TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
Comments
R Sivanithy
11 January 2014
The proposed changes reported in The Business Times on Thursday (“Independent body for listing mulled”) in response to the penny-stock crash last October all look good on paper. They include the setting up of a listing committee, tighter listing rules and greater enforcement powers for the Singapore Exchange (SGX).
Will their introduction lead to better companies listing here, higher governance practices and greater investor protection? In theory they should. After all, who could reasonably argue with more screening and regulatory layers aimed at raising the governance bar?
Theory, however, is only one side of the governance coin; practice is less straightforward.
Throughout the SGX’s 13-year history as a listed entity, it has had to periodically fend off criticism of its dual role as a profit-maximising regulator. When controversy erupts which provokes claims of lax regulation, the exchange has had to justify its structure and remind the market that there are enough checks and balances in place to ensure its regulatory standards have not been compromised by its profit-making activities.
The problem is that these efforts at defending the status quo have largely fallen on deaf ears. Widespread scepticism that was there from Day One still exists today and, judging by the public’s response to the penny-stock collapse last October, appears to have grown over the years instead of receding.
This is the elephant in the room that will not go away and keeps surfacing ever so often, the one that officialdom appears reluctant to tackle and which is possibly the biggest hindrance to credible regulation of the stock market - the perception that regulation is weak because the frontline regulator is profit-driven.
You can revamp the rules over and over again, try to use the utmost moral suasion to get companies to adhere to a well thought out Corporate Governance Code, set up independent listing committees and have the most comprehensive entry requirements, but if the perception is that the underlying disciplinary/regulatory framework is fundamentally conflicted to begin with, all those efforts will probably end as exercises in futility.
Other jurisdictions have recognised this and have taken steps to separate the two roles. Australia, for example, acknowledged that the dual-role model breaks down when the incumbent exchange faces competition. Five years ago, its government agreed to give Nomura’s Chi-X a licence to run a competing stock exchange, then passed legislation to transfer regulatory powers from the Australian Stock Exchange (ASX) to the ASIC (Australian Securities and Investments Commission).
In 2009, it gave ASX two years’ grace to streamline itself and gear up for the entry of the competitor, and in late 2011, Chi-X started operations. Chi-X now accounts for 25 per cent of daily market volume.
Clearly, even if the Singapore market is seen as not being big enough to accommodate two competing stock exchanges, the fact that the monopolistic, dual-role framework for the incumbent fails when competition is allowed should be good enough reason to force a rethink of the existing arrangement.
However, if the status quo is still preferred and is here to stay, then the only way to establish credibility that would go some way towards tackling the elephant is to have much stronger enforcement and punishment for market misbehaviour than what is currently practised.
This view is not new and has been highlighted many times before in this column, but what is new is the recommendation that SGX be given disgorgement powers, ie, the power to demand that wrongdoers disgorge profits made from illegal activities, money which is then placed in government coffers or even perhaps given to charity.
Disgorgement may not help victims of market-manipulated trades, but it does at least ensure that perpetrators of manipulation cannot escape with their profits.
There should also be a hard rethink of the way companies here are queried on odd price movements. Instead of being reactive, there is arguably a need for greater proactiveness - for example, if a company is persistently loss-making yet its shares keep rising, surely it would be reasonable to ask why and perform checks on who is buying, instead of waiting to dispatch a query only after there is a sharp price movement.
(One dealer has suggested that rather than ask companies whether they have any knowledge as to why their shares are in play, it would be better to ask whether they know if their shares have been cornered and are being ramped by syndicates. Worth considering?)
Having stronger and swifter deterrent action is the best way to complement the other measures being considered, if only to help quell disappointment that the 13-year old elephant in the room appears unlikely to go away anytime soon.