SINGAPORE - The authorities here have three measures in place to safeguard against the risks related to securities trading like those fuelled by online discussion forums and social media chat groups.
These measures are to provide market transparency, curb any sharp price movements and take enforcement action against market misconduct, said Transport Minister Ong Ye Kung, who is a Monetary Authority of Singapore (MAS) board member.
"There have been no signs that discussions in online forums or social media chat groups have led to any significant increase in the trading of securities listed in Singapore," he added on Tuesday (Feb 16).
Still, market regulators MAS and Singapore Exchange Regulation (SGX RegCo) are on heightened alert to such activities. This is in the wake of the populist stock movement WallStreetBets' effect on the share prices of some United States firms last month, such as video game retailer GameStop and cinema chain AMC Entertainment Holding.
For instance, GameStop's stock price shot to a high of US$483 per share on Jan 28, fuelled by discussions on the WallStreetBets forum of Internet discussion platform Reddit. The price later dipped briefly below US$90 on Feb 2. It closed at US$52.40 on Feb 12.
Retail investors had driven up their prices and sent professional short sellers scrambling to cover their losses, creating a "short squeeze". Short sellers sell stocks they do not own and buy them back later at a lower price to pocket the difference.
Regarding concerns on such short squeezes, Mr Ong said that there are much fewer short positions taken in Singapore compared with the US.
He attributed this in part to differences in investor culture, a high level of market disclosure here and Singapore not allowing certain types of mechanisms that expose investors to more short positions.
Mr Ong was speaking on behalf of Senior Minister Tharman Shanmugaratnam, who is Minister-in-charge of MAS, and replying to a parliamentary question by Mr Desmond Choo (Tampines GRC) on safeguards against securities trading driven by online discussions.
Earlier on Feb 2, MAS and SGX RegCo also warned investors that they should beware of risks of trading securities driven by online and social media discussions.
On Tuesday, Mr Ong said that the Government's market transparency safeguard against these risks allows the market to correct itself as investors have more information to act on.
When a company's securities have any unusual price movements, SGX RegCo will query it and the company must publicly verify if any actions it is taking might have caused the price change.
The firm must also quickly address any price rumours influencing stock prices.
SGX RegCo may issue a "trade with caution" alert on affected securities. Aggregated short positions and trading volumes are published for each security as well.
The authorities also curb sharp price movements of a security by temporarily halting trading. SGX RegCo may further restrict specific market participants from trading or require investors to place more collateral.
In extreme cases, affected securities may be suspended from trading until further notice. Enforcement action will be taken by the authorities on people who breach the law, such as disseminating misleading information or using manipulative and deceptive practices that violate the Securities and Futures Act.
The Government's measures seek to guard against the fraudulent practice of encouraging investors to buy shares in a company to inflate the price artificially, and then selling one's own shares while the price is high.
When prices eventually fall back down, other investors could suffer "quite heavy losses", said Mr Ong.
The safeguards also protect against investors taking short positions and using false or misleading information to encourage more short selling. They can buy back the shares later after prices have fallen from the selling spree and profit from the difference.
