Debated in Parliament on 16 Feb 2021.
Mr Desmond Choo asked the Prime Minister (a) whether there are signs of significant increase in securities trading fueled by online discussions and social media chat groups; (b) what are the protections against such activities destabilising the smooth running of the securities market; and (c) whether MAS is considering safeguards.
Mr Speaker, Sir, happy new year to everybody. There have been no signs that discussions in online forums or social media chat groups have led to any significant increase in the trading of securities listed in Singapore. Notwithstanding this, the Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) are on heightened alert to such activities.
Recent events in the US have highlighted the risks of excessive trading driving sharp movements in price. There are important lessons to learn from this experience, and we need to be alert to similar risks potentially occurring in our own markets.
While investigations by the US authorities are on-going, the triggers for the recent event were not unfamiliar to the industry. Certain investors had accumulated large short positions, exerting downward price pressure in the affected stocks. This was followed by online discussions amongst retail investors to buy the stocks, which increased their prices. These prices have since fallen from their peaks, raising a new issue of whether the price increases were sustainable.
We have various safeguards in place to address such risks. There are, by and large, two scenarios we are safeguarding against.
One is the “pump and dump” scenario, where certain parties incite trading to push up prices, including through online forums and social media chat groups. Once prices rise to specific levels, they may sell then the securities which they had accumulated earlier. When prices eventually fall back down, other investors could suffer quite heavy losses.
A second scenario is the “short and distort” scenario, where certain investors take a short position on certain securities and use false or misleading information to encourage more short-selling. They can make profits by covering their positions after prices have fallen.
Our safeguards address such scenarios in three ways. One, providing market transparency; two, curbing any sharp price movements; and three, enforcing against market misconduct. Let me describe each of them briefly.
First, providing market transparency. When there are unusual price movements in a company’s securities, SGX RegCo may issue a query and the company must publicly clarify if it is undertaking any activity that would warrant such a price change. If market rumours are influencing stock prices, the company is required to provide a prompt and full response to any allegations. As an early warning to investors, SGX RegCo may also issue a “Trade with Caution” alert on securities where there is potential for disorderly trading. In addition, aggregated short positions and trading volumes are published for each security. These measures provide transparency to investors, allowing the market to self-correct where there is excessive trading that is not backed by business fundamentals.
Second, to curb the effect of a sharp movement in the price of a security, a circuit breaker may be triggered that temporarily suspends trading. SGX may also impose additional conditions such as restricting specific market participants from trading or requiring investors to place more collateral. In extreme cases, affected securities may be suspended from trading altogether until further notice.
Finally, firm enforcement action will be taken against persons who breach the law. In particular, it is illegal under the Securities and Futures Act to disseminate misleading information or use manipulative and deceptive practices.
MAS and SGX RegCo have recently issued statements advising investors on the risks of trading in securities based on discussions on online forums. Investors should refer to these advisories and be alert to the risks of trading in a volatile market.
Mr Desmond Choo.
I would like to thank the Minister for his clarification. I have two points of clarification. The first is, with our safeguards in place, what is the likelihood of short squeezes happening in Singapore and thus, leading to massive market dislocations? The second question that I have is, what is MAS' position on having platforms like Robinhood being set up in Singapore? We know that Robinhood was one of the key platforms that Reddit band had used to try to corner the market, create short squeezes and thus, create massive market dislocations. Would we put in safeguards to prevent them from setting up in Singapore? Or would we create a regulatory environment that will control their behaviour, like what we have seen in the US?
On short squeezes, the short positions in Singapore compared to the US, are much less. As to the reasons why, there can be a few hypotheses. One, maybe, it is the culture of investors here. Two, it is also the level of disclosure; so, if you are a listed company, there is a high level or standard that you have to abide to in disclosing your business and if anything that is happening that is material to your business. So, because of the transparency, investors have more information to act on. And thirdly, there are also mechanisms in the US such as having single stock options – you can have many puts, for example; it is equivalent to short selling – that also exposures themselves to more short positions, resulting in short squeezes; which we do not have here. So, for various reasons, plus all the measures I mentioned earlier – enforcement, being alert to such price surges, implementing circuit breaker. All these contributed to it.
We will continue to be on the alert to prevent such events, such short squeezes from happening.
As for platforms, you know how online platforms are. It is hard to control. So, I think, ultimately, it is still about having a good, transparent, efficient regulatory regime and functioning of the market to prevent such things from happening in the first place.
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