By Chun Han
Singapore Exchange Ltd. (S68.SG) has barred shorting selling and margin trading on three recently suspended stocks, amid suspicion that the securities may have been subjected to manipulation or excessive speculation, the bourse said Sunday.
The move came after SGX on Friday suspended trading in the shares of Blumont Group Ltd. (A33.SG), Asiasons Capital Ltd. (5ET.SG) and LionGold Corp. (A78.SG) after their prices plunged dramatically earlier in the day, wiping out a combined 4.8 billion Singapore dollars (US$3.9 billion) in market value and months of big share-price gains.
In a statement, the exchange said it would allow trading on all three stocks to resume on Monday, but only as so-called “designated securities.” This subjects them to stricter rules that require sellers to hold the shares in the exact quantity that they wish to sell, while buyers must pay cash upfront to settle the trades upon execution.
“SGX will continue to monitor the trading of these designated securities and review the circumstances in due course to end the declaration,” it said, without elaborating on a potential time frame.
Under SGX rules, stocks can be declared designated securities if, in the exchange’s opinion, “there has been manipulation of the security, excessive speculation in the security, or it is otherwise desirable in the interests of markets.”
Representatives for Blumont, Asiasons and LionGold weren’t immediately available to comment on the trading restrictions.
In short selling, an investor borrows a security from a broker in order to sell it, hoping to buy it back at a lower price and later returning it to the broker, with the investor pocketing the price difference. Trading on margin means an investor purchases stocks with borrowed money, magnifying potential gains upon sale if the shares rise, and deepening losses in the event of a fall.
SGX’s designated-securities framework also bars online trading and contra trading. In a contra trade, an investor offsets an earlier share purchase with an equivalent sale before the initial deal is settled. This allows an investor to book profits without committing any capital, as long as the selling price is higher than the purchase price.
Friday’s suspensions were the first ordered by SGX in 13 years on the grounds of maintaining an “orderly, informed or fair” market. Within the first hour of trading that day, sterilization-services provider Blumont lost more than 56% of its market value, while the share prices of asset-management and investment firm Asiasons and LionGold Corp.–an investor in gold-related businesses–plunged by 61% and 42%, respectively.
In response to SGX queries, Blumont said Friday its share price may have been affected by its proposed takeover of Australian coal miner Cokal Ltd. (CKA.AU), as well as recent trading restrictions placed on its stock by an unnamed local brokerage.
Blumont on Friday canceled the proposed takeover, citing the sharp loss in its own share value. The Singaporean firm had planned to pay for the deal by issuing 72.2 million new shares at S$2.02 each–its closing price Thursday. Its share price fell to 88 Singapore cents before trading was suspended.
Before Friday, Blumont’s share price had risen more than eightfold in the first nine months of the year, boosting its market value to S$6.3 billion from S$508 million. This placed Blumont–which earned just S$4.4 million in revenue all of last year–among Singapore’s top 50 companies by market capitalization.
The stock rallied for nine straight sessions from Sept. 18-30, gaining 86% and hitting an all-time high of S$2.54 on Tuesday–gains that Blumont said might have been fueled by its push to diversify into mineral and energy-resource sectors and the interest of foreign investors in its shares.
Asiasons said in a separate response that it was informed of “malicious market rumors” that the Monetary Authority of Singapore had sent a team to investigate the company, and denied these rumors. The company’s share price tumbled to S$1.04–from Thursday’s closing price of S$2.70–before trading was halted. The decline wiped out gains Asiasons had reaped over seven sessions from Sept. 9-19, during which its share price jumped nearly threefold to an all-time high of S$2.91.
In its response, LionGold said it was in advanced talks to buy a stake in an unnamed gold-mining company that is listed on three foreign stock exchanges. The talks also could lead to LionGold making a takeover offer, it said, adding that its share price also has been affected by recent trading restrictions placed on its stock by a local brokerage. Asiasons is LionGold’s single largest shareholder, with an 8.9% stake as of Aug. 20.
LionGold’s share price fell to as low as S$0.86 early Friday–the lowest since January 2012–and was last quoted at S$0.875 before trading was suspended. The shares closed Thursday at S$1.51. The company’s share price had risen 55% from mid-July to late August, peaking at S$1.755 on Aug. 27.
Analysts say Friday’s suspensions, while rare, were consistent with SGX’s previous actions. “We need to know if the [earlier] price jump is supported by fundamentals,” said David Gerald, president of the Securities Investors Association of Singapore, referring to Blumont.
In August 2000, SGX halted trading in the shares of Links Island Holdings after the land-reclamation company’s share price jumped nearly threefold in one and a half months. The bourse later said it found that Links’s shares had been “cornered” by a group of investors–meaning they held stakes big enough to enable them to manipulate the share price. Now known as Manhattan Resources Ltd. (L02.SG), the company resumed trading in August 2002 after meeting certain regulatory conditions.
-Jake Maxwell Watts and P.R. Venkat contributed to this article.
Write to Chun Han Wong at [email protected]
Subscribe to WSJ: http://online.wsj.com?mod=djnwires