SGX Proposes to Raise IPO Shares Available for Retail Investors

As part of its grander plan to transform the securities market and entice more retail investors to join the market, the Singapore Exchange (SGX) said Monday it plans to raise share allocations for retail investors participating in Initial Public Offers (IPOs).

SGX is proposing revisions to its rules to raise the proportion of IPO shares available for retail investment for Mainboard IPOs with high retail demand.

“Not only will retail investors have more opportunities to participate in IPO subscription, their increased activity in the secondary market will also add to liquidity,” it said in a statement.

Among the proposals, the local bourse operator said it plans to introduce a prescribed minimum allotment of 5 per cent of the total invitation shares to the public subscription tranche. For example, when 100 million new shares are issued in the IPO, at least five million shares must be offered for public subscription.

Given that public subscription tranches have seen an average allocation of 4.5 per cent of total offering for IPOs between 2007 and 2011, SGX said it is “likely” that a conservative minimum threshold of 5 per cent will be satisfied in subsequent IPOs.

SGX also plans to introduce a claw-back mechanism that increases the number of shares allocated to the public subscription tranche when the total demand for shares in the tranche exceeds prescribed thresholds.

The mechanism will allow public subscription tranche up to 10 per cent of the shares offered under the IPO when the total demand for shares in the public subscription tranche is 15 times to 50 times the initial allocation; and up to 20 per cent of the shares offered under the IPO when the total demand for shares in the public subscription tranche exceeds 50 times the initial allocation.

In reverse, the bourse will also introduce a reverse claw-back mechanism to transfer shares from the public subscription tranche to the placement tranche.

“The Exchange is of the view that the proposed thresholds would strike a balance by allowing for a greater proportion of IPO shares being allocated to the public subscription tranche, while addressing the commercial concerns of investment banks and underwriters with respect to the proportion of shares allocated under the placement tranche,” SGX said.

SGX is inviting comments on its proposed rules. Market participants and members of the public can send their feedback on the proposed rules from October 1 to 29.