Response to three letters on measures to guard against retail investors investing beyond their knowledge, risk appetite and financial resources, "Measures to help investors to invest wisely" - The Straits Times, 6, 8 and 11 August 2020
We refer to the letters “Take steps to protect investors from being burned”, 6 Aug; “Too many regulations will hurt Singapore market and investors”, 8 Aug; and “Financial literacy paramount in current market climate”, 11 Aug. We thank the writers for sharing their views.
2 We agree with Mr Ee Teck Siew that measures should be in place to guard against retail investors investing beyond their knowledge, risk appetite and financial resources. Ms Christie Loh is also right to remind that we need to avoid burdensome regulations that impede the market. Measures similar to Mr Ee’s suggestions have been implemented to raise investors’ awareness of the risks of stock trading and encourage responsible investing. Securities brokers are required to inform retail investors about the relevant risks of trading and obtain a written acknowledgement from the investor before opening a trading account. Trading and credit limits may only be granted after taking the financial circumstances of the investor into account. There are also regulatory caps on the amount of securities financing which can be provided to retail investors.
3 As Woon Wee Min pointed out, financial literacy is paramount in helping investors manage their investments effectively and avoid huge losses. The Monetary Authority of Singapore (MAS) has been spearheading efforts to raise the general level of financial and investment literacy amongst Singaporeans through its national financial education programme, MoneySense, and its industry partners.
4 Mr Ee mentioned applying circuit-breakers to lower-priced stocks. While circuit breakers can be useful tools to prevent excessive levels of volatility and assist in maintaining an orderly market, its use can also undermine proper price-discovery that are driven by market fundamentals. Lower-priced stocks that are less liquid can exhibit sharper price movements when there are material corporate or market developments. Using circuit breakers too quickly in such situations could delay price discovery. We have taken note of Mr Ee’s points and will engage SGX to conduct a review of the use of circuit breakers in conjunction with other tools that SGX uses to maintain a fair and orderly market, such as actively monitoring and engaging companies if there are unexplained movement in their stock prices.
5 MAS and SGX have put in place a framework of regulatory safeguards. Investors too have an important part to play by being vigilant and not get drawn into get-rich-quick opportunities. Investors are encouraged to maintain a long-term perspective to investments and to fully understand the risks of financial products before investing.
Director (Corporate Communications)
Monetary Authority of Singapore
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