SGX corrects misconceptions

[Clement]

Hi Specuvestor,

I think you got your facts wrong. The suspension occurred after the drop from $2 to $0.88 in something like 2 hours. There was no possibility of a orderly deflation. Many traders know that the collapse was going to happen that day and positioned ourselves to be short that day when it opened.

[specuvestor]

I went to recheck the facts: There was a suspension before the fall by Blumont to announce the placement of shares for the acquisition. After it fell to $0.88 (-56%) in 45min it was suspended by SGX. And 2 days later when relisted it fell to $0.13 (-85%)

I was indeed confused by the sequence of the suspensions, thanks for alerting and I agree the decline is not orderly in that 45min. And I now understand whether the stock would go to $0.13 that single day instead of $0.88 without the suspension is debatable. But I think the need for circuit breaker and "designated stock" before suspension is still valid.

How it is done in other exchanges could be 10% drop halt trading for 1 or 2 hours. 20% drop halt for rest of the day. Can be a designated stock the next day. Reverse is true when stock surged. Difference is most probably will be a designated stock the next day to remove the froth.

[specuvestor]

Was wondering why so quiet vs the other crashes experienced. Talks are many Msia linked brokers, including those recently acquired, are badly affected. The officers in SGX have to know that their actions are more than just administrative... they can actually affect lives. Which is why I feel so strongly about this.

The Straits Times
www.straitstimes.com
Published on Nov 01, 2013

Some investors facing legal action over losses
By Jonathan Kwok And Rachel Scully
THE penny stock debacle has cost many local investors dearly and left some facing legal action from brokers and banks determined to get their money.

Last month, three stocks in particular, Blumont Group, Asiasons Capital and LionGold, suffered big share price falls.

One analyst's estimate is that shareholders of the three firms notched up losses of almost $1.5 billion when trading restrictions were in place for two weeks.

One investor, who wanted to be known only as Joseph, forked out $120,000 of his retirement savings on 50,000 shares in mining firm Blumont when they were sky-high at $2.40 each just days before the stock crashed. Now his stake is worth only $5,850.

"I'm one of many saddened and disheartened investors who will have to live with this painful memory for a long time," he said.

"I hoped that (Blumont) would go beyond $3 with the company's diversified business on top of its investment in copper mining."

After strong rises in recent months, shares of the three counters tumbled on Oct 4, prompting the Singapore Exchange (SGX) to slap a suspension and then trading curbs on them. The restrictions were lifted last Monday, and the Monetary Authority of Singapore and SGX have started probing the trading activities around the stocks.

Some punters have used borrowed money from brokerages or banks to buy the shares and now have to pay up.

Sources say that many pledged their other stocks or secured bank overdrafts on their property for more credit. For those who have used homes as collateral, this means they have to find some way of raising funds to repay the overdraft, or risk losing the property.

Brokerages and banks typically give clients seven to 14 days to pay back money, and may act if they do not get the cash by then.

"Banks or stockbroking firms will at first issue letters to their clients to ask for repayment for any losses incurred," said Mr Chou Sean Yu, who heads the banking and financial disputes practice at law firm WongPartnership.

"They may give, say, (another) seven or 14 days. Clients who face difficulty in making payment would try to negotiate for more time," said Mr Chou.

"If the losses are substantial and the institution does not receive a positive response from the clients after this time period for payment, they may then proceed to file an action in court."

Industry players say that broking firms may also choose to go after the client's remisier, who act as guarantors for investors.

The Straits Times understands some lawyers have already been engaged by institutions seeking to reclaim money from their clients.

United States dealer Interactive Brokers Group recently said it has seven accounts of individuals with exposure to the penny stock crash, amounting to deficits of US$68 million (S$84.1 million). It has organised its legal team to collect its debts

[Clement]

Was wondering why so quiet vs the other crashes experienced. Talks are many Msia linked brokers, including those recently acquired, are badly affected. The officers in SGX have to know that their actions are more than just administrative... they can actually affect lives. Which is why I feel so strongly about this.

The Straits Times
www.straitstimes.com
Published on Nov 01, 2013

Some investors facing legal action over losses
By Jonathan Kwok And Rachel Scully
THE penny stock debacle has cost many local investors dearly and left some facing legal action from brokers and banks determined to get their money.

Last month, three stocks in particular, Blumont Group, Asiasons Capital and LionGold, suffered big share price falls.

One analyst's estimate is that shareholders of the three firms notched up losses of almost $1.5 billion when trading restrictions were in place for two weeks.

One investor, who wanted to be known only as Joseph, forked out $120,000 of his retirement savings on 50,000 shares in mining firm Blumont when they were sky-high at $2.40 each just days before the stock crashed. Now his stake is worth only $5,850.

"I'm one of many saddened and disheartened investors who will have to live with this painful memory for a long time," he said.

"I hoped that (Blumont) would go beyond $3 with the company's diversified business on top of its investment in copper mining."

After strong rises in recent months, shares of the three counters tumbled on Oct 4, prompting the Singapore Exchange (SGX) to slap a suspension and then trading curbs on them. The restrictions were lifted last Monday, and the Monetary Authority of Singapore and SGX have started probing the trading activities around the stocks.

Some punters have used borrowed money from brokerages or banks to buy the shares and now have to pay up.

Sources say that many pledged their other stocks or secured bank overdrafts on their property for more credit. For those who have used homes as collateral, this means they have to find some way of raising funds to repay the overdraft, or risk losing the property.

Brokerages and banks typically give clients seven to 14 days to pay back money, and may act if they do not get the cash by then.

"Banks or stockbroking firms will at first issue letters to their clients to ask for repayment for any losses incurred," said Mr Chou Sean Yu, who heads the banking and financial disputes practice at law firm WongPartnership.

"They may give, say, (another) seven or 14 days. Clients who face difficulty in making payment would try to negotiate for more time," said Mr Chou.

"If the losses are substantial and the institution does not receive a positive response from the clients after this time period for payment, they may then proceed to file an action in court."

Industry players say that broking firms may also choose to go after the client's remisier, who act as guarantors for investors.

The Straits Times understands some lawyers have already been engaged by institutions seeking to reclaim money from their clients.

United States dealer Interactive Brokers Group recently said it has seven accounts of individuals with exposure to the penny stock crash, amounting to deficits of US$68 million (S$84.1 million). It has organised its legal team to collect its debts

Hi Specuvestor,

I agree that what happened to the retail "investors" was unfortunate. However, i think there was no easy way for SGX to have resolved the situation.

Circuit breakers would have helped, if they had been implemented earlier, by maybe not allowing the bubble to grow to such proportions. After the bubble was inflated, i don't think it would have made much of a difference. Circuit breakers might drag out the process of price discovery, but at the cost of distributing severely overvalued stock to many others. I think the real problem was that SGX was very late in attempting deflate the bubble.

Warning: As the circumstances primarily relate to speculation, the rest of this post mainly contains topics on pure speculation and trading.

I think the main cause was that these retailers made many errors in judgement and bought into a bubble without much understanding as to what they were doing. Were the "tips" to buy such shares on momentum given to them by their brokers? If so, maybe the brokers ought to share the blame.

When speculating on momentum or "surfing" a bubble, it is very important to keep a lookout for potential turning points and practice prudent risk management. In this case, they ignored signals of a potential "game change" given in the form of queries for suspicious trading activity. Experienced traders were able to deduce it was time to flip their positions 180 degrees around and short the stocks. Had these speculators heeded the signal, their losses would have been much more limited.

[weijian]

I think the real problem was that SGX was very late in attempting deflate the bubble.

Looking at Blumont's price trend chart from Yahoo Finance, the ascent started in ~ Jun2012:
- Jun2012: 2.5cents
- Sept2012: 8-9cents
- Dec2012: 20cents
- March2013: 40-60cents
- Jun2013: 1.10-1.20sgd
- Sept2013: above 2sgd

The stock grew 10x in the first 6 months, followed by another 10x in the next 9 months, with the latter having the highest absolute gains. A SGX query was only made on Sept 18th, when its price was OBVIOUSLY in bubbly levels.

On hindsight, based on price gains alone, should SGX have started to query it earlier in March or June? If yes, would the market (with its amount of information AT THAT TIME) cried foul and stated that SGX was trying to God by choosing the winners/losers?

Unless the market watchers were sleeping on the job, i can only guess that the market manipulators have done their homework and planned long for this - They understood the algorithms that the watchers/regulators were using and primed their game plan to go undetected by the radar. As the chinese saying: 道高一尺，魔高一丈 or我在明，敌人在暗.

Nonetheless, this is a good learning lesson for SGX. If it wants to attract the retail crowd and also maintain its reputation and trust, it needs to do better or even learn to anticipate new tricks that manipulators will attempt in future.

[Temperament]

I think the real problem was that SGX was very late in attempting deflate the bubble.

Looking at Blumont's price trend chart from Yahoo Finance, the ascent started in ~ Jun2012:
- Jun2012: 2.5cents
- Sept2012: 8-9cents
- Dec2012: 20cents
- March2013: 40-60cents
- Jun2013: 1.10-1.20sgd
- Sept2013: above 2sgd

The stock grew 10x in the first 6 months, followed by another 10x in the next 9 months, with the latter having the highest absolute gains. A SGX query was only made on Sept 18th, when its price was OBVIOUSLY in bubbly levels.

On hindsight, based on price gains alone, should SGX have started to query it earlier in March or June? If yes, would the market (with its amount of information AT THAT TIME) cried foul and stated that SGX was trying to God by choosing the winners/losers?

Unless the market watchers were sleeping on the job, i can only guess that the market manipulators have done their homework and planned long for this - They understood the algorithms that the watchers/regulators were using and primed their game plan to go undetected by the radar. As the chinese saying: 道高一尺，魔高一丈 or我在明，敌人在暗.

Nonetheless, this is a good learning lesson for SGX. If it wants to attract the retail crowd and also maintain its reputation and trust, it needs to do better or even learn to anticipate new tricks that manipulators will attempt in future.

Well put!
Not vested

[specuvestor]

First disclosure to start the ball rolling:

Edge Malaysia: AMMB makes RM40m provision for trading at Singapore unit
2013-11-13 02:05:49.841 GMT

http://www.theedgemalaysia.com/business-...-unit.html

PageExcerpt:
KUALA LUMPUR: AMMB Holdings Bhd said it is making a RM40 million provision
for some RM120 million “gross exposure” the clients of its Singapore unit
had on the trading of Blumont Group, Asiasons Capital and LionGold Corp
Ltd, making it the first to do so. This sparks questions on who will be next to volunteer information
(earlier market had speculated RM384m loss for AM fraser)

US based interactive BROKERS GROUP's CEO Thomas Peterffy, on 15 Oct reportedly said it had some US$68 million of accounts in deficit on the trading of the 3 stocks.

Was wondering why so quiet vs the other crashes experienced. Talks are many Msia linked brokers, including those recently acquired, are badly affected. The officers in SGX have to know that their actions are more than just administrative... they can actually affect lives. Which is why I feel so strongly about this.

[cif5000]

First disclosure to start the ball rolling:

Edge Malaysia: AMMB makes RM40m provision for trading at Singapore unit
2013-11-13 02:05:49.841 GMT

http://www.theedgemalaysia.com/business-...-unit.html

PageExcerpt:
KUALA LUMPUR: AMMB Holdings Bhd said it is making a RM40 million provision
for some RM120 million “gross exposure” the clients of its Singapore unit
had on the trading of Blumont Group, Asiasons Capital and LionGold Corp
Ltd, making it the first to do so. This sparks questions on who will be next to volunteer information
(earlier market had speculated RM384m loss for AM fraser)

US based interactive BROKERS GROUP's CEO Thomas Peterffy, on 15 Oct reportedly said it had some US$68 million of accounts in deficit on the trading of the 3 stocks.

The Edge BIG BOSS had earlier said 70m-80m SGD.