SGX announced the suspension of Links Island shares on 16 August 2000, and said that settlement of all trades done on or after 14 August 2000 would be deferred until further notice. On 26 July 2001, SGX announced that Links Island shares were declared cornered, and that in accordance with SGX-ST Rule 6.8.1 (5), all contracts between 14 August and 16 August 2000 that were not settled, were to be settled by cash and not delivery. This followed a lengthy and thorough investigation which showed that the free-float of Links Island shares had declined from more than 23% at the time of its initial public offer (IPO) in February 2000 to less than 8% when the counter was suspended. The investigations also revealed large off-market married deals and co-ordinated buying or selling of Links Island shares at the same time, which accounted for a significant portion of the market volume on certain days. Further, the closing prices of Links Island surged 231% during a two-month period between 20 June 2000 and 14 August 2000, compared with an 18% increase during the four months from its IPO to 19 June 2000. The Settlement Committee met to determine a "fair settlement" price for the shares, as provided for in SGX Rule 6.8.2 (1). On 2 August 2001, SGX announced that the Settlement Committee had determined a fair settlement price of S$1.21, which was the weighted average price of Links shares over the 3 trading days. The Committee decided on this formula as it knew of no better way of establishing a price that could be regarded as fair.
To comply with SGX-ST Rules and Bye-Laws, the settlement procedure had to ensure that all contracts be treated alike; that the contracts be cash settled and not completed by delivery; and that all contracts be performed at the "fair settlement" price. The Rules provide for cash settlement of market trades in a corner situation based on a fair settlement price. Further, settlement of all outstanding contracts by normal delivery would not be possible.
In arriving at the fair settlement price for Links Island shares, the Settlement Committee did not and could not favour those holding either a long or a short position in the shares. The Settlement Committee aimed to set a price that appeared on balance to be most equitable to all persons who transacted in Links Island shares during the 3-day period, and whose contracts are subject to cash settlement. The Committee recognized that, depending on whether investors held long or short positions and the prices at which they transacted, some would gain, while others would take a loss. As the Committee did not distinguish between persons who traded on the those days, the cash settlement must include persons currently under investigation by the Commercial Affairs Department, who may have had either long or short positions in Links Island shares.
Investors who trade on an exchange do so subject to the rules of that exchange. From time to time, investors may be affected by changes to terms of contracts forced by circumstances. Other exchanges are subject to similar rules. Under those circumstances, SGX and the Settlement Committee have to abide by rules prescribed in the SGX-ST Rules and Bye-Laws. Those rules govern, among other matters, issues pertaining to the suspension, trading and settlement when the market has been distorted by suspected manipulation or cornering. Within those constraints, SGX tries to operate a fair and efficient market.
