesitate to warn the public of a prolonged false market through the issuance of a trade with caution alert, if necessary," he added.
Mr Tan said the SGX's consideration is based on several key factors. These are the duration of misconduct, the number of alleged breaches, whether the misconduct was systemic, the amount of benefit gained or detriment caused, and the impact of the misconduct on the market including whether public confidence may have been damaged.
"Market participants should not jump to the conclusion that we will take action simply because there has been layering, or even pre-arranged trading," he noted.
Layering involves a trader repeatedly making and cancelling trade orders in the hope of getting a better deal.