Securities non-delivery penalties

Author: | Published: 1 Feb 2009
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Loo & Partners LLP

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Singapore Exchange (SGX) has issued a consultation paper seeking public feedback on the proposed permanent penalty framework for non-delivery of securities. For readers who are keen to read more on the proposed framework, the same may be accessed from SGX's website at www.sgx.com.sg. This is preceded by the implementations of SGX on September 22 2008 to prevent settlement failures of securities and abusive naked short selling. Short selling is the sale of securities or commodity futures not owned by the seller (who hopes to buy them back later at a lower price).

The non-delivery of securities occurs when a market participant fails to deliver the sold amount of securities by the settlement date. The proposed tiered penalty framework aims to penalise when settlement procedures are abused. The integrity of the securities settlement system and exposed settlement risks to the Central Depository (Pte) Ltd (CDP) could be minimised with the proposal being implemented.

A proposed penalty of the higher of 5% of the value of a failed trade or $1,000 has been suggested by SGX. Market participants affected by the interruptions may lodge an appeal with SGX through their broker.

Appeal process

Appeals could be submitted by market participants to SGX in cases of non-delivery of securities, with genuine mistakes or other valid reasons being cited. Each of the appeals is considered individually for the waiver of penalties under existing arrangements. Similarly, participants who have been referred to the Disciplinary Committee for failure to deliver in the buying-in market will have the opportunity to present their case before the Disciplinary Committee.

Segregation of penalties collected

The monies collected from the revised penalty framework will be channeled to a segregated account. They do not add to SGX's revenues, and will be used towards funding or educational initiatives for market participants.

Proposed amendments to CDP clearing rules

The penalty framework proposal will be implemented under the CDP Clearing Rules. SGX is also seeking feedback on the proposed amendments to the rules.