Practice Note 7B Queries Regarding Unusual Trading Activity

Past version: Effective from 29 Sep 2011 to 02 Mar 2014

Cross-referenced from Rule 703, Appendix 7A and Practice Note 7A

Part I Introduction

1. This Practice Note provides information on the role of the Market Surveillance ("MS") Department and the procedures normally employed when an issuer is queried regarding trading in its securities.
2. MS Department continues to monitor price and volume movements on all Catalist securities, even though an issuer's sponsor is also responsible for having arrangements to monitor trading.

Part II Unusual Trading Activity

3. As set out under paragraph 20 of Appendix 7A, unusual trading activity in an issuer's securities, without it being apparent that publicly available information could account for the activity, may signify trading by persons who are acting on unannounced material information or on a rumour or report, whether true or false.
4. The unusual market activity may not be traceable directly to unannounced information or to a rumour or report. Nevertheless, the market activity itself may be misleading to investors, who may assume that a sudden and appreciable change in the price of, or volume traded in, the issuer's securities reflects a corresponding change in its business or prospects.

Part III Role of Market Surveillance

5. The MS Department utilizes a real-time market surveillance system which employs the latest technology to automatically alert the MS officers to market behaviour such as unusual price and volume movements of an issuer's securities. The MS officer then examines whether public information, company specific news, counter-specific trends, industry trends, economic factors or prevailing market sentiment, can explain the market activity. If no explanation is apparent, the Exchange requires the issuer to inform the public whether it is aware of any material information that might reasonably be expected to have a significant effect on the trading volume or price of its securities.
6. The MS Department issues either a verbal query or written query, depending on the extent of the unusual trading activity, measured against pre-determined thresholds set by the Exchange from time to time.
7. Verbal Query
(a) Generally, verbal queries on unusual trading activity would not be posted on SGXNET by the Exchange. The issuer is typically not required to post its response on SGXNET. However, if the issuer's response contains material information or the Exchange thinks the information ought to be released in the interests of an informed market, the Exchange may request the issuer to release its response via SGXNET. The Exchange retains the discretion whether to release its query on unusual trading activity on SGXNET.
(b) MS usually initiates a verbal query where the price or volume changes, whilst high, have not reached the thresholds which trigger the issuance of a written query. The MS officer will also inform the issuer's sponsor of the verbal query as soon as possible. The verbal query, apart from potentially ascertaining the cause of the unusual trading activity, also serves as an alert to the sponsor and issuer of the unusual trading activity in the issuer's securities. This allows sponsors and issuers to monitor the trading activity as a precautionary measure.

The MS officers continue to monitor the trading activity of the issuer's securities after initiating the verbal query, and may follow up with a written query should trading activity justify such action.
(c) The MS officer will usually pose the following questions when making a verbal query:
(i) Is the issuer aware of any information not previously announced concerning the issuer, its subsidiaries or associated companies which, if known, might explain the trading? If yes, the information must be announced immediately; and
(ii) Is the issuer aware of any other possible explanation for the unusual trading?
(iii) Can you confirm your compliance with the listing rules and, in particular, listing Rule 703?
Please note that these questions may be modified depending on the circumstances.
8. Written Query
(a) All written queries issued by the Exchange will be posted on SGXNET by the Exchange immediately after they are issued. Wherever possible, the MS officer will make every effort to contact the issuer prior to issuing the written query, to alert the issuer to the Exchange's query.
(b) The written query will be faxed to the issuer and sponsor and posted on SGXNET under Singapore Exchange Securities Trading Limited.
(c) Please refer to the applicable proforma query letters below for information. The Exchange reserves the right to vary the contents of the letter depending on the circumstances.

Part IV Response on Receiving a Query on Unusual Trading Activity

9. If the issuer does not have undisclosed material information it must inform its sponsor. The sponsor is responsible for advising it regarding the response it should give to the Exchange. MS may advise an issuer to consult its sponsor when the issuer responds to the query that it has no undisclosed material information.
10. If the issuer has undisclosed material information it must inform its sponsor. The sponsor should advise the issuer to request for a trading halt or suspension, and advise the issuer regarding the response it should give to the Exchange's query. The Exchange will also follow-up to ensure that the issuer, following consultation with its sponsor, provides an appropriate response on this issue as soon as possible.
11. An issuer is expected to respond to a query (whether written or verbal) as soon as possible. Issuers and their sponsors should, therefore, ensure that they are operationally ready to respond promptly. In view of the importance of maintaining a fair, orderly and transparent market, issuers and sponsors must, upon receiving a query from the Exchange, immediately undertake an enquiry to ascertain the cause of the unusual trading activity. Issuers and sponsors should have in place, procedures to ensure that the enquiry or information gathering is carried out efficiently, systematically and promptly, so that the issuer is able to disseminate all material information as soon as possible.
12. Paragraph 22 of Appendix 7A sets out some possible causes for unusual trading and how issuers should respond to the queries based on different causes.
13. An issuer may wish to, where appropriate, request for suspension of trading in its securities or a trading halt. If so, the issuer should contact Market Control Department and provide a SGXNET announcement requesting for suspension or a trading halt, stating the reason for the suspension or trading halt. Where possible, it would be useful for issuers to inform investors when the issuer can respond to the Exchange's query and when the suspension of its securities or trading halt is expected to be lifted.

Part V Conclusion

14. This Practice Note sets out the normal procedures which MS Department undertakes when querying issuers on unusual trading activities. However, there may be instances when a different approach is warranted.
15. Issuers should also familiarize themselves with the Exchange's Continuing Obligations, Corporate Disclosure Policy and any other relevant Practice Notes.
16. Issuers should consult their sponsors if they have queries on this matter.

Proforma Written Query Letter for Issuers

Cross-referenced from paragraph 8(c)

Dear [ ]

Query regarding trading activity

We have noted, and draw your attention to, a change in the [price/volume] of your shares on [date]. To ensure a fair and orderly market, please answer each of the following:

Question 1: Are you aware of any information not previously announced concerning you (the issuer), your subsidiaries or associated companies which, if known, might explain the trading? If yes, the information must be announced immediately.

Question 2: Are you aware of any other possible explanation for the trading?

Question 3: Can you confirm your compliance with the listing rules and, in particular, listing Rule [703]?

Question 4: [other questions]

Please consult your sponsor and respond immediately via SGXNET. Where appropriate, you may want to request a suspension of trading or a trading halt. Please contact Market Control Department immediately. Thank you for your cooperation.

We have released this letter via SGXNET.

Yours faithfully

HEAD, MARKET SURVEILLANCE

Notes:

(i) Subject to limited exceptions in Rule 703, an issuer must announce any information known to the issuer concerning it or any of its subsidiaries or associated companies which is necessary to avoid the establishment of a false market in the issuer's securities, or would be likely to materially affect the price or value of its securities must be publicly disclosed (Rule 703).
(ii) An issuer must undertake a review to determine the causes of any unusual trading activity (paragraph 22 of Appendix 7A).
(iii) An announcement should, among other things, state whether the issuer or any of its directors are aware of the reasons for the unusual trading activity and whether there is any material information which has not been publicly disclosed (Paragraph 33 of Appendix 7A).
(iv) Your responsibility under listing rules is not confined to, or necessarily satisfied by, answering the questions in this letter.
(v) An announcement must contain a statement by your sponsor as required under Rule 753(2).