No ‘significant increase’ in securities trading fuelled by online discussions: Ong Ye Kung

SINGAPORE: There has been no indication that discussions in online forums or social media chat groups have led to any “significant increase” in the trading of securities listed in Singapore, said Mr Ong Ye Kung in Parliament on Tuesday (Feb 16).

Mr Ong, who is Singapore's Transport Minister and a Monetary Authority of Singapore (MAS) board member, also said that there are various safeguards in place to protect against such risks.

MAS and the Singapore Exchange Regulation (SGX RegCo) are on “heightened alert to such activities”, he said, noting that recent events in the United States have highlighted the risk of excessive trading driving short movement in price.

“There are important lessons to learn from this experience and we need to be alert to similar risk potentially occurring in our markets while investigations by the United States (US) authorities are ongoing,” he cautioned.

READ: Singapore investors warned about risks of trading in securities incited by online forums and social media

Mr Ong's comments were in response to a question by MP Desmond Choo (PAP-Tampines), who had asked about the influence of online discussions and social media chat groups on securities trading and protections against such "destabilising" activities.

Mr Choo’s question came on the back of Singapore authorities sounding a note of caution to investors earlier this month amid interest in recent market activities relating to stocks such as GameStop, AMC Entertainment Holdings and Blackberry.

Federal prosecutors and regulators are investigating whether "market manipulation or other types of misconduct" led to a meteoric rise in shares of companies such as GameStop and AMC, the Wall Street Journal reported last week.

Shares of GameStop - which had been heavily touted on Reddit’s WallStreetBets - rose by as much as 2,460 per cent on the year to a high of US$482.25 in January, as some institutions that had bet on declines in the stock were forced to unwind their positions amid a flood of buying. Since then, GameStop has tumbled and closed at US$52.40 on Friday.

READ: Federal agencies launch probe into possible manipulation after GameStop trading frenzy: WSJ

SAFEGUARDS IN PLACE

Mr Ong said that there are “various” safeguards in place in Singapore against scenarios such as the “pump and dump” and “short and distort”.

In the “pump and dump” scenario, explained Mr Ong, 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 then sell the securities which they had accumulated earlier. When prices eventually fall down, other investors could suffer quite heavy losses,” he said.

In the other scenario, certain investors take short positions on certain securities and use false or misleading information to encourage more short selling.

“Our safeguards address such scenarios in three ways. One, providing market transparency. Two, curbing any sharp price movements and three enforcing against market misconduct,” he said.

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 surge or price change. If price rumours are influencing stocks prices, the company is required to provide prompt and full response to any allegations, he said.

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. He added that 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,” he said.

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,” he said.

Mr Ong said firm enforcement action will be taken against persons who breach the law. In particular it is illegal to disseminate misleading information or use manipulative and deceptive practices, he said.

READ: GameStop tumbles nearly 20% as retail-driven surge dies down

LIKELIHOOD OF SHORT SQUEEZE

Mr Choo further asked about likelihood of "short squeeze" happening in Singapore , leading to "massive market dislocations".

He also asked for MAS’ position on having platforms such as online broker Robinhood set up in Singapore, given that “Robinhood was one of the key platforms" that a social media group had used to try to create "massive market dislocations".

In response, Mr Ong said that the short positions in Singapore are “much less” compared to the US, citing the local investor culture, level of disclosure required of listed companies and the lack of single-stock options.

“As for platforms like Robinhood,you know how online platforms are. It’s hard to control, so I think ultimately it’s still about having a good transparent efficient regulatory regime and functioning of the market to prevent such things from happening in the first place,” he said.