Premium listings can raise standard, boost image of SGX

Blue chips on a premium list would draw other blue-blooded firms to list here, too

Companies yet to comply with the minimum trading price (MTP) rule of 20 cents imposed by the Singapore Exchange (SGX) have cause for celebration. Last week, the SGX gave them some breathing space by suspending the MTP rule to consider a plan to tweak the framework.

Under the original rule, mainboard-listed firms would go on a watch list if its six-month volume-weighted share price fell below 20 cents. The idea is to add one more criterion for going on the watch list: that the firm's six-month average daily market value would also have to have fallen below $40 million.

MTP has not been a popular measure. It was implemented by the SGX in March last year as part of the bourse's efforts to curb speculation and nudge underperforming firms to look into ways of improving their businesses to ensure that their share price stayed above 20 cents.

Companies were given a one-year grace period to comply, failing which they would find themselves on a watch list where they have three years to make good on the breach or be delisted.

At first blush, the MTP rule looks like a simple administrative exercise which does not seem too onerous. All a company has to do is to launch a share consolidation if its share price trades below 20 cents and it would be fine.

In drawing up rules such as MTP, which was implemented by SGX in March last year, we are putting the spotlight on an unsavoury market segment which also exists in other bourses, while inadvertently tarnishing the rest of our well-regulated market with the attention this attracts. ST PHOTO: SEAH KWANG PENG

But when the MTP watch list was unveiled in March, 41 companies were there. The list would have been much longer if the SGX had not given another 69 firms a further six months - till next month - to comply.

Worse was to come. The bearish market conditions are causing the share prices of more and more companies to fall below 20 cents.

Many of them hail from the offshore and marine sector which has been hard hit by the deep cuts made by oil majors to their capital expenditure as a result of slumping oil prices.

As at Aug 1, an eye-popping 125 companies would have found themselves on the watch list if a review had been conducted. This works out to one-quarter of the 507 mainboard-listed firms.

Against this ghastly backdrop, it is appropriate the SGX should flag a pause in the MTP implementa- ion exercise, while a refinement that would allow companies with larger market capitalisations to stay off the watch list is being considered.

Under the proposal to use $40 million market value as the cut-off point, the number of companies finding themselves on the MTP watch list would drop by a hefty 43 per cent to 71.

But the flip side to this proposed refinement to the MTP rule is that so long as a company has a market capitalisation bigger than $40 million, its share price can theoretically sink to as little as 0.1 cent - the lowest price at which a stock can currently trade here.

That would certainly not help to erase the "Mickey Mouse" image some feel the SGX now projects because of the preponderance of ultra-penny stocks which regularly tops its list of most actively traded stocks each day.

As corporate governance expert Mak Yuen Teen succinctly put it, another objective of the MTP is to reduce the perception of the SGX being a penny stock market.

"We are talking about the mainboard which should be a quality board… This is why I am in favour of an MTP for the mainboard regardless of market cap, and 20 cents does not sound too high to me," he was quoted as saying.

But one market strategist observes the mere fact that the SGX is willing to re-start the MTP debate with its proposed refinement means that it is open to suggestions on how to improve the quality of the stock market here - and that the investment community should grasp the opportunity with both hands to offer their views on the subject.

But he feels that applying the MTP only to penny stocks with a market value of $40 million or less may not be workable as this would simply force them to go through repeated share consolidations if their share prices keep falling.

Eventually, some counters may find themselves with so few shares that they run the risk of being "cornered" - controlled by a small group of shareholders. That would run counter to the objective of the SGX's MTP exercise to reduce the risks of excessive speculation and stock manipulation.

He said: "We should go back to the drawing board and question whether we got our premise right. Only the United States has a minimum maintenance stock price but the trading dynamics there is totally different from Singapore. We should not follow the US market blindly."

Stocks on Wall Street are not listed at just above the MTP like in Singapore and there is a well-developed "pink sheet" market which allows for the shares of delisted firms to continue trading over the counter, as they seek ways to rehabilitate themselves in order to get relisted.

However, no such trading platform exists here for companies on the SGX watch list faced with the pain of delisting.

I agree. For too long, we are fixated with how we can clamp down on the sleaze encountered at the nether end of our stock market, traumatised as we have been, first by the S-chip accounting scandals and then by the inexplicable crash of the infamous stock trio - Asiasons, Blumont and Liongold - which lost billions of dollars in market value in just days.

But this preoccupation is unhealthy. While stocks trading below MTP may make up an unacceptably large proportion of mainboard-listed firms, they account for only 1.1 per cent of the total stock market capitalisation and 1.5 per cent of the market turnover, as of March.

And in drawing up rules such as MTP, we are putting the spotlight on an unsavoury market segment which also exists in the underbellies of other bourses, while inadvertently tarnishing the rest of our well-regulated market with the unnecessary attention this attracts.

Now, for the sake of argument, let's turn the debate on its head - to paraphrase Mrs Michelle Obama - when they go low, we go high.

Instead of trying to make recalcitrant companies conform to a minimum threshold price, let's try to encourage listed firms to aspire to the lofty heights achieved by names such as Singtel, DBS Group Holdings and Singapore Airlines - the type of companies that does the SGX proud.

As a public relations exercise, this would go a long way towards boosting investors' perception of our stock market - and we have plenty of well-regarded counters that we are proud to show off.

It is not wishful thinking on my part. The London Stock Exchange has already set the precedent by segregating stocks traded on its mainboard between a "premium list" which has to conform to Britain's highest standards of regulations and corporate governance, and a "standard list" that meets the European Union listing standards that apply across the board in Europe.

A similar move to put blue chips here onto a premium list will put the spotlight on them and spur even more investors to invest in them. This would, in turn, draw other blue-blooded companies to want to list here, while inspiring other listed firms to try to make it onto the list as well.

This, in short, is the image which the SGX, as the face of our international financial centre, should project to the world - to aim for the stars.

A version of this article appeared in the print edition of The Straits Times on August 29, 2016, with the headline 'Premium listings can raise standard, boost image of SGX '. Print Edition | Subscribe