Published December 5, 2008

Steer clear of 'wash trades' and 'marking the close': SGX

By CHEW XIANG
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THE Singapore Exchange (SGX) has cautioned in the latest Regulator's Column posted on its website that 'wash trades' and 'marking the close' are forms of market manipulation that breach Sections 197 and 198 of the Securities and Futures Act and are punishable by stiff fines or even jail.

The two sections prohibit manipulation and creating a false market in securities. Criminal proceedings over breaches can result in a fine, up to seven years' jail or both.

The Regulator's Column was introduced by the SGX as a way of raising awareness of listing and governance issues affecting market participants including investors, listing aspirants, listed companies, issue managers and professionals. It is not known if the decision in the latest column to touch on market manipulation was a response to any recent events.

Wash trades are trades in which there is no change in beneficial ownership of the securities. In effect, the buyer is also the seller or is associated with the seller.

'Wash trades and other prearranged trades may be executed for various reasons, including extending the settlement period of the transaction, artificially affecting the price of the counter or to give a false impression of investor interest in a security,' SGX said.

'Marking the close' involves trading in a stock near the end of daily business to influence its closing price. 'In a bearish market, this might be done to avoid margin calls, to reduce the size of the margin call or support a flagging share price,' SGX said.

One indication that such trades are taking place is when small parcels are traded just before the market closes, it said.

'The buyer typically would have large positions of the security in a margin account. This is most obviously seen in thinly traded stocks whose price is under pressure.'

SGX said trading members and their representatives should be alert to the possibility of manipulative conduct and should not assist their clients to effect such trades.

It also explained that it will refer any errant investors, trading representatives and trading members suspected of being involved in market manipulation to the relevant authorities such as the Monetary Authority of Singapore and the Commercial Affairs Department.

Last year, Vincent Tan, chairman and CEO of Advanced Integrated Manufacturing Corp, was arrested for an alleged breach of Section 197.

And in 2006, three Phillip Securities traders paid a $70,000 penalty and had their licences suspended by the MAS for rigging the share price of Olam International.