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The new Minimum Trading Price (MTP) set by SGX requires mainboard-listed companies to bring their share price to above S$0.20 by 1 march 2016. The first batch of companies which do not comply with MTP then will enter the SGX watch-list. These companies will have a 36-month period up to 28 February 2019 to comply.
The reason behind the new rule is to improve the quality of the stock market as lower-price shares tend to have lesser liquidity and are more prone to manipulation.
To comply with the new rule, companies could have several options such as share consolidation. This method helps to prop up share price by reducing the number of outstanding shares. However, share consolidation doesn’t guarantee that stocks will stay above 20 cents as prices are mainly determined by market forces and the company’s fundamentals. In addition, there will be many instances where investors will be left with odd lots and have to incur costs to manage such lots.
Another option for companies to prop up their share price is to transfer to Catalist which has no MTP requirement. However, to allow penny-stock Mainboard issuers to downgrade to a Catalist platform could tarnish the brand and image of Catalist that has been vaunted to be a springboard platform for promising companies.
Inevitably, the MTP would enable companies to strive to proactively ensuring superior performances so as to avoid the danger of falling below the minimum trading price floor. But it is equally important to understand that share price is also being driven by Macroeconomic factors other than the companies’ fundamental. What if a recession comes and all companies, good and bad, suffer from low prices? It is possible for SGX to set a minimum trading price floor in times of severe recession?
In essence, MTP is a strategic move by SGX, it will definitely improve the quality of Singapore stock market, but the timing of this new policy is debatable amid a global uncertainties where market sentiment is bearish. Liquidity would be worsened further if lots of companies are unable to comply with the new rule. Hence, more flexibility and improvements are needed for companies to comply with the new rule if the SGX is to successfully implement MTP.