Changes to Singapore stock market: Investors may need more help to spot red flags, say observers

Investor education will have to be stepped up in tandem with changes proposed by the stock market regulator that include a stop to publicly querying firms on unusual trading activities, say observers.

This and other proposals were unveiled by the Singapore Exchange Regulation (SGX RegCo) on May 15 as part of a move away from the current prescriptive approach for listings on the mainboard, which is the platform for larger, more established companies.

RegCo plans to shift from publicly querying issuers to privately engaging with them when there is unusual trading activity; and to limit the validity period for trade-with-caution alerts to an initial period of two weeks.

It also intends to remove the watch list for loss-making companies. Companies will, however, still have to inform investors when they report losses for three consecutive years. 

Public alerts on unusual trading activities serve as a signpost and draw retail investors’ attention to certain stocks, said Mr Louis Koay, a senior financial services director at Phillip Securities.

Former financial journalist-turned-novelist Frederick Lim felt that while it is all right to remove the watch list, RegCo should continue to query companies publicly whenever there are unusual trading activities.

He said listed companies here are already quite slow to respond when they have to disclose negative news, answer SGX queries or call a trading halt. 

He added that by the time they do so, the stock price would have run quite a bit in most instances.

Retail investors do not monitor the market so closely and are usually the last to react, Mr Lim said. 

Mr Alvin Chow, assistant director of investment advisory at financial advisory firm iFast Global Markets, said the average retail investor may not be ready to navigate a stock market where there are potentially fewer red flags.

He added that there needs to be a parallel effort to strengthen investor education, even as regulators take a more hands-off approach in the markets.

“Otherwise, the burden may shift disproportionately to investors who may not be equipped to shoulder it,” Mr Chow noted.

Under the other proposed changes, instead of telling listing aspirants what they should do, RegCo will leave it to them to give investors the relevant information. 

The only exception where the approach will remain prescriptive is in critical areas relating to a listing aspirant’s financial health, information on its directors, management and controlling shareholders.

Mr Tan Boon Gin, the chief executive of RegCo, said the proposed measures will “smoothen the path for enterprises to access the capital markets”. 

At the same time, retail investors will gain access to an “expanded range of investing opportunities” and will be more equipped to make decisions based on “relevant and material information”, he added.

Observers agree that listed companies and initial public offering (IPO) aspirants will benefit from the proposed measures.

iFast’s Mr Chow said the proposed changes give companies more flexibility on how they report “material information” and also what material information they report to investors.

He added that by easing some of the compliance friction, more companies may be encouraged to stay listed and potential listing aspirants might find the Singapore market more attractive.

This could pave the way for “better listing pipelines, higher-quality listings, and more dynamic capital markets”, Mr Chow said.

Mr Yujun Lin, chief executive of trading platform Interactive Brokers Singapore, said the proposed rule changes are a step towards a more pro-business and IPO-friendly environment. This could encourage new-economy companies, such as loss-making tech unicorns, to seek a listing on the Singapore market.

As for retail investors, observers said they will also have to do their part, noting the availability of financial statements that can be used to do due diligence checks on a company.

“Investing is not about passively reading announcements. It requires the ability to interpret information, assess the quality of businesses and make informed judgments,” Mr Chow said.

While Singapore’s stock markets operate on the principle of caveat emptor or “buyer beware”, market watchers and investors alike said more could be done to protect the interests of the small investor when there are instances of market misconduct. 

Both Mr Koay and Mr Lim said retail investors should be compensated, at least partially, for their losses.

Retail investors rely on publicly available information to invest and should not have to bear the losses caused by misconduct of other parties, Mr Koay said.

Mr Lim added: “In a sales contract, if there is misrepresentation of a product or service, the contract can be declared null and void and damages recovered.

“If a stock value is misrepresented by misconduct – shouldn’t there be compensation too?”

Mr Lin from Interactive Brokers Singapore said there are mechanisms in place to actively monitor potential misconduct, and for retail investors to report suspected cases.

This could be taken a step further by keeping a centralised and public record of the progress of all the investigations and complaints, he added.

Mr Lin said another idea is for the public prosecutor to act as a middleman and directly seek damages or collect fines from the offending parties to distribute to the affected investors. 

For lab technician Dallas Goh, the laws could be beefed up to protect investors. “I honestly think Singapore’s laws are rather weak in this area. We cannot sue like in the United States,” he said. 

Mr Chow noted that in the US, retail investors can come together to file a class-action lawsuit against an errant listed company.

Singapore currently lacks such a collective mechanism so while investors have the right to sue, they typically do not have the resources to file the lawsuits on their own.

Mr Chow suggested that the Securities Investors Association (Singapore), or Sias, should be empowered to aggregate claims from affected retail investors to file a collective lawsuit. 

He added that there should be a litigation fund backed by the Monetary Authority of Singapore, the SGX or the stockbroking industry to finance the lawsuits.

“The objective isn’t to encourage lawsuits but to ensure that when there is a legitimate reason to sue, such as fraud, misleading disclosures or governance abuse, retail investors have a real, practical avenue to pursue justice,” Mr Chow said.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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