Sometime on the morning of 5 April 2005, two proprietary traders with CIMB-GK Securities Pte Ltd, Chua Siew Lian (Chua) and Siow It Loong (Siow) put into action a plan to make profits by rigging the traded prices of 16 Straits Times Index (STI) component stocks. They had observed that there was a close co-relation in the quotes of two Deutsche Bank issued STI derivatives, namely STI 2100 DB EPW050929 (STI Put) and STI 2200 DB ECW050929 (STI Call) (collectively referred to as STI warrants) with the changes in the value of the STI, i.e. when the STI rises in value, the bid and ask prices of the STI Call would rise in value while the bid and ask prices of the STI Put would fall in value. The STI is one of the most widely followed market indices for Singapore stocks and is used by many investors as a guide to the performance of the wider Singapore stock market. At the material time, the STI was a value or market weighted index which comprised 50 component stocks and each STI component stock affected the STI in proportion to its market value. During intra-day trading, the STI value is influenced only by the traded prices of its STI component stocks.
Chua and Siow's plan was to first take up positions in the STI warrants and then to trade in the STI component stocks with a view to causing the prices of these component stocks to rise or fall, as the case may be. In selecting the STI component stocks to trade in, Chua and Siow selected stocks with a higher weightage on the STI. They knew that their trades in these component stocks would contribute significantly to a change in the value of the STI. When the value of the STI changed, they knew that it was likely that the quotes for the STI warrants would be affected and accordingly revised. Thereafter, they would clear off their outstanding positions in the STI warrants at a profit. Their trades were executed in four distinct phases within a short period of 38 minutes between 11:23:27 and 12:01:42 on 5 April 2005.
The plan yielded good returns. At the end of the 38 minute period, Chua made a gross profit of S$10,000 from her trades in the STI Calls and incurred a loss of about S$1,348 from her trades in the STI component stocks. Siow, on the other hand, made a gross profit of S$7,000 from his trades in the STI Puts and incurred a loss of S$745 from his trades in the STI component stocks.
On 18 October 2006, Chua and Siow were each charged for conspiring to rig the traded prices of 16 STI component stocks. The accused persons claimed trial but mid-way through the trial, they pleaded guilty to two counts of offences each, with the remaining charges taken into consideration for the purposes of sentencing.
On 6 March 2008, the accused persons were sentenced to a fine of S$100,000 each. This case was the first in Singapore involving the STI. In his oral judgement, District Judge Francis Tseng was of the opinion that the impact of Chua and Siow's trades was limited and hence, a jail term was not necessary and appropriate and a stiff sentence in the form of a fine was high enough to have a deterrent effect. However, he warned potential offenders that they would be jailed if they did anything to shake the public confidence or manipulate the market.