Safeguards in place against securities trading risks

Measures to curb influence of online chat groups include action against market misconduct

Transport Minister Ong Ye Kung (above), who is a Monetary Authority of Singapore board member.
Transport Minister Ong Ye Kung (above), who is a Monetary Authority of Singapore board member.

The authorities here have three measures in place to guard 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 said on Tuesday.

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.

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 there are much fewer short positions taken in Singapore compared with in 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.

He was speaking on behalf of Senior Minister Tharman Shanmugaratnam, who is the 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.

On Feb 2, MAS and SGX RegCo also warned investors that they should beware of the risks of such trading activities.

On Tuesday, Mr Ong said 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 and quickly address rumours affecting stock prices. SGX RegCo may issue a "trade with caution" alert on affected securities.

The authorities also curb sharp price movements of a security by halting trading temporarily or, in extreme cases, until further notice.

SGX RegCo may restrict specific market participants from trading or require investors to place more collateral.

Enforcement action will also be taken by the authorities on people who disseminate misleading information or use manipulative and deceptive practices that violate the Securities and Futures Act.

These measures 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.

The safeguards also protect against investors taking short positions and using false or misleading information to encourage more short selling.

A version of this article appeared in the print edition of The Straits Times on February 18, 2021, with the headline 'Safeguards in place against securities trading risks'. Subscribe