Where should the line between profit and regulation be drawn?
This column on Dec 15, 2015, titled "Boosting
liquidity: fundamental rethink needed", stated that it would not be an
exaggeration to describe conditions in the local stock market at the time as
extremely dire, possibly the worst they have been since the US sub-prime crash
of 2008.
Comments
R Sivanithy
28 October 2016
This column on Dec 15, 2015, titled "Boosting liquidity: fundamental rethink needed", stated that it would not be an exaggeration to describe conditions in the local stock market at the time as extremely dire, possibly the worst they have been since the US sub-prime crash of 2008.
"The Straits Times Index is down 15 per cent for the year, which is bad enough, but perhaps more troubling is the steep drop in liquidity with daily averages now regularly below S$1 billion, the bulk of this being generated by trading in the 30 index components," it said.
On May 26 this year, in this column headlined "Even if it's different this time, efforts to rebuild trust in stocks must continue", it was stated that from the time 1,225 trading representatives (TRs) signed a petition to the Finance Minister in January 2015, conditions had steadily worsened - daily volume when the petition was written was around S$1.4 billion, in May it regularly fell below S$1 billion.
Factors at play
A further five months have passed and there has been no improvement; if anything it would be hard to disagree with the many TRs who assert that conditions have worsened further, or the long-held view that the state of the local stock market is the worst it's been in at least 20 years.
Many of the likely external factors at play are well known - weak oil and commodity prices, a slowing China, higher US interest rates and the frightening prospect that the next US president and leader of the free world could be a reality TV personality with orange hair, roaming hands and the attention span of a five-year-old.
Identifying internal factors though is not as straightforward, though there seems to be a common thread that runs through suggestions for improvements.
Before delving into this though, it is worth stating that the local economy is still undergoing restructuring pains, labour remains tight as is manufacturing, and productivity gains in the past few years have been meagre.
Even though there is an argument that the stock market and the economy often follow divergent trajectories, there is an undeniable sense that this time the two are more closely married than in the past and that the Singapore economy's slowdown is being reflected in daily stock market trading.
Having said that, there is also criticism from market observers that the authorities have over-regulated the market to the point that:
a) traders are so worried about breaking the rules here that they have abandoned the market in favour of nearby markets, most notably Thailand (where there is the added attraction of a lunch break); and
b) satisfying all listing requirements has raised compliance costs to prohibitive levels that companies simply either don't want to list or are finding it too expensive to remain listed.
As in the debates concerning quarterly reporting and dual-class shares, it appears that the point of contention is where the line separating profit from governance should be drawn.
Commercially minded brokers, corporate finance professionals and all those associated with the industry would like to see a drastic loosening of regulation to make things "more business and market friendly", while governance and shareholder rights supporters would disagree and insist that a disciplined, well-regulated market is good for business.
Moreover, many rules came into force in response to the Lehman minibond fiasco of 2008 and are motivated by a need to prevent a repeat.
The fundamental question therefore that the Singapore Exchange (SGX) and the Monetary Authority of Singapore will have to ponder is this: What kind of market do we really want? One where being business friendly and having looser regulation holds more importance, or one where strict discipline, governance and preservation of shareholder rights take precedence?
Granted, the two positions are not mutually exclusive in all areas and suitable middle grounds can be found. It will not be easy juggling the different interests and arriving at solutions, but arriving at them quickly is a must, because conditions in the local market are more than just dire - and look set to only worsen in the months ahead.