Remisiers' body also calls on SGX to consider scrapping short-selling fines
By R SIVANITHY
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(SINGAPORE) The Society of Remisiers (SOR) has proposed that the Singapore Exchange (SGX) introduce an immediate delivery, or ID, market that would complement current measures against short-selling.
SOR president Albert Fong, in a Dec 3 letter to the exchange, also requested that SGX consider scrapping fines of at least $1,000 for 'naked' shorts and $50,000 for failed delivery in the buying-in market.
In his letter, Mr Fong said that the ID market would function as a secondary market similar to the now-defunct cash market where shares can be bought and sold for immediate delivery.
'We envisage that SGX will impose a surcharge on transactions done in this ID market to deter rampant abuse of such a market and to compensate for loss of revenue by the exchange with the exclusion of the buying-in market . . . the mechanics of this ID market can be meticulously drawn up and fine-tuned gradually . . . we are fully convinced that this secondary market will enhance transparency and offer a systematic and logical extension to our financial system,' said Mr Fong.
Referring to the fines for naked shorting, Mr Fong said that they are punitive and disproportionate and, as a result, could deter investors by adding to already-high costs and risks. Mr Fong said the SOR believes that these measures, although possibly needed when markets are volatile, should be rescinded when the market stabilises and reintroduced if needed later.
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Under the present settlement system of T+3, shares that have been short sold at the end of each day and thus cannot be delivered on the due date will be forcibly bought in by the exchange on the next trading day, that is T+4. This is conducted in SGX's buying-in market, a segment of the market that is visible only to dealers and remisiers and where prices are progressively raised by the exchange until all short positions are filled.
This arrangement had previously come under some criticism for being relatively opaque and on Sept 25, SGX announced that it would publish the list of stocks to be bought in every day half an hour before the scheduled commencement time of 11.30am, as well as impose the fines outlined above. It did, however, add that it would allow appeals for genuine mistakes.
Earlier this month, the exchange supplemented those measures with a consultation paper which proposed full disclosure of daily short-sold positions. Public feedback for this paper closes on Dec 22.
When contacted by BT yesterday, Mr Fong said that the SOR supports the disclosure measures as they would improve transparency and provide useful information to investors.
'Our main problem is with the heavy fines for short-selling which all our members are very upset about,' he said. 'Also, with the ID market, shares can be bought by the public, member companies and SGX itself, thus eliminating the need for a buying-in market altogether.'
In response to a BT query, SGX yesterday said: 'SGX's public consultation on the proposed revised penalty framework for the non-delivery of securities was closed on Dec 4, 2008. SGX is currently assessing the feedback received from various market participants, including comments received from the Society of Remisiers.'
In an Aug 30, 2007 letter to BT in response to a call to reintroduce the cash market, which was a segment of the market where cash was paid for immediate delivery of shares and was thus similar to the SOR's proposed ID market, SGX executive vice-president and head of operations Chew Hong Gian said that the cash market was a feature of scrip-based trading that was introduced for the sole purpose of allowing shareholders to sell physical share certificates to stockbrokers if they needed payment on the same day.
'When trading went fully scripless in 1994, the cash market was abolished to protect shareholders from shares being sold without their knowledge, as physical certificates no longer had to be produced.'
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