Firms worth at least S$40 million may be spared MTP watch-list: SGX

SINGAPORE — Companies listed on the mainboard of the Singapore Exchange (SGX) with an average market capitalisation of at least S$40 million over the past six months may be spared being placed on the bourse’s watch-list under its S$0.20 minimum trading price (MTP) requirement, the exchange proposed on Tuesday (Aug 23) in a move welcomed by market watchers.

The MTP rule was implemented in March last year with the aim of reducing the risk of excessive speculation and potential manipulation of so-called penny stocks.

SGX said on Tuesday it has reviewed the MTP criteria to assess if the objectives can be achieved in a more calibrated and effective way, taking into account market feedback provided by stakeholders.

This proposal on refining the MTP framework has been put up for public consultation, which is open till Sept 23. On approval, the new framework will be implemented by June 2017.

The watch-list, meanwhile, will be put on hold until a decision on the new proposal is reached, but those already on the list can exit if they fulfil the MTP.

“We noted from the review that among companies with a six-month volume-weighted average price (VWAP) of shares of less than S$0.20, those with market capitalisation of S$40 million or more showed better liquidity characteristics and lower volatility compared with companies with market capitalisation of less than S$40 million,” said Mr Tan Boon Gin, chief regulatory officer at SGX.

This suggests that the market capitalisation test as an MTP entry criterion will complement the existing requirement to more precisely achieve the goal of reducing excessive speculation and potential manipulation, SGX said.  

Mr Lee Boon Ngiap, assistant managing director (Capital Markets), Monetary Authority of Singapore, said: “The MTP requirement was introduced in March 2015 to address the susceptibility of low-priced stocks to excessive speculation and market manipulation.

“This policy remains sound. We support SGX’s latest proposals which seek to refine the MTP watch-list criteria to achieve the same policy objective in a more targeted way.”

Market watchers said the new proposal will give companies affected by the requirement more breathing room amid current market volatility and global economic uncertainty.

Mr David Gerald, president and chief executive of investor rights watchdog Securities Investors Association (Singapore), lauded the SGX’s latest move.

“Companies have found it difficult to comply with the 20 cents rule despite consolidation and other corporate actions. To compound the problem, the global economic conditions and the volatility in the markets have not been favourable either to achieve the 20 cents MTP rule. It is, therefore, encouraging to see the regulator taking a flexible approach by introducing another criterion, which no doubt will help companies not get into the watch- list so easily,” he said.

However, he added: “We must at all costs avoid our mainboard from regressing to a penny stock market.”

Mr Bernard Aw, market strategist at financial services firm IG, said: “I see the announcement to reflect SGX’s commitment to enhance the MTP measure. In my view, a blanket measure might have unintended consequences, a more targeted approach will better serve the purpose of the initiative.

The proposed change could see 14 of the existing 55 companies on the MTP watch-list since March 1 get off the list if they maintain a market cap of at least S$40 million when the proposed refined MTP rule is introduced. Having managed to improve VWAP of shares above S$0.20, two other companies are set to get off the watch-list assuming their VWAP remains above the threshold on Sept 1.

The SGX watch-lists currently have two entry criteria: MTP and financial entry, the latter referring to firms incurring three continuous years of losses and having a 120-day daily average market value below S$40 million.

Companies joining the watch-lists get three years to lift their six-month VWAP if they are non-compliant with the MTP rule or ramp up their financial performance if they breached the financial entry criteria. If they fail to do so, they face potential delisting or may choose to step down to the Catalist board.

SGX also proposed to review companies every half-year instead of quarterly for placement on the MTP and financial entry criteria watch-lists, and said it will align the review period with the six-month look-back interval used to calculate VWAP.

On the possibility of merging the MTP and the financial entry criteria watch-lists, Mr Tan said the two will continue to remain separate.