By R SIVANITHY
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THE Singapore Exchange (SGX) recently hinted that it was looking at any impropriety surrounding the announcement of various rights issues. It also reprimanded Neptune Orient Lines for a disclosure lapse, simultaneously reminding all companies that full and timely disclosure 'is crucial to the operation of a fair, orderly and transparent market'.
Clearly, the exchange has decided to crack down on governance transgressions and, from the viewpoint of those who believe it has been too lenient in the past, long may this continue.
However, one area which some might argue is a governance grey area or blind spot deserves closer attention because of the extreme potential for the creation of a false market.
We're referring here to periodic rigging or manipulation of the Straits Times Index, sometimes euphemistically called 'window-dressing'.
The most recent example occurred on Tuesday, when Jardine Matheson's shares were jacked up by US$4.16 or 21 per cent to US$24 in the post-closing five-minute adjustment period, a move which added 19 points to the STI and pushed it 12 points into positive territory.
False impression
Given that the index is meant to depict at a glance the performance of the market as a whole and that the entire market was clearly weak with 104 rises against 285 falls that day, it can be argued that the JM push resulted in the creation of a false impression that the Singapore market was firm when it was not.
By extension, if a false impression equates with a false market, it is then logical to expect some sort of official investigation. Is there a case for this? The answer is yes.
First, if the buying was genuine, JM would have stayed at Tuesday's closing price yesterday. It did not - in fact, it opened US$4 lower and stayed there for the rest of the day, eventually closing US$4.10 weaker at US$19.90.
Second, there was no question of this having been an error - for one, JM is thinly traded and is typically not a retail stock so it is not likely to have been an inadvertent mistake by a naive retail investor. Moreover, hurried buying of just 36 lots during the final few minutes of one day and immediate selling the next day strongly suggests premeditation and an intention to achieve certain, presently unknown objectives. What might these be?
One possibility is to make a profit via a structured product, either exchange-traded or over-the-counter. Readers might recall that in March 2008, two dealers were found guilty of manipulating the STI in order to make money in index warrants and were fined $100,000 each. Interestingly, one of the stocks they used to rig the STI was JM, so the counter has been used before in a case involving index rigging.
Readers would also know that this is not the first time that a massive jump in one stock has caused a large index movement.
On Dec 29 last year, unknown parties ramped up CapitaMall Trust (CMT) by a staggering 87 per cent in the last few seconds, in the process jacking the index up 22 points (it closed a total of 55 points higher at 1,780). Like JM this week, CMT surrendered all of this gain the very next day.
That artificial propping up of the STI was brushed off as being year-end window-dressing, but why should this exclude it from official scrutiny?
There is no difference between the push on CMT four months ago and JM this week - both clearly created a false impression and should therefore be probed. The problem, however, with trying to investigate such odd moves is proving intent.
Odd movements
Dealers who executed the trades could respond by saying they were simply fulfilling the wishes of their clients and thus claim innocence, while it's possible that some orders were routed via overseas programme trades thus making policing difficult.
It's also worth noting that anecdotal evidence from other markets such as Hong Kong is that indices frequently display odd movements late in the day and regulators simply do not have the resources to probe every single extraordinary rise or fall.
However, difficulty in performing a task should not be an excuse for abandonment, especially when the STI's performance heavily influences sentiment and thus lies at the heart of the bulk of daily market action.
Just like disclosure lapses, index rigging interferes with the conduct of a 'fair, orderly and transparent market' and so should be scrutinised and corrective action should be taken.
Perhaps equally important is that if the JM, CMT and other blatantly large moves are investigated, the exchange must then disclose its findings so the public will not be in the dark - even if nothing untoward is detected.
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