By Mak Yuen Teen

Last week, near the end of a trading day, the share price of a  Catalist issuer went up by 10% and its trading volume by more than 100 times compared to the previous day. This attracted a trading query from SGX. In its response to the query that same evening, the issuer said that at 5.10 pm that day, the board had received an approach letter indicating that a more than 10% stake will be purchased through a married trade, which will be followed by a mandatory unconditional cash offer for all the remaining shares of the issuer. It would appear that some were privy to the information and traded on it before it was announced.

Yesterday, another issuer retracted an announcement made 11 days earlier about a master supply agreement with a large U.S. company. The earlier announcement had said that the agreement will generate substantial revenue over two years which was specifically quantified. The retraction announcement now said that the issuer made the earlier announcement because it believed that the execution of the agreement was “imminent”. It added that it was notified after the earlier announcement that the agreement was in fact not signed then and has not been signed since.  However, the earlier announcement and press release said that the issuer had “entered” into the agreement – there was no mention about the agreement not having been signed yet. Was the earlier announcement accurate?

When did the board become aware of the fact that the agreement had not been signed? Was the market already aware that the agreement had not been signed before the company’s retraction, since the share price had fallen by 13% after peaking the day before the original announcement?

In November last year, the  Group CEO of the same issuer gave an  extensive interview in a news article. One of his comments was about the expected profitability of the group for FY2020, with the the CEO saying that he expected the group to be profitable for FY2020.  Three days earlier, the company had called for a trading halt ahead of an announcement of a placement of shares, which was made on the same day as the news article. After the trading halt was lifted, the share price surged by 15% above the last closing share price. Trading volume that day exceeded the total trading volume for the previous five trading days.

The following day, the share price fell back down by 13%. Three days later, the issuer issued a clarification relating to the news article, with one of the clarifications relating to the Group CEO’s comments about expected profitability for FY2020.

In cases such as the above, the market is left guessing as to whether regulators will investigate if rules have been complied with.

Which brings me to the case of Datapulse Technology, one of many cases where I have highlighted potential rule breaches over the past few years.

On 15 April 2021, SGX announced that the Listings Disciplinary Committee has publicly reprimanded three former executive directors of Datapulse Technology for failing to provide all information in its circular for shareholders to make an informed decision on the disposal of its property at its EGM held on 28 September 2017.  In other words, the public reprimand came more than 3.5 years after the breach. It took market players by surprise judging by the messages I received. Some have become accustomed to rule breaches being unpunished and had assumed that nothing will be done especially since several years have passed. Others were surprised that this was the only outcome from the case, since SGX said nothing about whether other action is pending or whether it has referred any matter to the statutory regulators. Does this mean that the other potential breaches were not breaches at all or did the regulators decide that certain types of breaches do not warrant action?

It is possible of course that private reprimands were issued for some other breaches, but the market is none the wiser in such cases. For this reason, stock exchanges in other markets such as Malaysia have largely discontinued the use of private reprimands. SGX does not even disclose separately the number of private and public reprimands they have issued for issuers. It lumps together private and public actions and those for issuers, intermediaries and their representatives. It provides no information about what these actions are for and no information about ongoing investigations.

Contrast this with countries such as Australia and Hong Kong, where regulators (the Australian Securities and Investment Commission in the case of Australia since enforcement of listing rules no longer rests with the stock exchange) disclose up-to-date statistics on ongoing investigations, including the issues that are the subject of these investigations. Our regulators should do the same. This is particularly important given the length of time it takes for our regulators to investigate and take enforcement actions. Opacity undermines confidence in the regulatory regime and encourages market misconduct to perpetuate. Our regulators should also send timely and clear messages about unacceptable market conduct and commit to investigating all serious breaches.

Will our regulators step up to help rebuild market confidence? Or will the death spiral in our market continue?