19 December 2019

On 28 November 2019, Singapore Exchange Regulation (“SGX RegCo”) issued a consultation paper titled “Review of the Tools Used to Deal with Market Manipulation Risk” seeking feedback on its proposal to remove the minimum trading price (“MTP”) framework and changes relating to the administration of the financial watch-list. The consultation closes on 27 December 2019.

Proposal to remove MTP framework

Following a review of the MTP framework for companies listed on the Mainboard of Singapore Exchange Securities Trading Limited, SGX RegCo proposes to remove the MTP framework.

The MTP framework was proposed in 2014 and subsequently implemented in 2015 to reduce the risks of potential manipulation and excessive speculation on the market. Under the framework, companies are identified as susceptible to manipulation if their six-month volume weighted average price is below S$0.20 and their six-month average daily market capitalisation is below S$40 million. These identified companies are placed on an MTP watch-list to reduce the risk of manipulation, and are expected to improve their share price and market capitalisation within three years, or be delisted.

Since then, SGX RegCo has enhanced its tools and developed other approaches to address manipulation risks, such as the use of Trade with Caution (“TWC”) alerts, the publication of trade surveillance handbooks and a practice guide (in collaboration with the Monetary Authority of Singapore (“MAS”)), the introduction of a members’ surveillance dashboard and the exercise of SGX RegCo’s discretion to disregard artificial distortions to share prices if share price manipulation is suspected.

With the implementation of these measures which operate in a more targeted and direct manner, SGX RegCo has reported a decline in the number of alerts triggered for market manipulation. SGX RegCo had also received requests to review the MTP framework. SGX RegCo therefore believes it is now appropriate to remove the MTP framework. This is especially as SGX RegCo has found that only a small percentage of companies on the MTP watch-list have been the subject of a TWC alert or referral to MAS for potential manipulation. Yet, under the MTP framework, the MTP watch-list companies which have not been shown to be susceptible to manipulation would also become subject to delisting, a measure SGX RegCo considers excessive and may be detrimental to investor interests.

Transitional arrangements

As SGX RegCo is proposing to remove the MTP framework, companies will not be added to the MTP watch-list until and unless it is determined that the MTP framework should be retained in its current form. Companies currently on the MTP watch-list may continue to exit under existing criteria at the half-yearly reviews. A moratorium has been placed on the 36-month cure period effective from 1 December 2019 for these companies. The 36-month cure period will continue to run if and when it is determined that the MTP framework should be retained in its current form.

Proposed changes to financial watch-list administration

SGX RegCo’s proposed amendments to the financial watch-list administration serves to alert investors to financially weak companies as well as prevent companies from circumventing existing requirements on exiting the watch-list under the SGX Listing Rules (Mainboard) (“Listing Rules”).

Companies are currently placed on the financial watch-list if they record pre-tax losses for the past three consecutive years and have an average daily market capitalisation of less than S$40 million over the past six months. Companies may apply to SGX to exit the financial watch-list if they have recorded a pre-tax profit for the most recently completed financial year and have an average daily market capitalisation of S$40 million or more over the last six months.

Companies to demonstrate improvement in fundamentals and financial performance

Companies are expected to demonstrate an improvement in their fundamentals and financial performance in order to exit the financial watch-list. Changes to the Listing Rules are proposed to allow SGX to exercise its discretion to reject an application to exit the financial watch-list even if the company’s accounts reflect profitability, such as where it arises from exceptional transactions (e.g. a one-off asset disposal) or changes to the company’s accounting policies (e.g. write-back of provisions), without actual improvement arising from the ordinary course of the company’s business. SGX will take into consideration such non-recurrent income or items generated by activities outside the ordinary course of business.

Implications of audit opinion of financial statements

Amendments to the Listing Rules are also proposed to clarify that SGX will not consider a company to have met the profitability test if its financial statements are subject to a disclaimer or adverse audit opinion, or if a material uncertainty relating to going concern is highlighted by its auditors. For other situations, such as where financial statements are subject to a qualified opinion, SGX will assess the specific circumstances of a company and continue to retain its discretion to determine if the company should be allowed to exit the financial watch-list.

Reference materials

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


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