THE lot of a retail trader in the initial public offering (IPO) food chain is often a thankless and fruitless one.

Even in good times, he is virtually last in a long queue, having to rely on ATMs to try to get a few thousand shares out of the measly public tranche currently on offer.

And in bad times, he may suffer gaping financial wounds, as he is allocated far more shares than he bargained for when he applied for them.

But in recent years, at least there has been the consolation that the playing field is becoming more level, as the Singapore Exchange (SGX) actively promotes its 'disclosure-based' regime.

Retail investors now get more information from companies going public and from merchant banks acting as IPO managers to make informed investment decisions.

These include fairly comprehensive breakdowns on the number of investors who participate in the placement tranche, now accounting for the bulk of shares being sold at the IPO, as well as disclosures of any big investors who buy into the new listings.

Against this background, it is with alarm that some traders are viewing global investment bank JPMorgan's disclosures on a recent IPO it managed - Hyflux Water Trust.

They see it as an attempt to roll back a key concession on disclosure over the years.

In a radical departure from the now routine procedure of giving details on the number of shares taken up by the manager itself and separately listing those taken by its clients, JPMorgan lumped all the purchases into a single disclosure.

This makes it impossible to tell how many shares JPMorgan owns and how many shares its private bank clients have bought.

Some will argue that JPMorgan is acting well within the guidelines laid down by the SGX, which requires an IPO manager to disclose only combined interests in a new listing taken by it and those parties related to it.

It is at the discretion of the IPO's book-runner - in this case, JPMorgan - to decide how it wants to make its disclosure, so long as this is within SGX guidelines.

And JPMorgan's responsibilities lie - first and foremost - in protecting the confidentiality of its clients who may be upset to find their names in the public domain.

Bad precedent

BUT others argue that while JP Morgan's move is well-intentioned - preserving client confidentiality - it is establishing a bad precedent for the Singapore IPO market, if others scale back on their disclosures as well.

What would prevent an errant IPO manager, for instance, from disguising a lack of interest in an otherwise lacklustre new issue by making a big application to give the impression it is well-received by investors?

This is as good as creating a 'false market' for the IPO, but it would be impossible for retail investors to tell the difference.

Not that such behaviour is without precedent.

Older readers will recall the massive ruckus kicked up eight years ago by the investing public, after UOB Asia was discovered to have ramped up the subscription rate to 1.3 times for the public tranche of an IPO - eWorldofSports (eWos) - with its own application of 10 million shares.

One observer said with the benefit of hindsight, retail investors at least had the benefit of UOB Asia's disclosure to make informed decisions, since the details were disclosed fully in its IPO balloting announcement on eWos.

UOB Asia also had to disclose the 18 million shares it took up as an underwriter because of poor demand from investors for placement shares.

Under similar circumstances now, an IPO manager may just take the easy route out by lumping all the purchases under a single disclosure.

There will be no way to tell how many shares are owned by each party - including any shortfall the IPO manager would have to disclose that it is taking up as an underwriter because of a lack of demand.

Surely, the yardstick used to judge UOB Asia those years ago should also apply to all merchant banks now, without exception, the observer argued.

It is against this backdrop featuring a scaling back of disclosures on IPO allocations that the market is witnessing the birth of a new board at the Singapore Exchange - Catalist - to replace Sesdaq.

As pointed out earlier, Catalist's biggest target group of investors are likely to be retail traders who may have a bigger appetite for the young, promising firms making a beeline for the new board because of its lighter regulatory touch.

Catalist's birth is likely to be difficult enough, given the trust it needs to build up among the investing public amid volatile market conditions.

And the sponsors - merchant banks, law firms and accounting practices - ushering companies through their listing route and mentoring them, while they are listed on Catalist, will have their work cut out for them establishing their own credibility among investors.

Let's not make things more complicated by having a controversy over the disclosures that IPO managers have to make over their take-up in new issues.

This will only make retail investors - so crucial to the success of any public issue - more cynical about IPOs.

The playing field for investors in the IPO games should be levelled further, not made even less. Too much is at stake for the SGX when the wider implications of JPMorgan's move are taken into consideration.

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