Forum: Measures in place to help investors to invest wisely

We refer to the letters "Take steps to protect investors from being burned" (Aug 6); "Too many regulations will hurt Singapore market and investors" (Aug 8); and "Financial literacy paramount in current market climate" (Aug 11). We thank the writers for their views.

We agree with Mr Ee Teck Siew that measures should be in place to guard against retail investors investing beyond their knowledge, risk appetite and financial resources. Ms Christie Loh is also right on the need to avoid burdensome regulations that impede the market.

Measures similar to Mr Ee's suggestions have been implemented to raise investors' awareness of the risks of stock trading and responsible investing.

Securities brokers are required to inform retail investors about the relevant risks of trading and obtain a written acknowledgement from the investor before opening a trading account.

Trading and credit limits may only be granted after taking the financial circumstances of the investor into account. There are also regulatory caps on the amount of securities financing which can be provided to retail investors.

As Mr Woon Wee Min pointed out, financial literacy is paramount in helping investors manage their investments effectively and avoid huge losses. The Monetary Authority of Singapore (MAS) has been spearheading efforts to raise the general level of financial and investment literacy through its national financial education programme, MoneySense, and its industry partners.

Mr Ee mentioned applying circuit breakers to lower-priced stocks. While these can be useful tools to prevent excessive volatility and assist in maintaining an orderly market, their use can also undermine proper price discovery, which is driven by market fundamentals.

Lower-priced stocks that are less liquid can exhibit sharper price movements when there are material corporate or market developments.

Using circuit breakers too quickly in such situations could delay price discovery. But we note Mr Ee's points and will engage the Singapore Exchange (SGX) to review the use of circuit breakers together with other tools it uses to maintain a fair and orderly market.

MAS and SGX have put in place a framework of regulatory safeguards. Investors too have an important part to play by being vigilant. They should maintain a long-term perspective to investments and fully understand the risks they are taking.

Jerome Lee

Director, Corporate Communications,

Monetary Authority of Singapore

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