STOCK EXCHANGE OF SINGAPORE (Inquiry into price manipulation and irregular practices)

Dr Toh Keng Kiat asked the Minister for Finance, in view of recent reports suggesting price manipulation and irregular practices in the conversion of preferential stocks of Neptune Orient Lines Ltd and the initial public offers of shares of Keppel Bank of Singapore Ltd and International Factors (Singapore) Ltd, whether a full inquiry will be held to prevent similar occurrences.

Dr Toh Keng Kiat (Nominated Member): Mr Speaker, before I ask the question, I want to declare that I do not have any shares in any of the three companies referred to in the question. Question No. 6, Sir.

Mr Speaker: If you do not have an interest, you do not have to declare. Dr Hu.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, the irregular practices in share transactions and applications which have surfaced in recent weeks are a sad reflection of the avarice of a small minority of the investing public. Their actions disrupted the proper functioning of the market, undermined market integrity and caused considerable inconvenience and uncertainty to the public at large.

The irregular practices found in the application for tender shares of Keppel Bank and International Factors (Singapore) (IFS) were possible because of the simpler procedures currently in place for share applications using CPF funds. Presently, investors who use cash to apply for new shares are required to buy a bank draft or cashier's order for each application and submit it together with the share application form. Applications which are not accompanied by a bank draft or cashier's order for the correct amount are rejected. This system ensures that successful applicants pay for the shares allotted to them since they are already paid fully for the number of shares applied for. However, investors who use CPF funds to apply for new shares are presently not required to furnish evidence of their ability to pay or maintain sufficient funds in their CPF accounts. Instead, they are only required to provide their CPF account numbers in the application forms. Their CPF accounts will only be debited if their applications are successful.

As evident in the recent initial public offers of Keppel Bank and IFS, this relatively simple procedure for share applications using CPF funds is not satisfactory for two reasons. First, there is no verification of the name and CPF account number furnished in the share application form to ensure that the application is genuine. Second, the procedure does not ensure that an investor using CPF funds to apply for the shares has or maintains sufficient funds in his CPF account. These weaknesses were exploited by unscrupulous investors in the Keppel Bank and IFS initial public offers. The abuses that occurred can be prevented if there are measures to verify that share applications involving use of CPF funds are genuine and that such investors have or maintain sufficient funds in their CPF accounts to pay for any shares allotted to them. The CPF Board, the SES and the agent banks are reviewing the existing procedure with these objectives in mind.

In NOL's case, there is reason to believe that certain parties may have caused the fall in NOL share prices on 12th July 1993 to ensure a low conversion price for NOL preference shares. The relevant authorities are investigating into the incident and if there is evidence of criminal offence being committed, the authorities will press charges against those concerned.

The NOL share incident happened partly because NOL had fixed the conversion price of its preference shares based on the last done price for its ordinary shares on a single day. It would be much more difficult for share prices to be manipulated over a sustained period. Hence, such an occurrence can be prevented if the conversion price of preference shares is based on the average of the last done price of ordinary shares over a number of days instead of a single day.

The Stock Exchange is therefore studying with the relevant agencies to tighten the procedures for application for shares using CPF funds and whether further safeguards are needed for the Stock Exchange trading system and conversion of preference shares to prevent similar occurrences from happening in future. However, there is a need to balance the benefits of additional controls in the trading system against the possibility that they would stifle genuine trading activity. This is a complex issue which requires careful and thorough study.

As the irregularities in transactions involving the shares of NOL, Keppel Bank and IFS are being handled by competent authorities including the Commercial Affairs Department, the Stock Exchange and the CPF Board, there is no need to conduct a full inquiry into these incidents.

Dr Toh Keng Kiat: Sir, may I ask the Minister whether he would consider requiring CPF investors who have accounts to buy a bank draft or cashier's order before applications are made for IPOs?

Dr Richard Hu Tsu Tau: As I mentioned, this issue is being discussed by the CPF Board together with the Stock Exchange and they will come up with the procedure which does not interfere too drastically with the use of CPF funds which is against the interest of the stock buyers and yet safe enough to protect the interest of the public at large. I suggest that we wait for their conclusion.