Date: August 20, 2015
Singapore Exchange (SGX) is integral to Singapore’s position as a leading international financial centre. It is therefore crucial that SGX improves the quality of the stock market including enhancing its liquidity, and reducing the vulnerability of stocks to manipulation. All these are critical to the market’s integrity and its long-term success.
Introducing a S$0.20 minimum trading price (MTP) for Mainboard-listed companies is one measure to better position our market for the future. Higher stock prices tend to correlate with better liquidity or market quality while low-priced stocks are highly susceptible to excessive speculation and manipulation.
MTP does not alter a company’s fundamentals
Companies wanting to raise share prices above the S$0.20 MTP have several corporate action options including share consolidation.
As of 30 July, 212 out of 610 Mainboard companies are affected by MTP. They account for 1.6% of the total value of all companies listed on Mainboard. 89 of these companies have announced they will consolidate their shares to comply with MTP, of which 41 have undergone actual consolidation. 28 of these 41 companies showed a decline in stock prices following the share consolidation though 5 of these 28 have had their share prices rebound from their lows. 2 consolidated shares had no trading record while the remaining 11 rose post-consolidation.
Clearly, the act of consolidating shares does not, nor is it meant to, alter a company’s fundamentals. Short-term share price movements also do not translate into long-term trends. The higher absolute share price of the company post-consolidation, in fact, could facilitate renewed price discovery by bearish investors, resulting in fresh selling of the stock as investors were unable to do so pre-consolidation when share prices were too low.
In the long run, financial fundamentals of a company remain the key driver of price performance. Achieving price equilibrium does take time and will require a confluence of supportive factors including greater investor understanding of the companies, their fundamentals and prospects.
Considerations for companies affected by MTP
When companies choose to consolidate their shares to comply with MTP, they must determine what an appropriate share consolidation ratio is, taking into consideration the likely liquidity of the stock post-consolidation. If the share consolidation ratio is too high, the consolidated number of shares could be at risk of being so low that lack of liquidity remains a problem. In such cases, the company may need additional solutions to comply with MTP. We are aware of the risks that illiquid stocks face and will continue to be vigilant in monitoring the share trading activities of such companies.
For companies facing longer-term share price weakness following a share consolidation, strategic actions may be required to improve its overall valuation, business fundamentals or underlying financial performance. These actions could include organic growth strategies, restructuring, mergers and acquisitions, reverse takeovers, a transfer to Catalist or a combination of any of these. Companies may need to also increase engagement with the investor community and explain their business and growth potential.
Non-action by companies may lead to delisting
We note that a number of companies have thus far chosen non-action. Their non-action could worry investors who may then choose to exit their investments. Non-action also increases the risk that these companies would be placed on the Watch-List and be subsequently delisted. SGX will continue to engage with these companies.
The first quarterly review of companies for compliance with MTP will be conducted on 1 March 2016. As MTP compliance is assessed based on the Volume Weighted Average Price (VWAP) of a company’s shares over a 6-month period, the share price performance of a company between September 2015 and February 2016 will be crucial. Companies at risk of non-compliance should therefore act before 1 September 2015 to stay out of the Watch-List.
We recognise that share consolidation is not a standalone solution for a sustainable long-term share price performance. Improving business fundamentals takes time and that is precisely why the listing rules provide a reprieve of three years for companies to exit the Watch-List if they do not comply with MTP. This is longer than the existing two year period for Watch-List companies before the introduction of MTP as a continuing listing requirement.
Long-term, positive change to market quality
We acknowledge that the implementation of MTP is a challenging process that will take time to bear results.
With the support of companies, investors, brokers, industry professionals and regulators, we believe MTP and other initiatives are the building blocks towards a more robust, dynamic and attractive Singapore stock market.
We will continue to provide updates on the number of companies which have carried out share consolidation and other corporate actions to comply with MTP. Our engagements with stakeholders and companies on MTP will continue.
For more details on MTP, please see http://www.sgx.com/mtp. Two rounds of public consultations were held on enhancements to the securities market including MTP and feedback received can be found here and here. If you have other feedback or suggestions on MTP, please write to email@example.com.
Note to shareholders
All company announcements of corporate actions information can be found on SGX.com. Any adjustments in the number of shares held by a shareholder following a share consolidation will be reflected on the CDP web-page 1 business day after the record date. Additionally, shareholders may also approach their brokers for assistance on corporate action procedures and requirements which are part of the services they offer customers.
Shareholders can also closely monitor the VWAP of their companies by accessing SGX’s Stockfacts, a free service.
Head of Listing Compliance