MARKETS & INVESTING | Staff Reporter, Singapore

SGX cautions on what to observe when conducting share buy-backs

Firms should not carry out buy-back operations two weeks after releasing their quarterly financial statements.

The Singapore Exchange (SGX) has warned companies to be careful not to breach insider trading or market manipulation rules when conducting share buy-backs.

In a regulator’s column, Singapore Exchange Regulation (SGX RegCo) CEO Tan Boon Gin cautioned that share buy-backs, like any on-market trading activities, are subject to relevant market conduct provisions of the Securities and Futures Act (SFA) despite being useful capital management tools.

“This means that like any other trading activity, share buy-backs should not be used to carry out any form of market misconduct such as insider trading or creating a false market,” he said. “Such misconduct is illegal and if SGX RegCo suspects such an activity is taking place, we can intervene such as working with our members to stop any attempt at further wrongdoing and issuing a “trade with caution” to alert the public to the findings of our investigation, if necessary.”

In addition, Tan noted how companies should refrain from any share purchases under a share buy-back programme at any time when there are material developments or any unannounced material information as it may impact on the company’s share price of trade volume.

As a precaution, he advised that companies should refrain from carrying out share buy-backs during the two weeks immediately after they have announced their respective quarterly financial statements or one month before they release their full-year financial statements.

“Should the company undertake share buy-backs during periods when it is in possession of inside information, this may be construed as insider trading under the SFA, particularly if person or persons authorised to give instructions for the share buy-back account are privy to such information,” he added.

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Moreover, Tan highlighted that a company should always seek to buy back its shares as cheaply as possible with as little impact on the prevailing share price to ensure that the share buy-back is conducted in a manner that aligns with the interests of shareholders.

“However, some companies have bought back shares in ways which have caused concern,” he said.

According to Tan, some firms conduct share buy-backs near, or at the market close, which influences the closing price of their own shares. “They may even place orders for as few as 100 to 300 shares near or at the market close which would hardly make a dent in any capital management programme,” he added.

Meanwhile, rather than prudently trying to buy back shares at relatively low prices, some firms have been observed to buy back despite increasingly higher prices. As a result, the share buy-backs adhere to the Maximum Purchase Price Limit which in SGX RegCo’s view, were executed for the purpose of influencing the closing price as opposed to being ‘bona fide’ purchases.

“Where a company is observed to undertake share buy-backs in a manner that does not appear to be in the best interests of its shareholders as a whole, SGX RegCo expects members and trading representatives (TRs) to enquire on the reasons for the orders,” Tan said. “For securities with low liquidity which are more susceptible to price fluctuations, members and TRs should also exercise care in ensuring that the share buy-back trades were executed in an orderly manner.”

Share buy-backs, like all other transactions, should be conducted in accordance with the laws, regulations and rules that govern the marketplace, Tan highlighted, citing how such transactions could potentially have a significant impact on the price and volume of a security.

“If the price and volume of a security have been artificially interfered with through share buy-back activities, the investing public would be misled and deceived as to the genuine market value of the security. This will undermine the operation of a fair, orderly and transparent market,” Tan concluded. 

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