Materiality of Information under Rule 703(1) of the SGX Listing Manual – Revisiting the Peter Madhavan Case

Rule 703(1)(b) of the Listing Manual[1] obliges an issuer to disclose information it knows about itself, its subsidiaries or associated companies if the information “would be likely to materially affect the price or value of its securities”. The seminal Peter Madhavan case[2] sets out the following principles as to the information required to be disclosed under the rule:

• The word “material” must necessarily refer to information that is “likely to effect a significant change in the price or value of the issuer’s securities”. In other words, “materially price-sensitive information”.

• The impact of the non-disclosed information on the share price should be evaluated over a reasonable period of time and not just on the first trading day after the announcement is released.

• For a breach of Rule 703(1)(b) to be an offence under Section 331 read with Section 203(2) of the SFA, the non-disclosure must be intentional or reckless.

• There is a distinction between the test of materiality for non-disclosure under Rule 703(1)(b) and the test of materiality for insider trading under Section 218 when read with Section 216 of the SFA.

• For the purpose of the insider trading offence under Section 218 when read with Section 216 of the SFA, information is considered to have a material effect on the price of the securities, if it “would or would be likely to, influence persons who commonly invest in those securities in deciding whether or not to subscribe for, or buy or sell them”. In other words, “trade-sensitive information”.

• The scope of information required to be disclosed under Rule 703(1)(b) is narrower than the information required for insider trading under Section 218 read with Section 216 of the SFA. Rule 703(1)(b) applies only to information that would likely have a significant impact on the price or value of securities, and not to other types of information or trade-sensitive information (which may not have a material effect on the price or value of securities). As a practical matter, all materially price-sensitive information will also be trade-sensitive information.

Several observations can be drawn from the Peter Madhavan case:

• The focus of the non-disclosure offence is whether the information would likely result in a significant change in the price or value of securities, whereas the focus for the insider trading offence under Section 218 read with Section 216 of the SFA is whether the information would induce investors to buy or sell securities.

• The Court’s test for materiality of information for the non-disclosure charge was solely in the context of Rule 703(1)(b) of the Listing Manual. The Court was not asked to consider the test for non-disclosure under Rule 703(1)(a), which obliges an issuer to disclose information it knows about itself, its subsidiaries or associated companies if the information “is necessary to avoid the establishment of a false market in the issuer’s securities”.

• Paragraph 3 of Appendix 7.1 of the Listing Manual explains that for the purpose of Rule 703(1)(a), a false market may exist if information is not made available that “would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, or buy or sell the securities”.

As can be seen, the definition of a false market under the Listing Manual for the purpose of Rule 703(1)(a) is the same as the “trade-sensitive information” test for the insider trading offence under Section 218 read with Section 216 as described in the Peter Madhavan case.

In the Peter Madhavan case, the conviction for non-disclosure under Rule 703(1)(b) was set aside as the evidence did not indicate that the information was “materially price-sensitive” and “likely to effect a significant change in the price or value of the issuer’s securities”. The conviction for insider trading for one of the directors under Section 218 read with Section 216 in relation to the same information as the charge for non-disclosure, however, was upheld. While the evidence did not show it was materially price-sensitive (as the share price did not change significantly), it was nevertheless found to be trade-sensitive given the sharp increase in trading volume, indicating a substantial likelihood that the information would influence common investors in deciding whether to buy or sell.

In February 2020, SGX amended Practice Note 7.1 of the Listing Manual to emphasize that both materially price-sensitive information as well as trade-sensitive information must be announced. Rule 703(1)(a) (the requirement to disclose trade-sensitive information), and Rule 703(1)(b) (the requirement to disclose materially price-sensitive information), are clearly separate and distinct obligations.

In the 2022 Ngiam Zee Moey case[3], the District Court had the opportunity to consider the old version of Rule 703(1) of the Listing Rules (SESDAQ), as follows: “An issuer must announce any information known to the issuer concerning it or any of its subsidiaries or associated companies which is necessary to avoid the establishment of a false market in the issuer’s securities; or would be likely to materially affect the price or value of its securities”. The charge before the District Court was whether the information that was not disclosed “was likely to materially affect the price or value of its securities”, and proceeded primarily on the basis of the second half of the rule, i.e. the equivalent of the current Rule 703(1)(b). Using the test of materiality for Rule 703(1)(b) under the Peter Madhavan case, the District Court found that a significant impact on price was not established.

There are no reported Court cases that deal with Rule 703(1)(a) and the non-disclosure of trade-sensitive information. Being wider in scope than information which is materially-price sensitive under Rule 703(1)(b), the evidentiary burden for a breach of Rule 703(1)(a) may well be easier.

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[1] Which is an offence under Section 331 read with Section 203(2) of the Securities and Futures Act 2001 (SFA))

[2] Madhavan Peter v Public Prosecutor and other appeals [2012] 4 SLR 613; [2012] SGHC 153

[3] Public Prosecutor v Ngiam Zee Moey and others [2022] SGDC 115