The Singapore Exchange (SGX) has refined its red flag alerts on unusual stock trading activity following criticism that these warnings either disrupt trading momentum or are not taken seriously.
The move was quickly welcomed by key investor groups.
Effective immediately, SGX will start detailing its concerns about unusual stock trading activity in "trade with caution" or TWC alerts - where previously there was little information.
The change came after investors and market participants bemoaned the high volume of TWC alerts with little new information. In the financial year ended June 30, 85 public queries were issued followed by 47 TWC announcements.
SGX says the alerts will now be "more targeted as they will be issued on a case-by-case basis". These may also contain details from SGX's review of trading activities.
TWC alerts, introduced in March last year, are now generated automatically. When trading activity of a stock is deemed unusual, which means it cannot be explained by any publicly-known factor, SGX issues a public query to the company. If the company says it is not aware of reasons for such activity, SGX then issues the TWC alert.
"SGX's public query to a company on unusual share trading already serves as a red flag to investors. To make clearer our concerns about certain unusual activities, we will issue, when necessary, the TWC announcements as a second-level heightened alert. We will include, where warranted, information gathered from our review of trading activities much like how we flagged trading activities in... CEFC previously," said Mr Tan Boon Gin, SGX's chief regulatory officer.
SGX's public query to a company on unusual share trading already serves as a red flag to investors. To make clearer our concerns about certain unusual activities, we will issue... the TWC announcements as a second-level heightened alert.
SGX'S TAN BOON GIN
HELPFUL TO RETAIL INVESTORS
When the red flag goes up, retail investors get worried. If there is transparency on the part of SGX to release more information, it will give comfort to retail investors so they can make more informed decisions.
SIAS PRESIDENT DAVID GERALD
In August, SGX issued a press release urging investors to be cautious in dealing with shares of fuel trader CEFC, which was slapped with a TWC after its share price had skyrocketed by 16 times - from 2.5 cents to as high as 40.5 cents - in just one month. SGX had noted that in July and August, as CEFC was doing a share placement issue, "buying volume was concentrated in a small number of offshore accounts".
Society of Remisiers president Jimmy Ho praised the moves.
"They are aware that overdoing such alerts will kill the trading momentum. It's only healthy that there is some speculation, as long as it isn't significant or material, or lead to damage to the market," Mr Ho said. "They are reducing the frequency of such alerts now because they don't want to micromanage."
Securities Investors Association of Singapore president David Gerald said it was a "refreshing" move.
"When the red flag goes up, retail investors get worried. If there is transparency on the part of SGX to release more information, it will give comfort to retail investors so they can make more informed decisions," he said.
"When the SGX surveillance team comes up with certain facts that require the company's response, investors will be told what the company is asked... SGX is not just accepting bald explanations that the company doesn't know what is happening. SGX will counter that with information that has been gathered by the surveillance team and ask the company to respond. So the company will be hard put to say they don't know what is happening," he said.