The Singapore Law Gazette

Overview of Recent SGX Disciplinary Cases Involving False Trading and False Markets

From FY2015 to FY2017, Singapore Exchange’s (SGX) Disciplinary Committee (DC) has heard charges against eight Trading Representatives under the SGX Securities Trading Rules (SGX-ST Rules) and charges against one Trading Member (Individual) under the Futures Trading Rules (FTR) respectively.

More than 70% of the charges heard by the DC during this period involved breaches of SGX-ST Rule 13.8.1.¹The remaining 30% of the charges heard by the DC were in relation to breaches of SGX-ST Rule 7.5.3 (Failure to adhere to good business practice in the conduct of a Trading Representative’s business affairs), SGX-ST Rule 13.12.1 (Failure to maintain confidentiality of identification number and password for entering orders into the trading system) and FTR Rule 3.4.8 (Failure to enter bids or offers other than in good faith for the purpose of executing bona fide transactions). This article examines the different ways in which SGX-ST Rule 13.8.1 was contravened in these recent cases. It also seeks to expound on the considerations of the DC during the sentencing process.

I. SGX-ST Rule 13.8.1

SGX-ST Rule 13.8.1 prohibits a Trading Member² A Trading Member refers to an entity which has been approved as a Trading Member in accordance with the SGX-ST Rules. or a Trading Representative³ A Trading Representative refers to a person who is employed by or acts for or by arrangement with a Trading Member to deal in securities or trade in futures contracts listed on SGX-ST. from engaging in any act or practice that will or is likely to: (a) create a false or misleading appearance of active trading (also known as “false trading”);⁴ SGX-ST Rule 13.8.1(1). or (b) lead to a false market⁵ SGX-ST Rule 13.8.1(2). in any securities.

SGX-ST Rule 13.8.1 is concerned with the effect or likely effect of an order or a transaction. It involves an objective assessment of whether a false or misleading appearance of active trading, or a false market in securities, has been created. SGX-ST Rule 13.8.2 identifies the relevant factors when considering whether an act or practice may have breached SGX-ST Rule 13.8.1. Practice Note 13.8.1 sets out further guidance on the application of SGX-ST Rule 13.8.1.

Whether an act or practice will or is likely to create a false or misleading appearance of active trading or a false market in securities will depend on the circumstances of each case. SGX-ST Rule 13.8.1 does not prevent Trading Members and Trading Representatives from carrying out legitimate trading strategies which reflect the forces of genuine supply and demand. However, Trading Members and Trading Representatives must do so bearing in mind their obligations to the market, and with an appropriate degree of care.⁶ SGX-ST Rules “Practice Note 13.8.1 – Market Manipulation and False Market” at [2.3] (Last amended on 7 July 2015)

A. Creation of a False or Misleading Appearance of Active Trading

Where orders for securities are entered close to each other in time, for the same quantity and at a price outside the prevailing traded price range, this may indicate that a transaction has been pre-arranged. Pre-arranged transactions have the effect of creating a misleading appearance of active trading, or improperly excluding other market participants from the transaction since the first bid or offer is not adequately exposed to the market.⁷ SGX-ST Rules “Practice Note 13.8.1 – Market Manipulation and False Market”, at [3.1.6].

In SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin (2016), the pre-arranged trades occurred amidst an extremely illiquid market.⁸ The securities counters under the proceeded charges were Far East Group Limited and PNE Micron Holdings Ltd (presently known as Sen Yue Holdings Limited) while the securities counters under the charges taken into consideration were 8Telecom Int’s Holdings Co Ltd and Halcyon Agri Corporation Limited. Mr Kok had conceptualised the pre-arranged trades to help his clients who did not have sufficient funds to settle their positions. Mr Ang participated in the pre-arranged trades at Mr Kok’s request.

Their modus operandi involved the following steps:⁹SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin at [17]–[18].

1. A sell order would be entered into on behalf of a holder of an account belonging to either Trading Representative, the spouse of one of the Trading Representatives, or a client who was serviced by either Trading Representative if there was a position in that account due for settlement that day. The sell order would be at a price which was lower than the prevailing best ask price in order to gain priority over other market participants. This created a new best ask price. The sell order would typically be for a large quantity as compared to the other orders in the order book at that point in time;
2. Almost immediately thereafter, a new buy order or several buy orders would be entered on behalf of a holder of another account from the pool described in point one above (the “Buyer”). The buy order(s) would be for a quantity of the same number and price as the recently-entered sell order;
3. The orders would match, resulting in a pre-arranged trade for the exact quantity and price; and
4. When the Buyer’s position was due for settlement, the same modus operandi would be utilised to find a new buyer or buyers from within the same pool of accounts.

The modus operandi effectively extended the settlement dates and prevented the forced sale of the shares. The process continued for a prolonged time period of almost one year in one securities counter and approximately three months in another securities counter, under the proceeded charges.

Mr Kok and Mr Ang admitted that the execution of the pre-arranged trades had created a false and misleading appearance of active trading in the relevant securities, in breach of SGX-ST Rule 13.8.1(1). While the DC accepted that the two Trading Representatives had not intended to manipulate the market, the DC noted that the pre-arranged trades had, by their disproportionate volume to the order book, greatly impacted the market traded volume. This had the effect of creating a false and misleading appearance of active trading.¹⁰SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin at [91].

B. Creation of a False Market through Manipulative Orders or Transactions

A false market may exhibit one or more of the following characteristics:

1. False, exaggerated or tendentious information;
2. Contrived factors such as buyers and sellers acting in collaboration to bring about artificial market prices; or
3. Manipulative or fictitious orders, transactions or other devices have been employed.¹¹ SGX-ST Rules “Practice Note 13.8.1 – Market Manipulation and False Market”, at [2.2].

A false market occurs when there is an active interference in the workings of the genuine forces of market supply and demand such that it presents a distortive effect on the price and/or volume of the securities traded. Such a distortion of price and/or volume jeopardises both the efficiency and integrity of the market and could lead to a loss of investor confidence in the market as a whole.¹² Tan Boon Gin, “Factors SGX considers in deciding whether to take action against false trading”
(22 February 2017)

Examples of a false market created through manipulative or fictitious orders or transactions are set out below.

(i) Marking the Close: Creation of a False Market through Manipulative Orders or Transactions

“Marking the Close” involves the purchase or sale of securities near or at market close with the objective of artificially fixing the closing price. “Marking the Close” gives the impression that a security is of a higher or lower value than its actual worth. As closing prices are regularly quoted as a measure of a security’s price performance, a party wishing to support or depress the security’s price may attempt to enter orders and execute trades towards the end of the trading session.¹³ SGX, “Trade Surveillance Handbook, Series One” (28 September 2016) at [pg 20].

Based on past cases decided by the DC as well as other market manipulation cases before the Singapore courts, perpetrators of “Marking the Close” have included investors with large securities holdings or who held securities which were either the subject of a margin arrangement or had been charged, mortgaged or pledged as collateral under other arrangements. If the price of the securities fell below a certain price, this would result in a margin call or other payments being required of the investors. Price manipulation of the securities through “Marking the Close” could allow such investors to avoid such payments.

A past instance of “Marking the Close” occurred when a fund manager manipulated the closing price of a certain security which was part of the funds’ portfolio, over a few consecutive trading days at the end of the trading year. This was carried out to increase the year-end value of the funds so that the funds could meet their annual performance benchmark, which in turn enhanced the fund manager’s reputation and also allowed the fund manager to earn additional performance fees.

Investors may also attempt to manipulate the price of securities through “Marking the Close” where the listed company is the subject of a takeover or impending corporate action, and attaining a certain price valuation for the securities would be to the investors’ benefit. Such investors would usually be connected persons of the listed company.

A Trading Representative acting for any of the above mentioned investors may be instructed to ”Mark the Close” by executing a trade, usually for a small quantity of securities at a price at a premium, above the last traded price and the other intra-day trading prices. The market price of the securities would usually return to its normal level when market re-opens the next day. Consequently, on days where the “Marking the Close” practice by the Trading Representative is not observed, the price would close at a level much lower than the closing price set by the Trading Representative.

SGX-ST v Teo Cheng Kiat (2015) and SGX-ST v Low Kok Boon (2015) are cases where the DC imposed penalties on Trading Representatives for the creation of a false market through their “Marking the Close” malpractices.

In SGX-ST v Teo Cheng Kiat, Mr Teo Cheng Kiat (Teo) “marked” the closing price of the shares of a particular listed company ¹⁴ The securities counter under the proceeded charge was Chosen Holdings Limited while the securities counters under the charges taken into consideration were Tat Seng Packaging Group Ltd and Poh Tiong Choon Logistics Ltd. on all 22 days when his client traded in those shares. The offence took place over a period of 21 months. Teo always entered his client’s orders during the closing routine at the minimum board lot size, which set the closing price and intra-day high on all 22 days, and were the only trades in that counter for 13 of the 22 days. On two particular days, Teo’s trades had the effect of pushing the closing price up by 89.7% and 44.2%. ¹⁵SGX-ST v Teo Cheng Kiat at [5] and [9].

In SGX-ST v Low Kok Boon, Mr Low Kok Boon (Low) “marked” the closing price of the shares of a particular listed company¹⁶ The securities counter under both the proceeded charge and the charge taken into consideration was China Environment Limited.on all 33 days when his client traded in that company and the offence took place over a period of about seven months. On 28 of the 33 days, Low’s client’s buy orders were executed at the minimum board lot size of 1,000 shares. Low would execute the buy orders at his boss’s instructions near the close of the market day and these buy orders would set the intra-day high on the majority of the 33 days. On all the days on which Low’s client traded, the trades were one to 35 bids higher than the preceding traded price. ¹⁷SGX-ST v Low Kok Boon at [9].

In both cases, there was no legitimate commercial rationale behind the Trading Representatives’ consistent execution of trades for a minimum board lot size at the market close above the preceding traded price, other than to mark the closing price.

Teo and Low admitted that their “Marking the Close” practices had led to a false market in the relevant securities under SGX-ST Rule 13.8.1(2)(c).

(ii) Layering: Creation of a False Market through Manipulative Orders or Transactions

“Layering” occurs when multiple buy or sell orders are made at, above or below the prevailing best bid or ask prices.¹⁸ SGX, “Trade Surveillance Handbook – Series One” (28 September 2016) at [pg 9]. Whilst “layering” is at times carried out in the course of certain legitimate business activities such as market making, “layering” may be used by an errant trader as a means of advancing manipulative orders and transactions to create a false market.

When the “layers” of buy or sell orders are made at staggered price levels on one side of the order book, the errant trader will also make genuine orders on the other side of the order book. These genuine orders will be priced in a manner advantageous to the errant trader, which will either be lower than the usual buy orders or higher than the usual sell orders.

Consequently, the presence of “layers” of buy or sell orders will induce subsequent market participants to make buy or sell orders that are higher or lower respectively, at prices which are not representative of actual demand and supply. These induced orders will typically match the errant trader’s genuine order(s) on the other side of the order book, allowing the errant trader to profit from the “layers”. Once the genuine order(s) are matched, the errant trader deletes the “layers” and the order books return to their original state.

In SGX-ST v Lu Hai (2016), Lu Hai (Lu) employed “layering” as a means to advance his manipulative orders and transactions, consequently creating a false market in the shares of various listed companies. His modus operandi consisted of several distinct steps; igniting momentum in the market, ramping up the share price, entering large “layers” of buy orders at multiple price levels and making frequent amendments to his orders. All these collectively created an appearance of increased demand and market depth of the shares in the relevant companies,¹⁹SGX-ST v Lu Hai at [13]. The securities counters under the proceeded charges were Informatics Education Ltd. and IPCO International Limited; while the securities counter under the charge taken into consideration was Mirach Energy Limited. which induced market participants to enter the market and trade at prices which were not reflective of genuine supply and demand. Lu then deleted a substantial portion of his earlier layered orders.

Lu’s conduct resulted in his trades over three days in three securities counters gaining a profit close to $130,000. Mr Lu admitted that his conduct had led to a false market in the relevant securities under SGX-ST Rule 13.8.1(2)(c).

(iii) Pre-Arranged Cross Trades to Artificially Maintain Share Price: Creation of a False Market through Manipulative Orders or Transactions

Similar to “Marking the Close” transactions, pre-arranged cross trades may be executed to avoid payments which arise when securities fall below a certain price.

There are multiple ways pre-arranged cross trades may be used to artificially maintain prices, thereby creating a false market. One way would be to execute multiple pre-arranged trades for the same block of securities between various accounts controlled by a Trading Representative, at a pre-arranged traded price which is higher than the prevailing market price. This would create an impression that the securities are being actively traded at a higher price.

SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon (2016) provides a good illustration of the multiple ways in which pre-arranged cross trading was utilised to maintain the share price artificially. In this case, a team of three Trading Representatives (in which Lim Kok Tong (Lim) was the team leader and Yeo Lay Hoon (Lay) and Lim Pei Woon (Lim) were his trading assistants) deliberately and systematically executed cross trades amongst Lim’s clients’ accounts or between clients’ accounts and Lim’s personal account for the purpose of artificially maintaining the price of the shares of a particular listed company.²⁰SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [21]; the listed company was Zhongmin Baihui Retail Group Limited. Lim was closely connected to that company — he was a founding member of the company, while his brother was an executive director of the company at the material time. Lim was also the securities broker for the company’s directors and many of its substantial shareholders. In addition, Lim himself was a substantial shareholder of the company.²¹SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [77].

The Trading Representatives’ modus operandi was as follows:

1. Going in-between the spread:²²SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [28]. One of the Trading Representatives would first place sell orders for shares in the company at prices above the best bid price, which is contrary to the usual practice of placing a sell order at or below the best bid price so that the trade can take place. Simultaneously, one of the Trading Representatives would place buy orders to match those sell orders, resulting in an immediate cross trade that maintains the price of the shares at the higher bid price reflected in that cross trade.
2. Order slicing:²³SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [32]–[36]. One of the Trading Representatives had a client selling a large quantity of 28,000 shares in the company which were due for settlement. The Trading Representatives would choose two buying clients from the same group of clients to buy the 28,000 shares. But instead of matching the sell order with one corresponding buy order, the Trading Representatives executed 32 sliced buy orders with varying quantities ranging from 200 to 3,000 shares. Consequently, the multiple cross trades created a false impression of active trading.
3. Cross trades between Mr Lim and his clients:²⁴SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [37]–[40]. Lim had two selling clients, with an aggregate of 91,000 shares in the company due for settlement. Lim picked up 80,000 of those shares via 15 cross trades. The cross trades were executed in quick succession and formed the majority of the total traded volume that day.

The modus operandi also included a series of round-robin transactions. In round-robin transactions, a block of shares would be passed from one client to another, often at times when the said shares are due for settlement. The traded price for the same block of shares will consistently be the same.²⁵SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [22].

Lim earned $69,830 in commissions from the offending trades while Yeo and Lim did not earn any commission given that they were paid salaries by Lim.²⁶SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [58] and [81]. The $69,830 was arrived at after taking into account Mr Lim’s profit-sharing arrangement with the Trading Member firm.

Lim, Yeo and Lim admitted that their trading behaviour had resulted in the creation of a false market in the shares of the listed company under SGX-ST Rule 13.8.1(2)(c). By their admission, they acknowledged that no legitimate commercial purpose was served through their transactions. The three Trading Representatives’ trading activities had undermined the integrity of the market as they had given false price signals to the public, so as to cause the public to believe that the prices reflected genuine supply and demand.²⁷SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [65] and [75].

II. Sentencing Considerations

SGX-ST Rule 14.5.5(1) read with Schedule A prescribes that a violation of SGX-ST Rule 13.8.1 will attract the minimum mandatory penalty of $30,000. In addition, SGX-ST Rule 14.5.4(3) prescribes that an imposed penalty against a registered person must not exceed the maximum fine of $250,000.

This section examines the various factors²⁸ Aggravating factors and mitigating factors are beyond the scope of this article. considered by the DC in the course of calibrating an appropriate sentence for violations of SGX-ST Rule 13.8.1.

A. Market Impact of Trading Misconduct

The DC has established that an appropriate sentence must be proportionate to the severity and impact of the trading misconduct.²⁹SGX-ST v Lu Hai at [61]. Generally, the greater the distortive effect on the price or volume of the securities traded, the higher the likelihood that the trading misconduct has compromised the efficiency and integrity of Singapore’s capital markets and the greater the risk of loss of investor confidence in Singapore’s capital markets.

In SGX-ST v Lu Hai, Lu’s orders and transactions created a false market which misled and induced multiple market participants to trade with him. As a result, the fair and orderly operation of the market was compromised. The DC stated that manipulative trading conduct “strikes at the heart of the integrity of and confidence in Singapore as an international financial centre”.³⁰ SGX-ST v Lu Hai at [57].

In SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin, Kok Wei Jian Alex (Kok) and Ang Kok Pin Marvin (Ang) executed their pre-arranged trades amidst an extremely illiquid market. By the disproportionate volume of their pre-arranged trades to the order book, these pre-arranged trades had greatly impacted the market traded volume. This had the effect of creating a false and misleading appearance of active trading in the shares of the relevant listed companies, resulting in a market that did not reflect the genuine forces of market supply and demand and that in turn undermined the integrity and transparency of the market, leading to an erosion of the confidence and trust that the investing public had in Singapore’s market. The DC took a stern view against the Kok’s and Ang’s actions given that “market integrity and transparency are fundamentals for Singapore’s reputation as an international financial centre”.³¹ SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin at [91].

In SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon, the pre-arranged cross trades created the appearance of active trading and sustained demand for the shares in the relevant listed company within a certain price range, thereby creating a false market. Such egregious trading conduct interfered with genuine forces of demand and supply and had a distortive effect on the market, which could not be condoned. The DC stated that Singapore’s reputation as a market with integrity “must be steadfastly protected to maintain investors’ confidence”.³²SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [75].

In assessing the market impact of the trading misconduct, the DC will also consider the scale ³³ In SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin at [27(4) and 37(4)], in respect of the proceeded charges, the volume of the pre-arranged trades amounted to almost 96% and 81% of the market volume in one counter of shares, which meant that had the pre-arranged trades not been executed and the market volume would have decreased to approximately 4% to 19% of the market volume on the relevant days; in another counter of shares, the pre-arranged trades amounted to approximately 65% of the market volume on the relevant days. and duration³⁴ In SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [80], the DC took into account the protracted duration of the offences, which was 156 days over 8 months. of the offending transactions.

B. The Amount of Benefit Gained and Detriment Caused

When assessing the appropriate sanction to be imposed, the DC will consider the benefit gained by the Trading Representative involved such as, the profits or commissions that the Trading Representative may have received from the offending trades.

It is evident from the DC cases discussed that the DC will not allow Trading Representatives in breach of the SGX-ST Rules to profit from their trading misconduct at the expense of other market participant. The fines imposed on Trading Representatives in these cases have been significantly larger than the Trading Representatives’ financial gain (if any).

In the “Marking the Close” cases (SGX-ST v Teo Cheng Kiat and SGX-ST v Low Kok Boon), the DC noted that Teo was earning a commission of about $800 from the offending trades, while Low was merely a salaried employee who was acting on his boss’s instructions and did not earn any commission for the offending trades. In considering an appropriate sentence, the DC in each case took into account the precedent cases and the mandatory minimum penalty for a breach of SGX-ST Rule 13.8.1 ($30,000) which came into effect on 16 May 2011. The DC imposed a higher fine of $45,000 against Mr Teo and ordered him to attend an education programme on securities regulation. Against Mr Low, who was unemployed at the time of the hearing, the DC imposed a fine of $35,000 and ordered him to attend an education programme on securities regulation before he could resume his duties as a Trading Representative.

In SGX-ST v Lu Hai, Lu’s offending trades which were the subject of the two proceeded charges resulted in a profit of $61,554.27 while the offending trades which were the subject of one TIC charge resulted in a profit of $68,191.34.³⁵SGX-ST- Lu Hai at [44]. The DC laid down its sentencing principle that the fine imposed for the creation of a false market through layering must be at least a multiple of the profits earned by the offending trader; merely ordering disgorgement of profits would not be sufficient to deter potential offenders who are willing to take the gamble that they will not be caught. Lu was ordered to pay $180,000 and was suspended for trading for a total period of six months.³⁶SGX-ST- Lu Hai at [60] and [63].

In SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon, the DC noted that Lim had earned commissions amounting to $69,830, and could have indirectly benefited in other ways given his close connections with the listed company.³⁷SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [59], [77] and [81]. As for Yeo and Lim, the DC noted that they did not earn any commission from the offending trades given that they were paid salaries by Lim. The DC imposed against Lim, an $180,000 fine and six months’ suspension, and against Yeo and Lim, a $35,000 fine and three months’ suspension for each party. All parties were also ordered to attend an education programme on securities regulation.

C. Sophistication and Ease of Detection of Offence

The DC also takes into account the complexity of the market manipulation and the ease of detection of the offence.

In SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon, the DC noted that layering conduct is generally the most complex and difficult to detect, followed by cross trades and then marking the close malpractices.³⁸SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [79]. Lim, who was the most culpable in the team of three Trading Representatives charged at the same DC hearing for pre-arranged cross trades which had the effect of artificially maintaining the share price, was handed a penalty of $180,000 for one proceeded charge and two TIC charges. In SGX-ST v Lu Hai, Lu was handed, in respect of his layering malpractices, a penalty of $180,000 for two proceeded charges and one TIC charge; these penalties were much higher than the Trading Representatives in SGX-ST v Teo Cheng Kiat and SGX-ST v Low Kok Boon who were handed fines ranging from $35,000 to $45,000per proceeded charge (with two TIC charges for Teo and one TIC charge for Low) for marking the close.

D. Individual Culpability where there are Multiple Defendants

In instances where trading misconduct was the result of collaboration between one or more defendants, the DC looks beyond the nature of the trading misconduct to also assess the individual role and involvement of each Trading Representative, so as to calibrate their sentences accordingly. The DC will generally impose heavier sanctions against the mastermind or controlling party behind the offending trades and impose lighter sanctions against parties who were merely acting on the instructions of the mastermind or controlling party.

In SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin, the DC noted that Kok was the one who conceptualised the pre-arranged trades, while Ang was merely a wiling collaborator. In respect of the two proceeded charges and four TIC charges against each of Kok and Ang, the DC imposed a fine of $70,000 and three months’ suspension against Kok and a fine of $60,000 and two months’ suspension against Ang.

Similarly, in SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon, the DC recognised that Lim, being the controlling mind behind the offending trades, warranted a heavier sentence of a fine of $180,000 and six months’ suspension; whereas Yeo and Lim, who were merely complying with Lim’s instructions, were given a lighter sentence of a fine of $35,000 and three months’ suspension for one proceeded charge and two TIC charges.

E. Deterrent Effect

In assessing the appropriate sentence, the DC has regard as to whether the sentence would have the effect of deterring the commission of similar breaches in future cases.

In SGX-ST v Lu Hai, the DC stated that suspension from trading would be ordered, in addition to a fine, if there was a need to augment the deterrent effect of a fine with the stigma of a suspension order. The principle of deterrence must be tempered by proportionality. A sentence must be proportionate to the severity and impact of the offence as well as the culpability of the offender.³⁹SGX-ST v Lu Hai at [60]–[61].

In SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon, the DC was of the view that an order for suspension from trading against all three Trading Representatives was warranted to deter commission of similar offences.⁴⁰SGX-ST v Lim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [82].

III. Factors Considered by SGX in Deciding Whether to Take Action

Following the various DC decisions discussed above, SGX had issued a Regulator’s Column setting out the considerations taken into account by SGX in deciding whether enforcement action should be taken against false trading. These considerations include:⁴¹ Tan Boon Gin, “Factors SGX considers in deciding whether to take action against false trading” (22 February 2017) <http://www.sgx.com/wps/wcm/connect/sgx_en/home/regulation_v2/consultations_and_publications/Regulators/Factors-SGX-considers-in-deciding-whether-to-take-action-against-false-trading> (Accessed 12 December 2017).

1. The duration of the misconduct;
2. The number of alleged breaches;
3. whether the misconduct was systemic or indicative of a pattern of non-compliance with the rules;
4. The amount of any benefit gained or detriment caused as a result of the misconduct; and
5. The impact of the misconduct on the market including whether public confidence in the market may have been damaged.

SGX adopts a holistic andrisk-based approach to enforcement. The greater the threat to market integrity, the more likely SGX will take action. Conversely, SGX is less likely to take action for matters that involve one-off, isolated or technical breaches that do not significantly distort price or volume.

With respect to “false market” cases mentioned above, SGX has stated that it will be more likely to take action when orders or trades are disproportionate to the order or traded volumes, and trading activity is for an extended duration. As seen from the cases discussed above, the Trading Representatives’ trading malpractices took place either for an extended duration,⁴² In SGX-ST v Teo Cheng Kiat and SGX-ST v Low Kok Boon, the offending trades took place on 22 days over 21 months and 33 days over 6 months respectively. Also see SGX-ST vLim Kok Tong, Yeo Lay Hoon and Lim Pei Woon at [80] and note 34 above. or had formed a high proportion of the total order or traded volume.⁴³ In SGX-ST v Lu Hai, Mr Lu’s layered buy orders had accounted for 82% of the buy order volume (for the proceeded charge). Also see SGX-ST v Kok Wei Jian Alex and Ang Kok Pin Marvin at [27(4) and 37(4)] and note 33 above.

SGX has advised individual market participants to be mindful of the impact caused by their trading and the duration of their trading once their orders and/or traded volumes exceed 30% of the total order or traded volume of the security in the market. Where necessary, SGX may issue a “trade with caution” alert to warn the public of a prolonged false market.

Concluding Remarks

From the above analysis of the various recent DC cases, violations of SGX-ST Rule 13.8.1 can take different forms. In arriving at an appropriate sentence, the DC will apply the various sentencing considerations discussed above to the factual matrix of each case.