In a move highlighting how Asia’s financial hubs are competing fiercely for business, Singapore’s stock market and monetary regulator have set out ideas on how to strengthen the city-state’s securities exchange.

In a move highlighting how Asia’s financial hubs are competing fiercely for business, Singapore’s stock market and monetary regulator have set out ideas on how to strengthen the city-state’s securities exchange.

Monetary Authority of Singapore and the Singapore Exchange, or SGX, issued a consultation paper late last week.

The vibrancy of a stock market is an important issue for domestic and international wealth managers, since events such as initial public offerings, for example, are key liquidity events and drivers of new wealth that private banks are tying to manage. The move should also be seen in the context of similar calls for speedier reforms to financial markets in Hong Kong, for example. (To see how the debate is going in Hong Kong, see here.)

 While the market was sound overall, the Singapore organisations identified three areas where improvements need to be made:

--  promoting orderly trading and responsible investing;
--   improving the transparency of market intervention measures; and
-- strengthening the process for admitting new listings and enforcing against listing rule breaches.

The organisations said in a statement they are considering the idea of setting a minimum trading price for issuers listed on the SGX Mainboard.

“Low-price securities are generally associated with high volatility, which in turn makes them more susceptible to speculation and potential market manipulation. Introducing a minimum trading price as a continuing listing requirement will help to address these risks,” the statement said.

As for collateral requirements for securities trading, the MAS and SGX said focus should cutting credit risk exposures of market participants. They propose that securities intermediaries impose minimum collateral requirements on their customers for trading in both SGX-listed and foreign listed securities, based on the customers’ open positions and credit risk management practices. SGX said it also intends to shorten the settlement cycle from T+3 to T+2 days by 2016.

As far as disclosing short positions, the organisations said short-selling – sometimes attacked by critics of modern markets – in fact are important in encouraging price discovery and liquidity. To make the process more transparent, MAS and SGX have proposed that short positions be reported.

“This [disclosure] will complement the marking regime introduced by SGX last year, where participants are required to mark short sell orders. Under a short position reporting regime, there are two options, namely aggregate position reporting and disclosure of significant individual short positions. MAS and SGX seek feedback on the pros and cons of each option given the different reporting thresholds and the type of information that would be made public,” the organisations said.

The proposals also included making market intervention measures more transparent by stating that, if such restrictions are called for, they must be announced on the SGX website.
To avoid conflicts of interest when stocks are listed, MAS and SGX proposed that an independent Listings Advisory Committee be established to consider listing policy issues and listing applications that meet specified referral criteria.

Other measures:
-- an issuer’s board of directors will be required to approve the issuer’s reply to a public query by SGX;
 
-- SGX will publish a “Trade with Caution” announcement whenever issuers are unable to explain the trading activities which SGX is querying;

-- issuers will be required to notify SGX of discussions or negotiations that are likely to lead to a takeover, reverse takeover or a very substantial acquisition.