Reply to PQ on Shareholders Affected by SGX Fair Settlement Price
REPLY TO PQ ON SHAREHOLDERS AFFECTED BY SGX FAIR SETTLEMENT PRICE
Date : For Parliamentary Sitting on 24 May 2002
To ask the Deputy Prime Minister and the Minister for Finance (a) what avenues of help are available for investors, who are caught by the Singapore Exchange Settlement Committee's decision on the Links Island shares and who are forced to pick up the trades that they have sold per contra before the suspension; and (b) whether there is a fund to help such affected investors and to prevent the broking firms from taking legal action against them.
1 In July last year, SGX announced that its investigations had revealed that a corner situation had arisen in Links shares. In accordance with the SGX Rules, the SGX Settlement Committee decided that all outstanding market trades in Links shares done during 14 - 16 Aug 2000 be settled by way of cash instead of delivery, at the fair settlement price of $1.21. This ruling also applied to sale transactions by contra traders who had bought Links shares before 14 Aug 2002 and sold those shares during 14 - 16 Aug 2000. As a result such contra traders had to pick up and pay for the shares they bought because their sale transactions, like all other market trades during the period, had been settled in cash instead of by delivery.
2 Some brokers have indicated to SGX that they are prepared to extend credit to help ease any cashflow difficulties faced by such investors. Others have allowed their clients to pay for the shares by instalments. MAS encourages such flexibility on the part of the brokers, so long as they comply with regulatory requirements. MAS cannot, however, require or compel all brokers to do so.
3 Another proposal was for SGX to use its fidelity fund to help the affected investors. This is not legally possible as the Securities Industry Act stipulates that the fund may be used only to compensate investors in the event of defalcation by a broker or to pay creditors when a broker winds up.
4 SGX has informed the Company that it is prepared to allow Links shares to resume trading provided the Company put in place safeguards to prevent the counter from being cornered again. One of the safeguards that the parties are discussing is for the Company to restore its free float to an appropriate level. The Company's free float had fallen to less than 8% (below the minimum 10% required by SGX rules) at the time of Links' trading suspension in August 2000. If the Company can meet SGX's requirements and trading in Links shares resumes, contra traders with Links shares will have the opportunity to sell their Links shares. But there is no guarantee that they will be able to sell their Links shares at the prices prevailing before the trading suspension.
5 A contra trader should always be prepared to fork out the full amount for his share purchases and not rely on the proceeds from subsequent sale to pay for them. Apart from a corner situation where the SGX Rules provide for cash settlement of outstanding market trades at fair settlement price, there are other risks that contra investors should take into account before engaging in contra transactions. For instance, if trading in the counter should be suspended for a few days (either by the listed company or SGX as provided for under the SGX rules1), before the investor could contra his outstanding purchases, he would have to pay for the shares in full. Or if the share price fell sharply after the investor had bought his shares, he would have to sell off the shares at a loss if he could not pay for them. Therefore, it is not prudent for an investor to over-stretch himself by relying on contra trades to pay for his share purchases.
1SGX may suspend trading in the shares of a particular company where it is likely that trading of the company's shares will not be conducted in a fair or orderly manner. If a company fails to comply with SGX's requirement for continuous disclosure, thereby creating the possibility of a false market in the company's shares, SGX may suspend trading in those shares. SGX may also suspend trading in a counter if the listed company does not meet the Exchange's minimum free float requirement or becomes a cash company (ie. a company whose assets consists wholly or substantially of cash or short-term securities).