Thursday, May 7, 2020

SIA Rights - How traders loss all their money in SIA Daily Leverage Certificate through a bizarre price movement

SIA went ex-rights yesterday and there was some unusual and bizarre movement  in its share price wiping out  the total value of SIA  Daily  Leverage Certificate (DLC) 5 X Short which  has been suspended as the underlying price has appreciated more than 20% from their theoretical ex-rights price (TERP) of S$3.71 which means that losses are now in excess 100% for this leverage product. The value of TERP was derived by Soc Gen, the market maker for DLC using a methodology which includes the rights share component based on the issuance of approx. 1.78bn shares and the Mandatory Convertible Bond (MCB).
The retail investors who bought the SIA 5XShort DLC were the amongst the worst casualties, they lost all their investments.  They are crying foul because they had bought the SIA 5XShort DLC based on the TERP that was derived by SIA which amounted to $4.16 as at Thursday closing price of $5.91.
Investors who bought the 5Xshort DLC had bet that SIA could continue to be weak given the poor fundamentals as a result of COVID 19. SIA share traded in a weird fashion  yesterday from a low of 4.15 to a high of 5.05 before closing at 4.40 and strangely it had closed at 4.62 at 5 pm at the closing bell only to be was bashed down to 4.40 at the after hour matching of trade by a big block order.  These weird price action leaves traders scratching their head.
Investors are complaining that there is no transparency and no level playing field when there are an official SIA derived TERP at 4.16 and a TERP derived by Soc Gen at 3.71 which is not publish and retail investors have no privy to the information. Investors content that big gap in the TERP potentially opens the door to market manipulation because if someone had information that the TERP is at 3.71 and the markets perceives it at  4.16, it is obvious that the airbags for the DLC will easily burst resulting in the DLC being delisted. Fuelling more discontent , if Soc Gen had used the same official TERP at 4.16 investors will have sufficient time to exit their position and perhaps the airbags wouldn’t have burst.
One investor actually wrote to SIA Investor Relation and got this reply:
“With regards to your query, it would not be relevant to calculate the TERP based on MCBs prior to maturity given the nature and trading characteristics of both types of securities (e.g. no market quote/price for MCB prior to issuance compared to ordinary shares traded on an exchange)”
Soc Gen adjusted TERP 3.71 is significantly different from the announced TERP by SIA at 4.16 . Being a material difference, this should be communicated clearly to traders of DLCs on a timely basis before the ex-rights date. The significant difference in the adjusted price create a huge price disadvantage for those who are holding on the SIA DLC shorts while huge advantage to SIA DLC long.
What’s going here… its bizarre . At S$4.77 SIA  is even higher than the TERP price of S$4.16 base on a pre-ex-rights price of S$5.91. The S$4.77 price would indicate a pre-ex-rights price of S$7.44! WoW. Overnight, SIA’s price/share has increased from S$5.91 to S$7.44 which is an appreciation of 26%!
Many traders are asking me whether there was any conspiracy behind this weird price movement to flush out all the traders holding the shorts from the people who had privy information of the adjusted TERP at 3.71.  Frankly after having being involved in promoting DLC with Soc Gen and SGX since its inception,  I don’t think there is any malaise but someone must be held accountable for this confusion which has resulted in huge losses and loss of confident for derivative product listed on SGX.

All posts and charts are for educational and illustration purposes only

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