Published October 13, 2009

When in doubt, regulators should query?

By JAMIE LEE

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FEW would bat an eyelid to see two Singapore-listed companies queried for unusual movements in their share prices. But what may raise the eyebrows is that they were queried - not by their home regulator, Singapore Exchange (SGX), but by regulators in the foreign jurisdictions in which their securities are also traded.

And this raises interesting questions over the different approaches taken by SGX and its peers overseas.

Shares of Singapore Telecommunications (SingTel) in Australia lost 12 Australian cents, or 4.59 per cent, between Oct 5 and 7 this year, prompting the Australian Securities Exchange (ASX) to send a 'price query'.

Comparatively, shares of SingTel in Singapore shed 11 cents, or 3.47 per cent. SGX, however, did not query SingTel on the share movement.

One can argue that in this case, the share price movement was not significant enough to prompt a query and might have been an overreaction by ASX. The drop in SingTel shares in Australia was also more drastic on a percentage basis than in Singapore.

But here's a second case. At the end of September, Medtecs International Corporation - which is also listed in Taiwan - was asked by the regulators there to explain the reason behind the 364 per cent jump in the stock's average closing price over a six-month period.

The Financial Supervisory Commission of the Executive Yuan of Taiwan deemed these to be 'unusual fluctuations' of the stock and asked Medtecs to clarify after the company applied to convert ordinary shares into Taiwan Depository Receipts.

Shares of Medtecs here took a similar joy ride, surging 600 per cent since the start of the year. The jump in the share price of the surgical mask maker, however, was not queried by SGX.

So how can one view the different approaches of the regulators?

SGX can argue that it makes its own conclusions on whether to query companies. It does not need to mirror the actions of the other regulators and perhaps saw rational reasons for the share price movements.

Also, it could be said that the Taiwanese query on Medtecs was prompted by the company's application for share conversion, which could demand more scrutiny.

In Medtecs' case, there is nothing on record showing its response to the Taiwanese query. In an update last week, the company only said that the Taiwan regulator is no longer suspending its application to convert its shares there. Investors can only assume, like perhaps SGX did, that the positive increase in the sale of masks during the H1N1 scare was the sole factor which boosted the company's share price.

But SingTel's response to ASX shows that investors may benefit when companies are queried.

The telco told ASX that the stock movements may be linked to the fall in the share price of Bharti Airtel - its subsidiary in India - given the increased competition in the Indian mobile telecommunications market. Entirely plausible, since this has been the talking point for SingTel. And as obvious as the explanation may seem, it is still useful to investors because it is put on record by the firm instead of being left to second-guessing by the market, as would be in the case otherwise. Investors are free to decide if the threat faced by Bharti is as serious as the share movement suggests, or if it's something to be ignored.

But at least they are appropriately alerted. And they are also told there was no other reason driving the stock down.

What these two cases have done is create perceptions that SGX's peers are more proactive when it comes to queries, even if it might be an overreaction. Their position seems to be - when in doubt, query.

SGX, on the other hand, seems more prepared to rationalise on behalf of the companies. But that should really be left to the companies to do themselves.