Saturday, April 03, 2010

Don’t front-run, SGX warns brokers

THE Singapore Exchange (SGX) has warned brokers against profiting from inside information of pending customer orders.

SGX highlighted the practice of front-running - a trading misconduct that occurs when a broker does a personal trade on a stock on the knowledge that his client wants a trade executed on the stock later.

'There is an opportunity to profit by trading in advance of customers' large orders and closing out one's position following the share price movements caused by the execution of the customers' orders,' SGX said in its regulator's column yesterday. This is especially so if a large block of shares is being traded, it added.

SGX also warned brokers against trading ahead of pending married trades. Such trades are off-market deals that are permitted as long as they meet a minimum of 50,000 units of securities or futures contracts or $150,000 in value.

Deals struck during market hours must be reported within 10 minutes of execution, while those done after market hours must be reported within the first half hour of trading the next trading day - that is, from 9am to 9.30am.

Married trades are known to impact stock movement, especially when they are at a significant premium or discount to a counter's reference price, or when they are big in size.

'Trades involving substantial shareholders and the management may signify strategic changes for the company and affect a company's share price,' SGX said.

It also reminded brokers of their obligations to inform SGX of suspected insider trading.

Market watchers have said that married deals may give a false impression of active trading on a stock.

SGX has suggested tougher requirements for married trades in a consultation paper early last year. It has suggested raising the thresholds for such trades to $500,000 or 500,000 units of securities or futures contracts.

SGX has also suggested having married trades executed after trading hours to be reported between 8.30am and 8.50am the next trading day.

There has been no update on whether these mooted changes will be implemented.

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