Introduction of Minimum Trading Price and Codification of Regulatory Tools. 17 September 2014

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1 Introduction of Minimum Trading Price and Codification of Regulatory Tools 17 September 2014

2 Responding to this consultation paper SGX invites comments on this Consultation Paper between 17 September 2014 and 16 October 2014 via: Electronic mail: Facsimile: (65) Mail: Singapore Exchange Limited 11 North Buona Vista Drive #06-07 The Metropolis Tower 2 Singapore (Attention: Ms Chia Caihan/ Ms Agnes Cheong/ Ms Neo Hwee Kuan) Comments should be organized in the following manner: cover page; statement of interest table of contents; summary of major points; comments; and conclusion. Supporting material may be placed in an annex. All submissions should be clearly and concisely written, and should provide a reasoned explanation for any proposed revision to the rules. Where feasible, participants should identify the specific rule on which they are commenting. In any case in which a participant chooses to suggest revisions to the text of the rules, the participant should state clearly the specific changes to the text that they are proposing. All submissions should be made on or before 16 October Participants submitting comments should include their personal/company particulars as well as their correspondence address, contact numbers and addresses on the cover page of their submissions. Respondents to this Consultation Paper are asked to identify the specific proposal or rule that they are commenting on. The Exchange reserves the right to make public all or parts of any written submission and to disclose the identity of the source. Participants may request confidential treatment for any part of the submission that the participant believes to

3 be proprietary, confidential or commercially sensitive. Any such information should be clearly marked and placed in a separate annex. If the Exchange grants confidential treatment, it will consider the comments but will not publicly disclose the information. If the Exchange rejects the request for confidential treatment, it will return the information to the party that submitted it and will not consider the information as part of its review. In the interests of market transparency, participants should limit any request for confidential treatment of information submitted. The Exchange will not accept any submission that requests confidential treatment of all, or a substantial part, of the submission. This Consultation Paper is available for download from the SGX s website at Page 2 of 42

4 Contents INTRODUCTION SECTION 1: INTRODUCTION OF MINIMUM TRADING PRICE FOR ISSUERS LISTED ON MAINBOARD Proposed Minimum Trading Price for Issuers Listed on the Mainboard. 5 Changes to the Current Watch-List.. 9 SECTION 2: CODIFICATION OF EXCHANGE REGULATORY TOOLS. 13 Requirement to Provide Notification of Specific Transactions to the Exchange.. 13 SECTION 3: IMPLEMENTATION. 17 Implementation of Rule Amendments.. 17 APPENDIX 18 Appendix A: Proposed amendments to the Listing Rules for Section Appendix B: Proposed amendments to the Listing Rules for Section Appendix C: Proposed amendments to the Catalist Rules for Section Page 3 of 42

5 Introduction 1 Overview 1.1 Background The Monetary Authority of Singapore ( MAS ) and SGX conducted a review of the securities market structure leading to a joint consultation paper, issued in February 2014 ( February Consultation Paper ), seeking comments on proposals to enhance our securities market One of the proposals in the February Consultation Paper was to introduce a minimum trading price ( MTP ) for all stocks listed on the Mainboard of SGX-ST. The feedback gathered on the various proposals made, including the proposal for the introduction of the MTP, was published on 1 August After due consideration of the feedback received, including the strong support for the MTP proposal, MAS and SGX intends to proceed with its implementation. In that regard, this public consultation document details the operational requirements for the implementation of the MTP proposal, including its interaction with SGX s current watch-list requirements Separately, this public consultation will also seek to codify refinements to our regulatory tools that were introduced in March Since its introduction, these regulatory tools are assessed to be effective and have enhanced our surveillance capabilities. Issuers have also been diligent in complying with the requirements. Page 4 of 42

6 Details of Proposals SECTION 1: INTRODUCTION OF MTP FOR ISSUERS LISTED ON THE MAINBOARD 2 MTP for issuers listed on Mainboard 2.1 Background A review by MAS and SGX indicated that the securities market structure and practices are fundamentally sound and robust. However, the review identified areas in the securities market that can be further strengthened. The proposed introduction of a MTP requirement is intended to elevate the overall quality of the stocks listed on the Mainboard of SGX-ST Generally, lower priced securities are considered to be more susceptible to market misconduct and abuses. Low price securities are generally associated with the risk of high volatility, as a small absolute change in the share price of a low price security may lead to a high percentage of gains or losses. In addition, the relative cost impact to investors is generally higher in low price securities compared to higher price securities due to lower liquidity in these securities and tick sizes constituting a higher percentage of market price. It is therefore proposed that a MTP be introduced as an additional continuing listing requirement for issuers listed on the Mainboard of SGX-ST. Details are in the sections that follow. 2.2 Proposed MTP As stated in the response to the February Consultation Paper, MAS and SGX have proposed to introduce the MTP requirement at a threshold of S$ Issuers that are not able to record a 6-month volume-weighted average price ( VWAP ) 2 of 1 As at 30 June 2014, there are 222 companies that have 6-month VWAP below S$0.20. Of these 222 companies, 29 or 13% are currently on the watch-list. 2 VWAP of an issuer s shares is calculated by taking the total value of trades during the 6-month period divided by the total volume of shares traded. These figures will be made available on the Exchange s website and updated on a monthly basis. Page 5 of 42

7 S$0.20 or above at each of the quarterly watch-list review dates ( MTP Entry Criterion ) will be placed on the watch-list The SGX watch-list presently serves to give investors an early warning on the tenuous financial condition of certain issuers. The watch-list has heightened transparency and alerted investors to the risk of being invested in such issuers that may eventually be involuntarily delisted. It is envisaged that investors will similarly benefit from a placing of issuers that are unable to meet the MTP requirement on the watch-list so that a measure of transparency and early warning can be provided to investors Issuers whose shares are trading below S$0.20 can undertake various corporate actions, including a share consolidation exercise, in order to meet the MTP requirement. Issuers that choose to undertake share consolidation exercise are strongly encouraged to achieve a minimum theoretical share price of at least S$0.25 post-consolidation to cater for price fluctuations. In order to facilitate this, SGX will waive all fees in relation to any share consolidation exercise undertaken by issuers in order to meet the MTP requirement. This fee waiver will be granted until 2 years after the date of commencement of the transition period (as defined below). 2.3 Transition Period and Cure Period Several respondents to the February Consultation Paper expressed concerns that issuers may not be given sufficient time to undertake corporate actions in order to meet the MTP requirement To alleviate such concerns and facilitate the implementation of the MTP proposal at the initial stage, a transition period of 12 months from the date of introduction of the MTP requirement ( transition period ) will be provided. This will enable issuers to engage with shareholders and consider appropriate corporate actions they may undertake in order to meet the MTP requirement. Issuers that are still unable to meet the MTP requirement after the transition period will then be placed on the watch-list The transition period allows issuers to seek shareholders approval for undertaking corporate actions at extraordinary general meetings that can be held together with their annual general meetings. This enables issuers to avoid incurring additional costs of holding separate extraordinary general meetings. Page 6 of 42

8 2.3.4 Issuers that are placed on the watch-list are expected to take active steps to meet the MTP requirement. An issuer placed on the watch-list must meet the MTP requirement within 36 months of entering the watch-list ( cure period ). Issuers will therefore have a total of 48 months (i.e. transition period and cure period) to meet the MTP requirement when it is first introduced. Issuers that are unable to meet the MTP requirement at the end of the cure period will be involuntarily delisted For the avoidance of doubt, the MTP requirement and the Financial Entry Criteria (as defined in paragraph 3.2.2) for the watch-list will be assessed independently. Failure to comply with one of the criteria will leave the issuer on the watch-list until the end of the relevant cure period (as referred to in paragraph 3.4.3). 2.4 Assessment for compliance with the MTP requirement A quarterly review will be conducted to determine if issuers are in compliance with the MTP requirement. It is proposed that the quarterly review will take place on the first market day of March, June, September and December as per the present watch-list review. The table below shows the proposed coverage for each review: Review Date MTP Entry Criterion 1 st market day of March VWAP for the period from 1 September to 28/29 February 1 st market day of June VWAP for the period from 1 December to 31 May 1 st market day of September 1 st market day of December VWAP for the period from 1 March to 31 August VWAP for the period from 1 June to 30 November Issuers that record a VWAP of less than S$0.20 over the 6 months prior to the review dates will be placed on the watch-list. An issuer will remain on the watch-list for at least 6 months. This is to enable the issuer to record six months of trading activity (particularly, 6-month VWAP data) after entering the watch-list. Quarterly review will be conducted subsequently to assess whether the issuer is eligible for an exit from the watch-list. Page 7 of 42

9 2.4.3 An issuer or security 3 will not be considered for entry into the watch-list based on the MTP Entry Criterion if : (iii) it is listed for less than 6 months at the review date; it is an investment fund, exchange traded fund, global depository receipt, debt security or structured warrant; or it is a cash company 4 or has been suspended pursuant to Rule 1303(2) or 1303(3) or have been allowed to trade pursuant to Rule 1018(1) An issuer placed on the watch-list under the MTP Entry Criterion will be regarded as having met the MTP requirement and can exit the watch-list if: it has been on the watch-list for at least 6 months; and it records VWAP of at least S$0.20 over the last 6 months since its entry into the watch-list prior to the relevant quarterly review date. ( MTP Exit Criterion ) 2.5 MTP and Catalist An issuer that is placed on the watch-list because it is unable to meet the MTP requirement may consider a transfer to Catalist if it is able to engage a sponsor for its Catalist listing and comply with Catalist listing requirements. The appointment of a full sponsor will be required when the issuer undertakes a reverse take-over. A continuing sponsor will be required if the issuer is undertaking other corporate actions such as acquisitions or share consolidation for the purposes of the transfer. Proposal 1: SGX seeks your view on the proposed operational details of the MTP requirement. 3 For the avoidance of doubt, Real Estate Investment Trusts ( REITs ) and Business Trusts ( BTs ) will be assessed for entry into the watch-list based on the MTP Entry Criterion. 4 In most cases, cash companies are suspended. In cases where they are not suspended, they cannot be included because under Rule 1018(2), a cash company is given only 12 months from the time it becomes a cash company to meet the requirements for a new listing with a maximum extension of 6 months. Including them in the watch-list will mean a cure period of 36 months to take remedial actions, which is in conflict with the requirements in Rule 1018(2). Page 8 of 42

10 3 Changes to the current watch-list 3.1 Overview issuers have been placed on the watch-list since its introduction in The watch-list has successfully served its purpose of instilling discipline in issuers to take prompt steps to address weaknesses in their financial health as well as alerted investors on the financial state of these issuers With the introduction of the MTP requirement and its designation as one of the criteria for entry into the watch-list, it is proposed that the watch-list framework be adjusted to rationalize the present watch-list criteria with the MTP entry and exit criteria and better facilitate the implementation of the framework. 3.2 Changes to the entry requirements Presently, an issuer is placed on the watch-list if it records: pre-tax losses for the three (3) most recently completed consecutive financial years (based on the latest announced full year consolidated accounts, excluding exceptional or non-recurrent income and extraordinary items); and an average daily market capitalisation of less than $40 million over the last 120 market days on which trading was not suspended or halted. For the purpose of this rule, trading is deemed to be suspended or halted if trading is ceased for a full market day It is proposed that the current watch-list entry requirement be changed to as follows: pre-tax losses for the 3 most recently completed consecutive financial years (based on full year audited financial statements) ; and average daily market capitalization of less than S$40 million over the last 6 months. (collectively referred to as Financial Entry Criteria ) The reliance on audited financial statements provides better assurance and certainty of assessment for compliance with the Financial Entry Criteria. Excluding the reference to exceptional and non-recurrent items eliminates the ambiguity that may arise from making adjustments. The proposed 6-month review period for Page 9 of 42

11 market capitalization aligns the review of the MTP Entry Criterion and enables greater administrative ease for the regular review for compliance with the continuing listing requirements. 3.3 Changes to the exit requirements Amendments will also be made to the present watch-list exit requirements. An issuer may exit from the watch-list if it records consolidated pre-tax profit for the most recently audited financial statements and has an average daily market capitalization of S$40 million or more over the last 6 months ( Financial Exit Criteria ). 3.4 Miscellaneous Amendments With the new Mainboard admission criteria that came into effect in August 2012, it is proposed that the current Rule 1314(2) which reflects the previous Mainboard admission criteria be removed. These changes to the watch-list criteria are expected to take effect in 2016, in line with all the other changes. Issuers which are placed on the watch-list due to these new criteria will have up to 2019 to exit the watch-list. As the Exchange makes a gradual transit for Mainboard to become a listing platform for larger and more established issuers, watch-list requirements which make reference to the old Mainboard admission criteria are no longer relevant and are proposed to be removed It is also proposed that the current cure period of 24 months for the watch-list be amended to align with the 36-month cure period provided to issuers to comply with the MTP requirement. This is to avoid confusion for issuers and investors since there is only one watch-list and it is intended that issuers be given more time to satisfy the Financial Exit Criteria. Moreover, based on the Exchange s experience in administering the watch-list since its introduction in 2008, issuers may take as long as 36 months to consider various options available and complete a corporate action which may lead to their exit from the watch-list. The extension of the cure period to 36 months accords issuers time and flexibility in considering the options available to them. Accordingly, if the issuer is unable to meet the requirements to exit the watch-list within 36 months from the date when it was placed on the watchlist, it will be involuntarily delisted. Page 10 of 42

12 3.4.3 An issuer s compliance with the Financial Exit Criteria and the MTP Exit Criterion is assessed independently. Therefore the cure period will also be applied to each criterion separately. The following illustrations demonstrate how the cure period for the watch-list will be applied: Illustration 1 An issuer enters the watch-list under the Financial Entry Criteria on 1 March At the review 12 months later on 1 March 2017, it also triggers the MTP Entry Criterion. The issuer will be removed from the Official List if it is unable to satisfy the Financial Exit Criteria after 36 months from the date it is placed on the watchlist due to the Financial Entry Criteria (i.e. 1 March 2019). If the issuer meets the Financial Exit Criteria during the cure period but is still unable to exit from the watch-list due to its inability to satisfy the MTP Exit Criterion, it will remain on the watch-list and the end date for the cure period will be changed to 36 months from the date it enters the watch-list under the MTP Entry Criterion (i.e. 1 March 2020). Illustration 2 An issuer enters the watch-list under the MTP Entry Criterion and the Financial Entry Criteria on 1 March At the review 12 months later on 1 March 2017, it meets the MTP Exit Criterion. The issuer remains on the watch-list despite meeting the MTP Exit Criterion as the issuer has yet to meet the Financial Exit Criteria. The issuer will be removed from the Official List if it is unable to satisfy the Financial Exit Criteria after 36 months from the date it is placed on the watch-list due to the Financial Entry Criteria (i.e. 1 March 2019). If the issuer meets the Financial Exit Criteria after 24 months on the watchlist (i.e. 1 March 2018) but re-triggers the MTP Entry Criterion, the issuer will remain on the watch-list with the cure period changed to 36 months from 1 March 2018 (i.e. 1 March 2021) Currently, issuers are required to make an immediate announcement upon their entry into the watch-list. This requirement will be extended to the MTP Entry Criterion, in addition to the Financial Entry Criteria. An issuer that is in the watch-list Page 11 of 42

13 under the Financial Entry Criteria, which subsequently also triggers the MTP Entry Criterion, will need to make an announcement that it has failed to meet the MTP Criterion, and vice versa. 3.5 Transitional arrangements for existing watch-list issuers Issuers that are placed on the watch-list before the new watch-list rules take effect will remain on the watch-list and are subjected to existing watch-list requirements. They will be assessed based on the current watch-list requirements and have a cure period of 24 months from the date of entry into the watch-list. Proposal 2: SGX seeks your views on: the proposed changes to the entry and exit requirements for the watch-list (Paragraphs to 3.3.1); the proposed method of administering the cure period (Paragraphs and 3.4.3); and (iii) the proposed changes to the disclosure requirements for watch-list (Paragraph 3.4.4). Page 12 of 42

14 SECTION 2: CODIFICATION OF EXCHANGE REGULATORY TOOLS 4 Requirement to Provide Notification of Specific Transactions to the Exchange 4.1 Background In February 2014, the Exchange announced a series of enhancements to its regulatory tools which it will adopt, one of which requires issuers and/or controlling shareholders to notify the Exchange if they are aware of or involved in discussions or negotiations that are likely to result in certain specific transactions and to concurrently maintain a list of persons privy to such potential transactions Issuers have the duty to keep material information confidential until they are ready for an announcement. Unusual trading activity could indicate possible leakage of material, price sensitive information. The Exchange instituted the practice of requiring early notifications of specific transactions to facilitate the carrying out of surveillance duties so that any unusual trading activity can be detected and investigated upon early. The provision of these notifications to the Exchange early enables the Exchange to identify the relevant counters and monitor trading more closely. With the information from these notifications, the Exchange is also able to better assess when public queries are warranted As mentioned in Appendix 7.1 of the Listing Rules on Corporate Disclosure Policy, an issuer should monitor the trading in its securities to detect any unusual trading activity. The notification requirement also serves to remind the issuer of their duty to keep watch of their share price and volume movements Since the introduction of this requirement in March 2014, the Exchange has received notifications on specific transactions from 40 issuers or controlling shareholders. Through the close monitoring of these 40 securities, SGX queried 10 issuers following unusual trading activities noted in their securities. Issuers are also more cognizant of their responsibilities to monitor the trading activities when engaged in confidential discussions, with 1 issuer making a holding statement following a slight increase in its share price. Page 13 of 42

15 4.1.5 The Exchange was able to better work with the relevant issuers and controlling shareholders to address unexpected changes in the trading activity of the issuer s securities promptly. Issuers have benefited from this requirement as the Exchange would also be paying particular attention to the issuer s share price and volume movements while the issuers undertake the relevant corporate actions. Issuers are able to work with the Exchange to react more quickly to information leakages The Exchange has noted that other jurisdictions such as Oslo have similar requirements provided for in their rules or legislations. In that regard, the Exchange is proposing a codification of this notification requirement in the listing rules. This codification will also enhance the enforceability of this requirement With this codification, we also intend to clarify how and when the requirements are applied. As with current practice, all notifications provided to the Exchange for the purpose of satisfying these requirements will be kept strictly confidential. 4.2 Transactions that require notifications Certain potential transactions of the issuer will likely have a price impact when made known to the public. These are: (iii) Takeover of the issuer, which includes a scheme of arrangement or delisting; Reverse takeover of the issuer; and Very substantial acquisition by the issuer. (the Relevant Transactions ) The Exchange proposes that, in relation to the Relevant Transactions, the issuer shall provide the notification to the Exchange when the Board of the issuer is: made aware of discussions or negotiations on a potential proposal; or in discussion or negotiation on an agreement or document, whether binding or non-binding, Page 14 of 42

16 that would likely result in the Relevant Transactions Where the discussions or negotiations on any of the Relevant Transactions are carried out by a controlling shareholder of the issuer and without the knowledge of the issuer, that controlling shareholder shall (through their advisers or otherwise) notify the Exchange directly if the discussions or negotiations would likely result in the Relevant Transactions To provide clarity on the circumstances under which the Exchange will expect a notification to be provided, further guidance and illustrations have been provided in the Practice Note. 4.3 Operationalizing the notification process For ease of collation, the notifications to the Exchange are proposed to be submitted in a prescribed format. The requested information is kept to a bare minimum required for the Exchange to effectively carry out its surveillance duties Each notification to the Exchange shall cover the following information: (iii) (iv) (v) (vi) Name of issuer; Type of Transaction; Target Company (if applicable); Details of the contact person; Whether the notification is provided by the issuer or the controlling shareholder; and Whether the issuer is aware of this transaction (where notification is provided by the controlling shareholder) Since the information provided is used solely for surveillance purposes and resources will be dedicated to a closer monitoring of the relevant counters, the Exchange requires the issuer and/or the controlling shareholder to notify the Exchange again under the following circumstances: Page 15 of 42

17 if discussions or negotiations for the transaction(s) on which they have provided a notification ceases; and if the transaction on which they have provided a notification has been announced. This provides clarity to the Exchange on the status of the transactions on which notifications have been provided Upon provision of the notification to the Exchange, the issuer and/or the controlling shareholder is also required to commence the maintenance of a list of persons privy to the transaction ( privy list ) in an Exchange-prescribed format. The requirement for the issuer to maintain and update the privy list from the time of the notification increases the issuer s awareness of who the confidential information has been shared with. The availability of a ready privy list also allows both the issuer and the Exchange to react promptly to suspected insider trading activities The Exchange may request for the submission of the privy list as and when necessary. Such list will again be kept in strict confidence. Proposal 3: SGX seeks your views on: (iii) (iv) (v) the proposal to retain and codify the notification and privy list requirements in the Listing Rules; the proposed types of transactions captured in this notification and privy list requirements; the proposed circumstances under which the notification requirement is triggered; the proposed format for the notifications; and the sufficiency of the guidance and illustrations provided in the amended Practice Note 7.2. Page 16 of 42

18 SECTION 3: IMPLEMENTATION 5 Proposed implementation of amendments 5.1 The proposals in Section 1 of this consultation paper apply only to issuers listed on Mainboard and relevant amendments will be made to the SGX-ST Listing Rules. Amendments proposed in Section 2 apply to issuers on the Mainboard and Catalist. 5.2 Subject to MAS approval, SGX expects to announce the proposed rule amendments by The rule amendments proposed in Section 1 are expected to take effect from March This is to provide the issuers with adequate time to take the necessary steps to avoid being placed on the watch-list. 5.4 The rule amendments proposed in Section 2 are expected to take effect from March 2015 as these relate to a codification of current practices provided in the practice notes of the Listing Rules and Catalist Rules. Page 17 of 42

19 Appendix A: Proposed amendments to the Listing Rules CHAPTER 13 Part V WATCH-LIST TRADING HALT, SUSPENSION AND DELISTING 1310 This Part applies to issuers listed on the SGX Mainboard, except for investment funds (whether constituted as collective investment schemes or otherwise), real estate investment trusts, business trusts, global depository receipts, debt securities, exchange traded funds, structured warrants, and companies with secondary listings on the Exchange, and issuers listed for less than 6 months The Exchange will place an issuer on the watch-list, under either of the following if it records:- (1) Financial Entry Criteria Records pre-tax losses for the three (3) most recently completed consecutive financial years (based on full year audited financial statements) the latest announced full year consolidated accounts, excluding exceptional or nonrecurrent income and extraordinary items); and (2) an average daily market capitalisation of less than S$40 million over the last 6 months 120 market days on which trading was not suspended or halted. For the purpose of this rule, trading is deemed to be suspended or halted if trading is ceased for a full market day. (2) Minimum Trading Price ( MTP ) Entry Criterion Records a volume weighted average price of less than S$0.20 over the last 6 months. Reference is made to Paragraph 2.4 of Practice Note 13.2 for the calculation methodology. For the purpose of this rule, real estate investment trusts and business trusts are subject to the MTP Entry Criterion but not the Financial Entry Criteria. Page 18 of 42

20 1312 Upon recording a pre-tax loss for the third consecutive financial year (based on the latest announced audited full year consolidated accounts excluding exceptional or non-recurrent income and extraordinary items), an issuer must immediately announce the fact through the SGXNet. The announcement must provide the information as set out in Appendix If an issuer is placed on the watch-list, it must:- (1) immediately announce the fact through the SGXNet; and (2) for the period in which it remains on the watch-list, provide the market with a quarterly update on its financial situation, including its future direction, or other material development that may have a significant impact on its financial position. Updates must also be provided on its efforts and the progress made in meeting the exit criteria of the watch-list. If any material development occurs between the quarterly updates, it must be announced immediately An issuer on the watch-list may apply to the Exchange for its removal be removed from the watch-list if it satisfies any one of the following requirements, where applicable:- (1) Financial Exit Criteria The issuer may apply to the Exchange for removal from the watch-list if it records consolidated pre-tax profit for the most recently completed financial year (based on the latest full year consolidated audited accounts), excluding exceptional or non-recurrent income and extraordinary items) and has an average daily market capitalisation of S$40 million or more over the last 6 months. 120 market days on which trading was not suspended or halted. For the purpose of this rule, trading is deemed to be suspended or halted if trading is ceased for the full market day; or (2) MTP Exit Criterion The issuer will be assessed by the Exchange for removal from the watch-list if it has remained on the watch-list for at least 6 months and records volumeweighted average price of at least S$0.20 over the last 6 months prior to the date of SGX s review. Page 19 of 42

21 (2) the issuer satisfies Rule 210(3) and either one of the following requirements:- (a) cumulative consolidated pre-tax profit of at least $7.5 million for the last three years, and a minimum pre-tax profit of $1 million for each of those three years; or (b) cumulative consolidated pre-tax profit of at least $10 million for the last one or two years. Rule 210(3)(a) applies to the last one year or last two years as the case may be. The Exchange may approve the application, or reject the application if the Exchange is of the opinion that there are other factors that justify the continued inclusion of the issuer in the watch-list An issuer must take active steps to meet the requirements of Rule If the issuer fails to submit an application pursuant to comply with Rule 1314 within months of the date on which it was placed on the watch-list, the Exchange may either remove the issuer from the Official List, or suspend trading of the listed securities of the issuer (without the agreement of the issuer) with a view to removing the issuer from the Official List While the issuer remains on the watch-list, trading in its securities will continue, unless a trading halt or a suspension is, or has been previously effected. Page 20 of 42

22 APPENDIX 13.1 NOTICE OF 3 CONSECUTIVE YEARS LOSSES (Cross-referenced from Rule 1312 and Practice Note 13.2) Name of Issuer: hereby gives notice that: it has recorded pre-tax losses for the three (3) most recently completed consecutive financial years (based on the latest announced audited full year consolidated accounts, excluding exceptional or non-recurrent income and extraordinary items); and its latest 6-month average daily market capitalisation as at, the last market day on which trading was not suspended or halted is. (Trading is deemed to be suspended or halted if trading is ceased for a full market day.) The Company wishes to draw investors attention to Rule 1311(1) of the Listing Manual which states that the Exchange will place an issuer on a watch-list if it records: pre-tax losses for the three (3) most recently completed consecutive financial years (based on the latest announced audited full year consolidated accounts), excluding exceptional or nonrecurrent income and extraordinary items); and an average daily market capitalisation of less than S$40 million over the last 6 months 120 market days on which trading was not suspended or halted. For the purpose of this rule, trading is deemed to be suspended or halted if trading is ceased for the full market day. Investors should also note that pursuant to Practice Note 13.2 Paragraph 2.1, the Exchange conducts quarterly reviews to identify issuers to be included on the watch-list. The quarterly review will take place on the first market day of March, June, September and December of each year. The Company will make an immediate announcement should it be notified by the Exchange that it will be placed on the watch-list. Page 21 of 42

23 SGX-ST Listing Rules Practice Note 13.2 Watch-List Details Issue date: 6 December 2007 Cross references Chapter 13 Part V Appendix Effective date: 1 March 2007 [[ ]] 1. Introduction 1.1 This Practice Note sets out the guidelines for inclusion of issuers on the watch-list. The watch-list seeks to heighten transparency of an issuer s financial and share price performance. The 2 main purposes of the watch-list are to: instill discipline in issuers to administer their financial and share price performance for continued compliance with the listing rules; and alert investors to the risk of being invested in companies that may face delisting. 1.2 The inclusion criteria for the watch-list are categorized as follow: Loss-making issuers with small market capitalization; and Issuers with low priced securities that fail to meet the minimum trading price requirement. 1.3 This Practice Note sets out the guidelines for inclusion of issuers on the watch-list and removal of issuers from the watch-list. Page 22 of 42

24 2. Quarterly Reviews 2.1 Rule 1311 states that an issuer will be placed on the watch-list under either of the following: Financial Entry Criteria Records pre-tax losses for the 3 most recently completed consecutive financial years (based on full year audited financial statements) and an average daily market capitalization of less than S$40 million over the last 6 months. MTP Entry Criterion Records a volume-weighted average price ( VWAP ) of less than S$0.20 over the last 6 months. For the purpose of this rule, real estate investment trusts and business trusts are subject to the MTP Entry Criterion but not the Financial Entry Criteria The Exchange will conduct quarterly reviews to identify issuers to be included for inclusion on the watch-list. The quarterly review will take place on the first market day of March, June, September and December of each year. Upon identifying an issuer for inclusion on the watch-list, the Exchange will promptly notify the issuer of its status. 2.3 The table below shows how the inclusion criteria are applied at each of the review dates. Watch-list Review Date First market day of March First market day of June Financial Entry Criteria Loss-making issuers for the three (3) most recently completed consecutive financial years (based on full year audited financial statements) with average daily market capitalization of less than S$40 million from 1 September 28/29 February Loss-making issuers for the three (3) most recently completed consecutive MTP Entry Criterion Issuers with VWAP below S$0.20 for the period 1 September 28/29 February Issuers with VWAP below S$0.20 for the Page 23 of 42

25 First market day of September First market day of December financial years (based on full year audited financial statements) with average daily market capitalization of less than S$40 million from 1 December 31 May Loss-making issuers for the three (3) most recently completed consecutive financial years (based on full year audited financial statements) with average daily market capitalization of less than S$40 million from 1 March 31 August Loss-making issuers for the three (3) most recently completed consecutive financial years (based on full year audited financial statements) with average daily market capitalization of less than S$40 million from 1 June 30 November. period 1 December 31 May Issuers with VWAP below S$0.20 for the period 1 March 31 August Issuers with VWAP below S$0.20 for the period 1 June 30 November. 2.4 VWAP is computed based on total value of securities traded for the 6 months under review divided by the total volume traded for the 6 months. This formula applies regardless of the number of trading days during the 6-month review period (i.e. where the securities are thinly traded or trading is halted / suspended for a period of time). 2.5 The 6-month VWAP of the issuers are made available on the Exchange s website and updated on a monthly basis. Daily updated market capitalisation figures are also made available on the Exchange s website. Audited financial results of issuers can be found in annual reports which are available on the Exchange s website. 2.6 Issuers are expected to take proactive steps to exit the watch-list. Issuers seeking to exit the watch-list via a share consolidation exercise should consolidate its shares to achieve a theoretical share price of at least S$0.25 to cater for price fluctuations. 2.7 For issuers who are traded in dual currencies on SGX-ST, the issuer will be placed on the watch-list based on the MTP Entry Criterion only if the VWAP is less than S$0.20 over the last 6 months for both counters. For issuers who are not quoted in Singapore dollars, the conversion will be based on the exchange rate as of the day preceding the review date (i.e. 28/29 February, 31 May, 31 August or 30 November). 2.8 For issuers with dual primary listing, only the trades conducted for its listing on SGX-ST will be taken into account for calculating the 6-month VWAP. Page 24 of 42

26 3. Removal from the Watch-List 3.1 An issuer which enters into the watch-list based on the Financial Entry Criteria will be removed if it meets the Financial Exit Criteria. Likewise, an issuer placed under the MTP Entry Criterion of the watch-list will be removed based on the MTP Exit Criterion. 3.2 If the issuer is placed on the watch-list based on the Financial Entry Criteria, it will have to submit an application to the Exchange within the cure period for removal from the watch-list. 3.3 Review for removal from watch-list based on MTP Exit Criterion takes place on a quarterly basis on the review dates (i.e. first market day of March, June, September and December of each year). The issuer is not required to apply for removal. The Exchange will notify the issuer of the removal from the watch-list. Issuers are required to announce the removal via SGXNET upon receipt of the notification. 3.4 An issuer placed on the watch-list based on the MTP Entry Criterion will remain on the watch-list for at least 6 months before it can be considered for removal. Following the issuer s exit from the watch-list, it will not be considered for re-entry into the watch-list within the next 6 months based on the MTP Entry Criterion. The issuer will have to record a fresh 6-month period of trading activity before it will be subject to the quarterly review. For example, if the issuer exits from the watch-list in March 2017, the next period in which it may be reviewed for entry into the watch-list based on the MTP Entry Criterion is September Extension to the Month Cure Period Pursuant to Rule 1315, if the issuer fails to comply with the relevant exit criteria submit an application for removal from the watch-list within months cure period of the date on which it was placed on the watch-list, the Exchange may either remove the issuer from the Official List, or suspend trading of the listed securities of the issuer (without the agreement of the issuer) with a view to removing the issuer from the Official List. Page 25 of 42

27 34.2 An issuer may apply to the Exchange for an extension to the month cure period and the Exchange may, if the Exchange deems that the circumstances warrant it, grant an extension: (1) of up to 12 months if the issuer satisfies at least one of the requirements under Rule 1314(1) and has achieved healthy cash flow from its operating activities (based on its latest consolidated audited financial statements); (2) of up to 3 months if the issuer has entered into a legally binding agreement to acquire asset(s) that enable the enlarged group to comply with the requirements in Rule 210(2)(a) or (b) and the transaction is expected to be completed within 3 months; or (3) if trading of its securities was suspended pursuant to Rule 1303(3) during a period preceding the end of the month cure period. The period of extension granted by the Exchange, if any, shall not exceed that which is required to compute the issuer s average daily market capitalisation over a period of 120 market days on which trading is not suspended or halted. (Trading is deemed to be suspended or halted if trading is ceased for a full market day) 6 months; or (4) if the issuer has completed a share consolidation exercise or corporate action (with the aim to raise its share price) less than 6 months before the expiry of the cure period. 4.3 An issuer s application to extend the cure period for meeting the MTP Exit Criterion must be made in blocks of 3 months so that it will correspond with subsequent review dates. 4.4 Any application for extension of time must be submitted to the Exchange at least 1 month before expiry of the cure period. The Exchange will not accept any late applications. 4.5 The Exchange may reject an application for exit from the watch-list if the Exchange is of the opinion that there are other factors that justify the continued inclusion of the issuer in the watch-list. Page 26 of 42

28 5. Illustrations on Administering the Watch-list 5.1 The illustrations below, though not exhaustive, seek to provide issuers with guidance on how the Exchange administers the watch-list. Illustration 1 Where an issuer s shares are not traded for a single day during the 6-month review period, review of the issuer s 6-month VWAP for entry into the watch-list will be deferred till the next quarterly review where trades are available. The deferment also applies where an issuer with 3 consecutive years of losses, resumes trading for less than 6 months after prolonged suspension (i.e. the issuer has been suspended for more than 6 months). Illustration 2 Where an issuer s shares are traded for less than 6 months, review of the issuer for entry into the watch-list based on the MTP Entry Criterion will be based on the trades done over the 6-month period. For example, if the issuer has only 2 months of trades over the 6-month review period, it will be reviewed based on the 2 months of trades over the 6-month period. Illustration 3 An issuer can trigger both the Financial Entry Criteria and the MTP Entry Criterion concurrently. The issuer must comply with the respective exit criteria in order to exit from the watch-list. An issuer can be in a situation where it satisfies the Financial Exit Criteria but does not satisfy the MTP Exit Criterion (and vice versa). In this regard, it will continue to remain on the watch-list. Illustration 4 An issuer can trigger the Financial Entry Criteria and the MTP Entry Criterion at different times. An issuer s compliance with the Financial Exit Criteria and the MTP Exit Criterion is assessed independently. Accordingly, the cure period for satisfying the Financial Exit Criteria and the MTP Exit Criterion will be applied separately. For example, an issuer is placed on the watch-list after triggering the Financial Entry Criteria on 1 March At the review 12 months later on 1 March 2017, it also triggers the MTP Entry Criterion. Page 27 of 42

29 The issuer will be removed from the Official List if it is unable to satisfy the Financial Exit Criteria after 3 years from the date it is placed on the watch-list due to the Financial Entry Criteria (i.e. 1 March 2019). This is notwithstanding that the 3-year cure period for the issuer to comply with the MTP Exit Criterion (i.e. 1 March 2020) has yet to expire. If the issuer meets the Financial Exit Criteria during the 3-year cure period but is unable to exit from the watch-list due to its inability to satisfy the MTP Exit Criterion, the end date for the cure period will be 3 years from the date it triggers the MTP Entry Criterion (i.e. 1 March 2020). Illustration 5 An issuer is placed on the watch-list for triggering both the Financial Entry Criteria and MTP Entry Criterion. If an extension of time to exit the watch-list is sought, the issuer must make clear which cure period they are seeking an extension for. For the avoidance of doubt, an extension of time may be sought for both cure periods concurrently. Should the issuer apply and is granted an extension of time to satisfy the Financial Exit Criteria, the cure period to satisfy the MTP Exit Criterion will remain unchanged. The issuer will be removed from the Official List if it fails to meet the MTP Exit Criterion, notwithstanding that the extension for compliance with the Financial Exit Criteria has yet to expire. If the issuer succeeds in satisfying the MTP Exit Criterion, it must satisfy the Financial Exit Criteria before the extension expires. Otherwise, it will be removed from the Official List Cash Companies and Companies Suspended Pursuant to Rule 1303(3) For the avoidance of doubt, an issuer that has been suspended pursuant to Rule 1303(2) or 1303(3) or has been allowed to trade pursuant to the requirements of Rule 1018(1) will not be included on the watch-list and will not be required to provide the notification pursuant to Rule Rule 1311 will be applicable from the date the issuer satisfies the requirements of Rules 1304 or 1018(2). Page 28 of 42

30 4 6.2 Where an issuer has been placed on a watch-list pursuant to Rule 1311 and is subsequently suspended under Rules 1303(2) or 1303(3) or is allowed to trade subject to the requirements of Rule 1018(1), it will remain on the watch-list. (1) For the purposes of Rule 1314(1), the average daily market capitalisation will be computed based on the period commencing from the date the issuer satisfies the requirements of Rule (2) The Exchange will remove the issuer from the Official List: (a) (b) at the end of the month cure period which commences from the time it was placed on the watch-list (subject to any extension granted); or before the expiry of the month cure period if it does not meet the requirements in Rule 1304 or 1018(2). Page 29 of 42

31 Appendix B: Proposed Amendments to the Listing Rules for Section 2 PART IX MONITORING TRADING ACTIVITY Notification to the Exchange on Specific Transactions and Privy Persons 751 Where the Board of an issuer is: (1) made aware of discussions or negotiations on a potential proposal; or (2) in discussion or negotiation on an agreement or documents, whether binding or non-binding; that is likely to result in any of the following transactions: (1) Takeover of the issuer, which includes a scheme of arrangement or delisting; (2) Reverse takeover of the issuer; or (3) Very substantial acquisition by the issuer; the issuer must notify the Exchange without delay. 752 Where discussions or negotiations for any of the transactions in Rule 751 are carried out by a controlling shareholder of the issuer and without the knowledge of the issuer, that controlling shareholder must (through their advisers or otherwise) notify the Exchange without delay if the discussions or negotiations are likely to result in the aforementioned transaction(s). 753 The issuer and/or the controlling shareholder must commence the maintenance of a list of persons privy to the transaction upon provision of the notification to the Exchange. The Exchange may request for the submission of the privy list as and when necessary. 754 (1) All notifications and list of privy persons must be provided to the Exchange in the format prescribed in Practice Note 7.2. Page 30 of 42

32 (2) The issuer and/or the controlling shareholder must notify the Exchange if: (a) (b) discussions or negotiations for the transaction(s) on which they have provided a notification ceases; or the transaction on which they have provided a notification has been announced. Page 31 of 42