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Public consultation on SGX market regulation review expected soon
Kenneth Lim
09 January 2014
An independent listing committee, tighter listing standards and stronger enforcement powers for the Singapore Exchange (SGX) are among the ideas that regulators are exploring in the wake of last October’s penny stock selloff, market sources say.
Those ideas are expected to be included in a public consultation that could open in the next few weeks in what would be one of the widest-ranging reviews of Singapore’s capital market rules since the global financial crisis, said sources, who declined to be named because of the sensitivity of the issues.
Parts of the review began before Oct 4, 2013, before stock prices for a number of companies collapsed to trigger rare intervention measures by SGX and an investigation by the authorities. But some of the issues raised in the Oct 4 selloff are also part of the current review.
Richard Teng, the newly appointed chief regulatory officer at SGX, told The Business Times: “As announced by MAS (the Monetary Authority of Singapore), MAS and SGX are conducting a thorough review of market structure and practices. The review is ongoing and we will consult the market on any proposed changes in due course. We seek your understanding that we are unable to share further details at this stage.”
An MAS spokesman reiterated this message.
One of the proposals expected to be put up for consultation is the creation of an independent listing committee whose approval will be required for certain listings.
SGX currently has an internal listing committee. Its regional rival, the Hong Kong bourse, is already using an external committee to approve initial public offerings (IPOs).
The idea of a listing committee drew generally positive responses from independent observers.
“Excellent idea, and the structure in Hong Kong would be a good model to start from,” said corporate governance advocate Mak Yuen Teen, associate professor at the National University of Singapore. “To ensure balanced views and independence, it is important for different stakeholders to be reflected in the composition and that the appointment of members and reporting of the committee can ensure independence.”
Wong Partnership joint managing partner Rachel Eng thought that the inclusion of industry viewpoints would allow more robust assessments of listing aspirants.
“I think it’s an interesting proposition,” she said. “Having representation from various quarters gives a balanced perspective to the listing process.”
Ms Eng thought that potential conflicts of interest were manageable, borrowing from existing mechanisms in panels like the Securities Industry Council and through strong selection processes.
“There are ways to handle conflicts,” she said.
Stamford Law director Ng Joo Khin said practicality will have to be considered.
“Another concern would be timing,” he said. “Is this going to make the review process shorter or longer? It can be a challenge to find mutually agreeable time slots among busy executives to meet together and to get up to speed on matters at short notice.”
The consultation is also expected to seek feedback on a number of changes to the listing and continuing listing framework, exploring issues such as minimum share price requirements.
An over-the-counter outlet, similar to the Pink Sheets in the United States, for companies that fail to meet the higher standards has been explored, sources said.
“I think it’s worth considering but the devil is in the details,” Mr Ng said.
“Pink sheets trading provides an alternative platform to companies which are unable to meet the continued requirements for continued listing on a stock exchange. On the other hand, let’s hope that the bar for continued listing will not be raised too high just because there is such an alternative.”
“We will need some governance mechanisms in place and perhaps strengthen shareholder protection rules if we are going with this structure,” she said.
Mr Ng felt that allowing dual-class shares was consistent with a caveat emptor philosophy, but stressed the importance of educating investors before lifting the gates.
“We should not be overprotective of minority shareholders,” he said. “Ensuring that the general public is sufficiently educated is important. The exchange can perhaps look at more public talks and discussions on the concept of dual-class shares and the implications of investing in companies with such capital structures.”
The proposals are also expected to look into the possibility of strengthening the sanctioning powers of SGX, including the way companies are queried on unusual trading activity in their shares.
That query system needs a relook, Prof Mak said.
“The current system of querying and the rather meaningless response by companies does not achieve much in terms of improving market transparency,” he said.
“This can be linked to giving more investigatory powers to SGX. At the moment, SGX queries a company, a company often says they know of nothing, and shortly after, some important transaction emerges. But currently, SGX is powerless to determine if the original response by the company was truthful.”
Overall, Ms Eng said it was always good to review existing regulations.
“I think rules should continually be reviewed,” she said. “The times are changing.”