Enforce rules on directors' trades

Tardy disclosures: SGX, MAS shouldn't accept explanations at face value

Money | Updated today at 01:20 AM
By Goh Eng Yeow, Senior Correspondent

SOMETIMES the actions of insiders speak with more clarity and insight than all the analysts' reports, or efforts of a company to doll itself up, put together.

That is why many investors place great store in closely tracking corporate insiders' trading patterns. Company bosses and big shareholders may, after all, have access to information not known to the public - and they therefore know just when to buy and to sell.

What better show of faith by a boss than to invest his own cash in the business he is running? And if he is selling off huge chunks of his own shares - whether of his own volition or at the behest of banks - what does this say about his commitment to the firm?

As a result, traders pay considerable attention to insiders' trades, especially when big tranches of shares change hands.

Keeping an eye on what insiders are doing might also spare investors the anguish of seeing their investments go up in smoke, especially if they spot unusual trading patterns such as big sell-offs.

Given all this, any tardiness by listed firms in announcing share trades - especially big ones - should be viewed seriously. These lapses can hurt investor confidence badly and dent a company's share price performance. There is, after all, a legal requirement for listed firms to inform investors of any changes in the holdings of directors and substantial shareholders not later than the end of the next business day.

Over the years, another telling sign of a trouble-plagued listed firm is when it starts putting out unpalatable announcements late at night when most folks are getting ready for bed, or are sound asleep already. One may ask how investors can make sensible investment decisions at such late hours, even if they manage to stay up to catch the announcements.

So what are we to make of the recent disclosures made by beleaguered Blumont Group on sales of its shares by the company's chairman Neo Kim Hock and substantial shareholder Ooi Cheu Kok?

On Oct 4, Blumont crashed 56 per cent within an hour of the opening bell. This forced the Singapore Exchange (SGX) to suspend its trading "as there could be circumstances that would result in the market not being fully informed".

Later, it was reported that Mr Neo had sold the firm's stock just days before the counter's plunge on Oct 4. He sold four million Blumont rights - instruments allowing investors to buy Blumont shares - on Oct 2 and another three million Blumont rights on Oct 3. But disclosures were made close to midnight on Oct 7 in a 12-page announcement.

The SGX allowed Blumont to resume trading on Oct 7, after banning contra trades and short-selling to rein in excessive speculation and possible disorderly trading. But that failed to stop the stock from collapsing a further 85 per cent that day.

On Oct 7, when trading resumed, Mr Neo sold 1.41 million shares, as its price crashed. He then unloaded another 34.26 million shares from Oct 8 to Oct 14.

Disclosures on these sales were made one hour before midnight on Oct 14. That meant a seven- day lag on disclosing the first of his latest spate of sales. But Blumont said: "Mr Neo only had knowledge of the bank loan/forced sale of the securities held on Oct 14."

Another insider, substantial shareholder Ooi Cheu Kok sold 32.16 million shares on Oct 7. His sales alone accounted for 28 per cent of the 115.5 million Blumont shares traded on Oct 7.

Like Mr Neo, disclosure of his sales was made only on Oct 14, and again, close to midnight. Even the reason for the sale was similar. "Mr Ooi only had knowledge of the bank loan recall/ forced sale of the securities held on Oct 13," Blumont said.

Between Oct 8 and Oct 14, a further 228.7 million Blumont shares changed hands as it swung between 13 cents and 20 cents. In that period, forced selling of Mr Neo and Mr Ooi's shares totalled 40 million shares, or 17.5 per cent of all the Blumont shares traded.

It begs the question: Would investors (or rather punters) have changed their course of action, if the information on the forced selling of Mr Neo and Mr Ooi's shares was available to them earlier?

As SGX's deputy chief regulator Richard Teng once noted: "Incomplete or inaccurate information may lead to wrong conclusions and a greater risk of loss."

The SGX and its regulator, the Monetary Authority of Singapore, should ensure that listed firms adhere strictly to the guidelines laid down on disclosing of shareholdings by directors and substantial shareholders. They should not accept at face value any explanation for tardy disclosures.

As for Blumont's recent habit of putting out unsavoury announcements close to midnight, this column leaves readers to draw their own conclusions. Enough has been aired on the subject.