30 October 2018

On 21 September 2018, Singapore Exchange Limited (“SGX”) issued a consultation paper on “Proposed introduction of trade at close functionality for the SGX-ST market”, seeking comments on proposed amendments to the Singapore Exchange Securities Trading Limited Rules (“SGX-ST Rules”) to implement a new functionality to allow participants in its securities market to “trade at close” (“TAC”). The consultation closed on 11 October 2018.

SGX intends to implement the new TAC functionality in July 2019.

Features of the proposed new functionality

Features of the proposed new TAC functionality include the following:

  • New TAC market phase: The new functionality will be introduced in the form of a TAC market phase in the ready market and unit share market. This new market phase will occur immediately after the end of the closing routine for both normal and half-day trading, and last five minutes.
  • No TAC market phase if no closing auction price: There will only be a TAC market phase for a security on a trading day if the closing auction for that security on that trading day resulted in a closing auction price.
  • Entering and matching of orders in TAC market phase: In order to trade at close, a participant may enter an order during the TAC market phase. Orders (other than market orders) that are not matched during the closing routine will also be automatically included in the TAC market phase. During the TAC market phase, orders will be matched according to time priority, with orders placed earlier having higher priority.
  • Order management during TAC market phase: Participants who enter an order during the TAC market phase may only do so at the closing auction price.

Treatment of TAC trades if closing auction price subsequently deemed invalid

SGX may invalidate a closing price after it has been determined. This could occur when SGX cancels all the trades during the closing auction because it determines that they were all error trades. For exchange-traded funds (“ETFs”), SGX may also determine an alternate closing price if there is no closing auction price (e.g. if there was no closing auction or if it considers the closing auction price to be invalid). In such cases, the trades concluded in the TAC market phase (“TAC trades”), being based on the closing auction price, will no longer reflect the day’s closing price.

The consultation paper set out two alternative approaches which could be taken with regard to the TAC trades in such cases:

  • Cancelling the TAC trades (Approach 1): Under the first approach, if SGX invalidates a closing auction price, that price will no longer be the closing price for the day. TAC trades based on that price should accordingly be cancelled, as they will no longer reflect the day’s closing price and participants’ intention of trading at the closing price. Likewise, if SGX determines an alternative closing price (in the case of ETFs), the original TAC trades based on the day’s closing auction price should be cancelled.
  • Allowing the TAC trades to stand (Approach 2): The rationale for the second approach is that even if a closing auction price is invalidated, any TAC trade executed at that price would have been executed with the participant being fully aware of and intending to trade at that price. Also, the participant may have since closed off or managed their positions with respect to their TAC trades, in which case cancelling the TAC trade may result in losses.

SGX is of the view that, on balance, Approach 1 may be more appropriate as a whole for the market in the event that the closing auction price is subsequently deemed invalid.

Proposed changes to the SGX-ST Rules

Feedback was sought on the proposed changes to the SGX-ST Rules, set out in Annex A to the consultation paper, to implement the new TAC functionality.

Reference materials

The following materials are available on the SGX website www.sgx.com:

 

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Allen & Gledhill Regulatory & Compliance

To assist our clients with compliance matters, our consultancy arm, Allen & Gledhill Regulatory & Compliance, provides a range of services and solutions. Should you have any queries relating to compliance issues arising out of these developments, please contact:

Lawrence Low
+65 6890 7448
lawrence.low@allenandgledhill.com