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 Sivanithysivan
17 October 2014
It is 15 months since the Singapore Exchange’s (SGX) most recent research initiative known as SERI ended in June last year. According to the exchange’s website, it is still “reviewing all options to enhance the level and type of research coverage for its listed companies”.
SGX may well decide (after its long- drawn review) to completely withdraw from any involvement in research coverage. This would not be a bad idea, considering that the funding and conflict-of-interest issues which plague any form of paid research programme had already relegated SERI to a minor (and possibly even unimportant) role in the minds of the investing public. For instance, how many brokers and retail investors know what SERI stands for? Or, for that matter, how many companies were under its coverage? (Answers: it’s SGX’s Equity Research Insights; and, when it ended, there were 49 firms covered.)
Not only did SERI suffer from low investor awareness, but in order to overcome claims of bias, it only required its sole provider for the 45 firms in its Structured Module, Standard & Poor’s (S&P), to produce essentially company information sheets with no investment recommendation.
So even though S&P’s output was fairly comprehensive and contained analysis and views on company fundamentals including discussions of industry prospects and the competitive landscape, its reports did not come with formal “buy” or “sell” calls.
The reason for this omission is most probably that under SERI’s predecessor - the SGX-MAS Research Incentive Scheme (S-RIS), which came into being in 2003 but was constantly revised afterwards - companies ended up paying an annual fee of S$13,000 a year (originally S$4,000 in 2003) to be covered by approved research houses.
But, to their dismay, they sometimes received “sell” recommendations. Because you cannot have a scheme that purports to be objective but only produces “buy” calls, and because firms were loath to pay for “sells” on their stocks, S-RIS lost its attraction over time, leading to its replacement by the no- recommendation SERI in 2009.
Herein lies the crux of the problem faced by the exchange: a research report that does not carry a formal recommendation is arguably of limited use since most of the information would then be largely factual and thus obtainable from the companies themselves, or from news reports and the Internet.
By the same token, “buy” recommendations when companies themselves have paid for the research lead to accusations of bias and detract from the value of the reports, while “sell” recommendations aren’t received well by paying firms, who may then decide to stop paying.
It’s therefore not surprising that, just like S-RIS, SERI did not take off as hoped. This is the situation today: the difficulty in finding a workable, amply funded model that is objective and that would be widely accepted even if “sells” are issued is perhaps why a replacement has not yet been announced after such a long time.
On the one hand, the argument in favour of finding a workable successor to SERI is that there are dozens of lesser-known firms which could benefit from greater public awareness and that, if there was more interest, there would be more liquidity.
On the other hand, the case against SGX persevering is that not only has there been an 11-year period of mediocrity but few investors would bother if only corporate fact or information sheets are produced; any programme which only produced largely factual information would sooner, rather than later, see public interest fading.
Taking into consideration the issues in what appears to be a largely insoluble problem, it’s hard to justify continued SGX involvement as any kind of paid research programme will surely run into the same obstacles discussed above.
The idea of SGX helping provide research coverage for its lesser-known listings was grand and ambitious when it was mooted in 2003. But, after 11 years of trying, perhaps the time has come to admit it’s a lost cause and scrap the idea.