Find out why Olam' s Mitsubishi deal is as good as it gets

THE volatility in China' s stock market may be occupying most of the headlines but this should not distract attention from two recent occurrences in the local stock market that warrant closer regulatory scrutiny. The first involves commodities supply chain group Olam International and the second, petrochemical trader CEFC International.

For Olam, there is a quiet feeling of outrage among many market observers following the sudden spike up in its share price just prior to suspension of trading last Friday and the subsequent announcement of the entry of Mitsubishi with a 20 per cent stake.

Among the more common questions being asked are - not surprisingly - who bought on Thursday when the stock rose 11 per cent and again on Friday when it gained a further 2 per cent in the one hour prior to suspension, and whether regulators will be examining the relevant trades to see if any rules have been broken.

Those who favour a more laissez-faire approach to regulation might argue that big price movements ahead of significant announcements are quite common, in which c

For a market which prides itself as being well-governed and strongly regulated, accepting this line of reasoning is ill-advised - all unusual moves have to be probed in order to ensure a level playing field. Not all may lead to the uncovering of wrongdoing and a signal being sent to the market, but all should be examined nonetheless.

Furthermore, this is the second time in 17 months that there has been an unusual burst in Olam' s shares just before disclosure of a material event. Readers might recall the events of February-March 2014, when the stock rose inexorably over five weeks, gaining 40 per cent - 10 times the rise in the Straits Times Index over the same period - just before the announcement of a takeover by Temasek Holdings.

In response to a public outcry, the Singapore Exchange (SGX) back then said it did not query Olam because it found broker reports that called a " buy" on the stock, an explanation that, to put it mildly, was not well received by the market.

It remains to be seen if SGX is studying Friday' s surge in Olam - it might already be doing so - but we do, however, know for sure that SGX has its eye firmly on trading of CEFC' s shares, going by the unprecedented action of issuing a warning under SGX' s own banner.

This occurred on Aug 14 when the exchange noted that CEFC' s shares had shot up more than tenfold in just under a month, from S$0.034 on July 10 to S$0.365 on Aug 6 before a placement at S$0.35 per share, and that it had queried the company twice during this period, queries that on one occasion was followed by a " Trade with Caution" notice.

Most importantly, SGX also disclosed that after reviewing trading in CEFC for the period above, it had found that the buying was concentrated in a small number of offshore accounts.

" Together, these accounts accounted for more than 40 per cent of the total traded volume during the period," said the exchange as it urged the public to exercise caution when dealing in CEFC shares.

Since then, the counter has dropped to S$0.28. The speculative activity which propelled it over the four weeks in question appears to have been quelled so at least SGX' s warnings appear to have been heeded. However, that should not be end of the story and hopefully in time, we will learn what exactly prompted the exchange to issue such a strong warning.

Similarly, it is hoped that in time, the curious jump in Olam' s price last week ahead of the Mitsubishi announcement will be similarly explained.

 

THE volatility in China' s stock market may be occupying most of the headlines but this should not distract attention from two recent occurrences in the local stock market that warrant closer regulatory scrutiny. The first involves commodities supply chain group Olam International and the second, petrochemical trader CEFC International.

For Olam, there is a quiet feeling of outrage among many market observers following the sudden spike up in its share price just prior to suspension of trading last Friday and the subsequent announcement of the entry of Mitsubishi with a 20 per cent stake.

Among the more common questions being asked are - not surprisingly - who bought on Thursday when the stock rose 11 per cent and again on Friday when it gained a further 2 per cent in the one hour prior to suspension, and whether regulators will be examining the relevant trades to see if any rules have been broken.

Those who favour a more laissez-faire approach to regulation might argue that big price movements ahead of significant announcements are quite common, in which c

For a market which prides itself as being well-governed and strongly regulated, accepting this line of reasoning is ill-advised - all unusual moves have to be probed in order to ensure a level playing field. Not all may lead to the uncovering of wrongdoing and a signal being sent to the market, but all should be examined nonetheless.

Furthermore, this is the second time in 17 months that there has been an unusual burst in Olam' s shares just before disclosure of a material event. Readers might recall the events of February-March 2014, when the stock rose inexorably over five weeks, gaining 40 per cent - 10 times the rise in the Straits Times Index over the same period - just before the announcement of a takeover by Temasek Holdings.

In response to a public outcry, the Singapore Exchange (SGX) back then said it did not query Olam because it found broker reports that called a " buy" on the stock, an explanation that, to put it mildly, was not well received by the market.

It remains to be seen if SGX is studying Friday' s surge in Olam - it might already be doing so - but we do, however, know for sure that SGX has its eye firmly on trading of CEFC' s shares, going by the unprecedented action of issuing a warning under SGX' s own banner.

This occurred on Aug 14 when the exchange noted that CEFC' s shares had shot up more than tenfold in just under a month, from S$0.034 on July 10 to S$0.365 on Aug 6 before a placement at S$0.35 per share, and that it had queried the company twice during this period, queries that on one occasion was followed by a " Trade with Caution" notice.

Most importantly, SGX also disclosed that after reviewing trading in CEFC for the period above, it had found that the buying was concentrated in a small number of offshore accounts.

" Together, these accounts accounted for more than 40 per cent of the total traded volume during the period," said the exchange as it urged the public to exercise caution when dealing in CEFC shares.

Since then, the counter has dropped to S$0.28. The speculative activity which propelled it over the four weeks in question appears to have been quelled so at least SGX' s warnings appear to have been heeded. However, that should not be end of the story and hopefully in time, we will learn what exactly prompted the exchange to issue such a strong warning.

Similarly, it is hoped that in time, the curious jump in Olam' s price last week ahead of the Mitsubishi announcement will be similarly explained.