A parliamentary question was filed by Member of Parliament Desmond Choo on trading fuelled by online discussions and social media chat groups.
Question (for Parliament Sitting on 16 February 2021):
To ask the Prime Minister (a) whether there are signs of significant increase in securities trading fuelled 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.
Answer by Mr Ong Ye Kung, Minister for Transport, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:
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 ongoing, the triggers for the 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 two scenarios we are guarding against.
One, a “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 the securities which they had accumulated earlier. When prices eventually fall back down, other investors could suffer heavy losses.
Two, a “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 —(i) providing market transparency, (ii) curbing any sharp price movements, and (iii) enforcing against market misconduct.
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.
Source
The Best of Asia Advisers Network - Volume III