Feedback to Review of Securities Market Structure and Practices
This is the feedback that I submitted for the the public consultation : Review of Securities Market Structure and Practices
Question 1: MAS and SGX seek views on: (i) the proposed concept of a minimum trading price as a continuing listing requirement for issuers listed on the Mainboard.
The minimal trading price proposal is unnecessary and a step in the wrong direction.
(a) Lower priced stocks (less than $0.20) actually move less in absolute % per tick as their spread is $0.001 (compared to $0.005 or $0.01 for higher priced stocks).
(b) The volatility of a stock is determined not only by their absolute trading price but by their underlying trading liquidity (e.g. number of orders on queue) and market capitalisation.
When Blumont and the other stocks was being pushed up to more than $1, the higher price did not stop the ongoing manipulation. This is because they are low market capitalisation stocks with low real trading orders in the queue (i.e. liquidity).
If there is $5000 worth of buy orders in the queue, whether the share price is $0.05 or consolidated to $0.50, it will still be $5000 worth of orders.
(c) Imposing a share consolidation for low price stocks will actually make the liquidity worse as the higher prices will make them less affordable and reduce the number of potential buyers.
(d) Comparing our prices with US as a benchmark is not a fair comparison as they allow people to transact from as low as 1 share.
To reduce share manipulation, we should rely more on the collateral proposal.
Question 2: MAS and SGX seek views on: (i) the proposal for securities intermediaries (including banks) authorised to deal in securities under the SFA to impose collateral requirements for securities trading based on a minimum collateral requirement of 5% of customers’ open positions.
I would suggest having different bands of stocks organised by their market capitalization. For those stocks with low market capitalisation that are easily manipulated, they should require higher levels of collateral. 5% is too little.
I would go as far to say that there should be some stocks that require 100% collateral all the time. This is no different from placing a permanent “designated” status on these stocks.
In the other extreme, shares that are in the STI index may not require any collateral as it is difficult for any one party to manipulate their prices.
Another method to determine the collateral requirements is by whether a company is listed on the Mainboard or the Catalist.