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Monday, 26 January 2009
SGX on right track with married deal tightening
Whenever a large block of shares is crossed in the stock market, it inevitably draws attention to the stock concerned and often stirs excitement and speculation about what might be brewing.
Whenever a large block of shares is crossed in the stock market, it inevitably draws attention to the stock concerned and often stirs excitement and speculation about what might be brewing.
Of course, in many instances, the crossing is routine - it could be simply be a large fund or investor rebalancing its portfolio or wanting to liquidate some of its holdings in a manner that doesn’t unduly affect the share price, in which case the story ends there and nothing further is heard.
However, there are situations when a married deal is a precursor to something bigger - the entry of a new investor for example, or a takeover - in which case the crossing could be taken as a signal to either buy or sell.
Note also that advance knowledge of such a crossing can be construed as price-sensitive insider information and so is subject to the relevant laws regarding insider trading.
It is this signalling feature which manipulators sometimes use to their benefit when rigging stock prices - perform several crossings to push liquidity up and to give the impression that something is cooking, spread appropriate rumours and if the timing is right and if the market is receptive to those rumours, then sit back and let natural market momentum take over.
In proposals announced on Tuesday, the Singapore Exchange (SGX) is now looking to tighten its rules governing married deals, or ‘direct business trades’, implicit acknowledgement that transparency in this area can be improved.
Syndicates, manipulators or ‘operators’ as they are sometimes known would probably not welcome these proposals. And neither would house traders and momentum players who, when asked what they thought of SGX’s proposals, said that they wondered if liquidity might be impaired with the new rules. But from a governance viewpoint, they are needed and probably overdue.
SGX’s proposed approach is to raise the bar on what qualifies as married deals which, in essence, is correct because it makes it more expensive for manipulators to accomplish their objectives and send fake signals. This is probably the most practical approach; however, a few tweaks might be considered.
SGX proposes to raise the dollar value of a block deal from $150,000 to $500,000, or the unit volume from 50,000 to 500,000. The former is fine, but perhaps there should also be a minimum dollar amount for the latter - consider, for example, that a block of 500,000 units of a one-cent stock only costs $5,000, small change to anyone looking to create fictitious interest in the counter and fiddle with the price. Perhaps a minimum value of $50,000 or some other suitable figure to be determined later should complement the 500,000 unit limit.
As for price, the main criteria should be whether the deal is bona fide and at arm’s length. If so, then as long as the transacted price is within a reasonable range - currently within 10 per cent of the latest closing - then further fine-tuning may not be needed.
Of course, if the price is beyond that range, then the appropriate disclosures should be made.
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SGX on right track with married deal tightening
By R SIVANITHY
23 January 2009
Whenever a large block of shares is crossed in the stock market, it inevitably draws attention to the stock concerned and often stirs excitement and speculation about what might be brewing.
Of course, in many instances, the crossing is routine - it could be simply be a large fund or investor rebalancing its portfolio or wanting to liquidate some of its holdings in a manner that doesn’t unduly affect the share price, in which case the story ends there and nothing further is heard.
However, there are situations when a married deal is a precursor to something bigger - the entry of a new investor for example, or a takeover - in which case the crossing could be taken as a signal to either buy or sell.
Note also that advance knowledge of such a crossing can be construed as price-sensitive insider information and so is subject to the relevant laws regarding insider trading.
It is this signalling feature which manipulators sometimes use to their benefit when rigging stock prices - perform several crossings to push liquidity up and to give the impression that something is cooking, spread appropriate rumours and if the timing is right and if the market is receptive to those rumours, then sit back and let natural market momentum take over.
In proposals announced on Tuesday, the Singapore Exchange (SGX) is now looking to tighten its rules governing married deals, or ‘direct business trades’, implicit acknowledgement that transparency in this area can be improved.
Syndicates, manipulators or ‘operators’ as they are sometimes known would probably not welcome these proposals. And neither would house traders and momentum players who, when asked what they thought of SGX’s proposals, said that they wondered if liquidity might be impaired with the new rules. But from a governance viewpoint, they are needed and probably overdue.
SGX’s proposed approach is to raise the bar on what qualifies as married deals which, in essence, is correct because it makes it more expensive for manipulators to accomplish their objectives and send fake signals. This is probably the most practical approach; however, a few tweaks might be considered.
SGX proposes to raise the dollar value of a block deal from $150,000 to $500,000, or the unit volume from 50,000 to 500,000. The former is fine, but perhaps there should also be a minimum dollar amount for the latter - consider, for example, that a block of 500,000 units of a one-cent stock only costs $5,000, small change to anyone looking to create fictitious interest in the counter and fiddle with the price. Perhaps a minimum value of $50,000 or some other suitable figure to be determined later should complement the 500,000 unit limit.
As for price, the main criteria should be whether the deal is bona fide and at arm’s length. If so, then as long as the transacted price is within a reasonable range - currently within 10 per cent of the latest closing - then further fine-tuning may not be needed.
Of course, if the price is beyond that range, then the appropriate disclosures should be made.
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