20-01-2022, 06:32 AM
Quote:Strangely, why weren't the loaned shares recalled straight upon suspension 2+ years back then ?
From the CDP website:
The loan will be terminated if one of the following conditions is met:
- Upon redelivery of the equivalent loaned securities by the borrower to CDP. This indicates the borrower has returned the loan and the loan can be closed
- Upon the borrower becoming insolvent or bankrupt
- At the request of CDP, where the loaned securities have been suspended from trading on SGX-ST
- At the request of CDP where the loaned securities are, or can reasonably be expected to be de-listed from trading on SGX-ST upon announcement made by the listed company
- Five business days prior to record date for loaned securities where corporate action events (other than SGD dividend entitlements) have been announced
- On the second business day following the date of notice of termination served by CDP on the borrower
From my reading, the loan HAS to be terminated whenever there's a corporate action (except for dividends), so I guess that's why the loan is terminated due to the EAO.
However, it seems that CDP could choose to terminate the loan if the stock has been suspended, so I guess you do have a point. But from the reading, CDP could also choose not to exercise this option.
Quote:Actually, the $1.36 is the EAO price according to the SGX letter*.
The letter is worded quite poorly, and may have given the reader the wrong impression that the price of $1.36 is pegged to the EAO offer. As ghchua has pointed out, the price of $1.36 is pegged to the last closing price, which just happens to be the EAO price.
I quote the rules from CDP:
A Borrower who fails to return securities on time (or at all) will be required to pay a cash settlement amount.
Where CDP acquired securities to return to the Lender, CDP will cash settle the loan with the Borrower by requiring that the Borrower pay CDP a cash settlement amount. The cash settlement amount will be the cost incurred by CDP in connection with its acquisition of the securities.
Where the Lender has sold the loaned securities and his sell trade was cash settled under the CDP Clearing Rules, CDP will cash settle the loan with the Borrower by requiring that the Borrower pay CDP a cash settlement amount. The cash settlement amount will be the amount at which the sell trade was cash settled under the CDP Clearing Rules.
In any other case, CDP will cash settle the loan with the Borrower by requiring that the Borrower pay CDP a cash settlement amount. The cash settlement amount will be the latest closing price of the securities as of the day before the day due for cash settlement.
Quote:Just to clarify, I mean in this technological age, which party the borrowers sell to, and the "route" of loaned shares should be traceable. The shares couldn't just disappear into thin air. Ultimately, wherever the loaned shares go, I believe CDP is still in control of the share register? I believe enforcement is possible but perhaps difficult ?
As ghchua mentioned, borrowers don't borrow shares to hold. They borrow shares to short sell in the market. The buyer to that transaction can then go on to sell the shares, and the buyer to this transaction can go on to sell the shares, so on and forth. You are right in the sense that the shares don't just disappear into thin air, but suppose we know that the shares are now in the hands of Person A (who have absolutely no idea that these are borrowed shares). What can we do? Force this person to return the shares back to you? That's not being fair to him as well right?
In reality, this problem won't happen if there's no suspension. Because the original borrower can just close his short position by buying the shares on-market. And if he fails to do so, CDP will do it for him. So I think we have to be clear that this is a very special situation that won't apply to most SBL cases.
To be blunt, the rules were already set when investors opted into the SBL programme to earn some extra dollars, and participants went in with their eyes open. CDP is merely acting on these rules. While we can say that this rule is unfair etc, it also doesn't sound right/fair to me that we want to change the rules only after we realized it's not in our favor.
I must stress again - this is an unfortunate situation and most investors did not expect. Most people probably still have decent experience lending their shares out for some extra money. But I do think that CDP should clarify why it didn't terminate the loan when stock was suspended years ago, when it had the right to do so.