REMISIERS are blaming the new share trading rules announced last Friday for sparking yesterday's plunge in penny stocks.
Fears that the tough new regulations will hammer penny stocks and send already-thin trading volumes down even further sent investors fleeing.
The sell-off left the FTSE ST Small Cap Index down 1.07 per cent while the FTSE ST Fledgling Index lost 1.13 per cent. The indices track smaller-sized mainboard companies.
The blood-letting spread to the Catalist board, with the FTSE ST Catalist Index down 2 per cent even though listings there will not be affected by a new requirement for stocks to have minimum prices.
Although the general market was down, the relatively larger stocks held up much better. Mid-cap shares lost 0.46 per cent and the blue-chip Straits Times Index fell 0.78 per cent.
The gloomy sentiment stems from the raft of changes announced on Friday aimed at reducing the risks associated with highly speculative trading .
"Contra trading" - a system present only in Singapore and Malaysia where investors can trade first and pay later without posting any collateral - will end from mid-2016.
Investors will then have to post at least 5 per cent collateral on unsettled positions by the end of a trading session. The collateral can be in cash, stock or bank guarantee. Investors will be able to "tag" the shares in their Central Depository (CDP) account as collateral.
And mainboard-listed firms will have to have a minimum trading price of 20 cents from March next year although there will be a 12-month transitional period. An estimated 200 firms may be affected.
There will be a further period for companies to meet the requirements, and those who fail to take remedial action may be delisted from the mainboard.
Several penny stocks crashed in price last October in a meltdown blamed largely on highly speculative trading.
And while the new rules from the Monetary Authority of Singapore and Singapore Exchange are aimed at such dealing, investors saw that overall trading in penny shares will probably be affected and duly sent prices plunging yesterday.
"Contra trading is a necessary evil for our market to have a fair amount of volume," said remisier Gary Goh. "Nobody wants to trade in a market that's not vibrant."
Remisier Alvin Yong said the market falls yesterday could possibly have been linked to fears that the rules will hit penny stock trading. He added that investors may find that providing collateral will be difficult and leave trading altogether.
That will certainly be bad news for a market that has seen daily average turnover drop to $1.1 billion for the past year, from the $1.4 billion average over the past five years.
Mr Goh said: "If people have the intention to run away from their losses, (the 5 per cent collateral requirement) wouldn't help much."
There was also unhappiness that smaller investors will not be exempt from the collateral requirement, despite earlier suggestions that they should be.
Mr Jimmy Ho, president of the Society of Remisiers, said trades under $50,000 should have been exempted.
The 20-cent price requirement for mainboard shares is on the high side, he added. The minimum price "shouldn't exceed 10 cents", he said.
But Mr Ho said that the linkage from brokerages to investors' CDP accounts is a good move that shows operational flexibility.
The changes will bring Singapore more in line with global norms. People who buy shares on borrowed money need to put up some form of collateral in Hong Kong and New York.
Broking houses generally gave the thumbs-up to the new rules.
"The proposed new regulatory measures will facilitate member firms in better managing their business risks, which in turn will lead Singapore to (become) a stronger financial market and preserve its market integrity," said Mr Loh Hoon Sun, managing director of Phillip Securities.
"The market should soon adjust itself and get used to this new trading rule" which requires collateral, he added.
Requiring a minimum price for mainboard shares "is not a big issue", said Mr Loh, adding that companies can always consolidate their shares so that the price will go above 20 cents. Mr Harmeet Singh Bedi, chief executive of Maybank Kim Eng Singapore, said the measures should benefit the market in the long run by rebuilding investor confidence, which took a serious hit following last year's penny stock crash.
Another change, proving far less emotive, will be to cut the minimum lot size for trading from 1,000 shares to 100 shares from next January.
This will make it easier for retail investors to buy pricey blue-chip counters such as United Overseas Bank.
Elsewhere, investors can buy as few as one single share in New York while in Hong Kong, the standard lot size is 100 shares.
"We welcome the move to reduce board lot sizes," said Ms Tan Siew Lee, head of wealth management Singapore at OCBC Bank.
"It will give greater accessibility and widen the selection of shares for retail investors."jonkwok@sph.com.sg
This article was first published on August 5, 2014.
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