Robson Lee, a partner in the legal firm of Shook Lin & Bok LLP, contributed this article to NextInsight. (2016 update: Robson Lee is presently a partner in Gibson Dunn & Crutcher LLP) 

INTRODUCTION

robson2_10.14Robson Lee specialises in corporate finance and capital markets transactions. He advises public listed companies on securities transactions, cross-border mergers and acquisitions and foreign joint ventures. Photo by Sim Kih.The Singapore Exchange (“SGX”) is proposing a minimum trading price (“MTP”) requirement for Main Board-listed companies (the “MTP requirement”). The existing watch-list framework will also be adjusted in light of the MTP requirement. These changes are expected to take effect in March 2016.

Separately, SGX also proposes to retain and codify the current notification and privy list requirements into the Listing Rules.

These proposals are discussed below in this article. 

I.              THE MTP REQUIREMENT 

(i)            Objective

The objective of the MTP requirement is to elevate the overall quality of Main Board-listed stocks. Lower-priced securities pose significant risks. They tend to be more volatile and susceptible to market misconduct and abuses. The relative cost impact to investors is also higher due to lower liquidity in these securities.

(ii)           Quarterly review for compliance with the MTP requirement

SGX has proposed a MTP of S$0.20 for Main Board-listed stocks. This includes real estate investment trusts (“REITs”) and business trusts (“BTs”). The MTP will be calculated using the Issuer’s 6-month volume-weighted average price (“VWAP”).

A quarterly review will be conducted to determine if issuers are in compliance with the MTP requirement. The review will take place on the first market day of March, June, September and December. Issuers that record a VWAP of less than S$0.20 over the 6 months prior to each review will be placed on the watch-list. This ensures that investors are provided a measure of transparency and early warning.

(iii)          Transition and cure period

Issuers whose shares are trading below S$0.20 can undertake corporate actions such as share consolidations. Such issuers may also consider a transfer to Catalist if it is able to engage a sponsor for its Catalist listing. Issuers will be given a one-time transition period of 12 months from the effective date of the MTP requirement (“transition period”). This allows affected issuers to undertake corporate actions to meet the MTP requirement. To facilitate transition, SGX will also waive share consolidation fees until 2017 for issuers who need to consolidate their shares to meet the MTP requirement.

Issuers who do not meet the MTP requirement after the transition period will be placed on the watch-list for at least 6 months. They will then be expected to take active steps to meet the MTP requirement within 36 months from their entry (“cure period”). Issuers will therefore have a total of 48 months (ie. until March 2019) to meet the MTP requirement when it is first introduced. Quarterly review will be conducted to assess whether the issuer is eligible for an exit from the watch-list.

The MTP requirement is an additional continual listing requirement for Main Board issuers. As such, issuers that are unable to meet the MTP requirement at the end of the cure period will be involuntarily delisted.

(iv)          Amendments to the existing watch-list framework

SGX proposes the following changes to the existing watch-list framework:

Proposed

Current

Rule references in the Listing Manual

MTP Entry Criterion

Issuer is placed on watch-list if it records:

·       6-month VWAP below S$0.20

MTP Exit Criterion

Issuer may exit watch-list if:

·       it has been on the watch-list for at least 6 months; and

·       it records 6-month VWAP of at least S$0.20 at quarterly review

Financial Entry Criteria

Issuer is placed on watch-list if it records:

·       3 consecutive years of pre-tax losses based on full-year audited financial statements; and

·       average daily market capitalisation of less than S$40 million over the last 6 months

Issuer is placed on watch-list if it records:

·           3 consecutive years of pre-tax losses based on latest announced full-year results; and

·           average daily market capitalisation of less than S$40 million over last 120 market days

Rule 1311 of the Listing Manual

Financial Exit Criteria

Issuer may exit watch-list if it records:

·       consolidated pre-tax profit for the latest audited financial year; and

·       an average daily market capitalisation of at least S$40 million over last 6 months

·           Pre-tax profit for latest audited financial year; and

·           average market cap of at least S$40 million over last 120 market days

OR

·           Satisfy Rule 210(3) of the Listing Manual; and either

·           A  cumulative pre-tax profit of at least S$7.5 million for last 3 years and minimum pre-tax profit of S$1 million for each of the 3 years; or

·           pre-tax profit of at least S$10 million for last 1 or 2 years

Rule 1314 of the Listing Manual

Involuntary Delisting

Issuer will be delisted if it fails to exit watch-list within:

·       the transition period of 12 months; and

·       the cure period of 3 years

Issuer will be delisted if it fails to exit watch-list within:

·           the cure period of 2 years

Rule 1315 of the Listing Manual

Issuers and securities exempted from compliance with watch-list requirements

·       Issuers listed for less than 6 months at the date of review;

·       Investment funds;

·       Exchange traded funds;

·       Global depository receipts;

·       Debt or structured warrants;

·       Cash companies; and

·       Secondary listings.

REITs and BTs remain exempted from meeting the financials criteria but will be required to comply with the MTP requirement.

·      Issuers listed for less than 6 months at the date of review;

·      Investment funds;

·      Exchange traded funds;

·      Global depository receipts;

·      Debt or structured warrants;

·      Cash companies;

·      Secondary listings; and

·      REITs and BTs.

Rule 1310 of the Listing Manual

Issuers are required to make an immediate announcement upon their entry into the watch-list. While it remains on the watch-list, updates on the efforts and progress made in meeting the exit criteria must be provided.

The MTP requirement and the Financial Entry Criteria for the watch-list will be assessed independently. Issuers that fail to meet both the MTP requirement and financials criteria will remain on the watch list until both issues are resolved.

II.            CODIFICATION OF NOTIFICATION PROCESS AND PRIVY LIST REQUIREMENTS

The current notification and privy list requirement was first introduced on 3 March 2014. Issuers and/or controlling shareholders are required to notify SGX if they are aware of or involved in discussions which are likely to result in a takeover, reverse takeover or a very substantial acquisition by the issuer. In addition, issuers and/or controlling shareholders are to concurrently maintain a list of persons privy to such potential transactions (“privy list”).

The notification and privy list requirement has proved effective in enabling closer monitoring of unusual price or volume movements in shares of issuers. The notification requirement reinforces the need to keep negotiations on potential transactions confidential. The privy list has also facilitated SGX’s investigations into suspected insider trading activities.

These rules apply to issuers on both the Main Board and Catalist, and are expected to take effect from March 2015.

CONCLUSION

These proposals, if implemented, are likely to go a long way in curbing excessive speculation and potential manipulation. Going forward, Main Board issuers who will be affected by the MTP requirement may wish to seek legal advice on various corporate actions or Catalist listings.

SGX’s public consultation phase for the proposed regulatory changes ended on 16 October 2014. 


The Chinese version of this article is here. 

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Comments  

#1 fxhole 2014-10-28 10:44
The average of 20cents is still too high to be kept as a minimum trading price, the safest sell can still be done at 5 cents.

certain counters have been traded at 0.00x value, at higher volumes, which was i said this. hmmm

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Counter NameLastChange
AEM Holdings2.3000.060
Avi-Tech Electronics0.265-
Best World1.7000.020
Broadway Ind0.0960.001
China Sunsine0.390-0.010
ComfortDelGro1.360-
Delfi Limited0.930-0.035
Food Empire1.420-0.020
Fortress Minerals0.280-
Geo Energy Res0.3600.020
GSS Energy0.0270.001
Hong Leong Finance2.470-0.010
Hongkong Land (USD)3.150-0.090
InnoTek0.440-0.005
ISDN Holdings0.3200.005
ISOTeam0.035-
IX Biopharma0.041-0.004
Jiutian Chemical0.024-0.001
KSH Holdings0.250-
Leader Env0.050-
Medtecs Intl0.1310.001
Nordic Group0.335-0.005
Oxley Holdings0.090-0.001
REX International0.1460.012
Riverstone0.665-0.020
Sinostar PEC0.135-0.003
Southern Alliance Mining0.600-
Straco Corp.0.500-
Sunpower Group0.220-
The Trendlines0.085-
Totm Technologies0.021-0.002
Uni-Asia Group0.815-
Wilmar Intl3.3600.030
Yangzijiang Shipbldg1.780-0.010
 

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