MAS takes tough stance on online trading fuelled by social media chat groups
The Monetary Authority of Singapore (MAS) today replied to questions regarding the recent spike in market volatility. In particular, the questions concerned online trading fuelled by social media chat groups.
Mr Ong Ye Kung, Minister for Transport, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS, explains that 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, MAS and Singapore Exchange Regulation (SGX RegCo) are on heightened alert to such activities.
There are two main scenarios, where the authorities are prepared to intervene.
- 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.
The safeguards address such scenarios in three ways—(i) providing market transparency, (ii) curbing any sharp price movements, and (iii) enforcing against market misconduct.
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.
Let’s note that other regulators have also commented on the increased market volatility. However, the UK Financial Conduct Authority (FCA) was much more evasive in its stance. There has not been any action taken by the United States Securities and Exchange Commission (SEC) either, apart from a couple of statements on market volatility.