SGX – Conflict of interests

Many in the industry have cried foul that SGX is compromising itself by holding the dual roles of regulator and of running the exchange as a profit making organization. The conflict of interests is so glaring that only when one is behaving like gods and infallibles that one would think otherwise. In this exceptional island, SGX is not the only place where conflict of interests were ignored as irrelevant and inapplicable. And this sad state of affair is going to continue unquestioned and unchallenged for as long as your life time if things did not change, if the political status quo remains as it is.

The underlying assumption is that this exceptional island is so blessed with very exceptional human beans that have impeccable integrity, honesty and are so honourable that you can believe they would not compromise themselves even if they assumed the roles of judge, jury and executioner. They cannot be compromised or are incorruptible! So to be the regulator to police any wrong doings in the exchange and also to run the exchange for profit with evident conflict of interests is a non issue. The duality of roles, conflicting roles, would not be compromised under the charge of infallible human gods, some admitted with a little humility that they were only mere immortals, not yet gods.

This morning I glanced at the SGX screen and found out that about 30 stocks have been suspended and about 20 of them were red chips. I have lost count on the number of red chips that had been delisted, with the owners run road.

Just a food for thought, what if the SGX did not take on the dual roles of regulator and operator of a profit making organization that it is supposed to regulate and police? This is hypothetical of course. Would SGX be allowed to bring in the numerous red chips and foreign companies and list them in the exchange given the hindsight that many had run road or about to run road and nothing can be done about it? And given this bad experience, would SGX be wiser and be more prudent and take lesser risk in allowing foreign companies, especially the kuching kurap companies, to list here when they have barely any control over them, no legal jurisdiction over them, barely knowing how they operate and the rule of law in their country of origin?

On hindsight, how many hundreds of millions or billions have been lost by the innocent investors as a result of the listing of these foreign shares that had run road or about to run road? How much money could have been saved or not lost if there was a stronger and more diligent hand policing the SGX and someone, hypothetically, took a position that such high risk adventures were not worth taking and forbid SGX from doing it and from continuing to flirt and solicit potential foreign companies to list in the exchange as every listing is money, income, revenue and profit to the SGX?

Are the risks acceptable risks, reasonable risks, bearable risks that losing millions or billions by the investors are justifiable for the pittance the exchange was and is going to get from such listings.

There is also the issue of integrity and soundness of the exchange in the long run as a solid institution where investors can park their money and invest safely. Would there be a difference if SGX was not allowed to take on the dual roles of regulator and operator of a profit making organization at the same time? Is it reasonable to question and to challenge the dual roles with conflict of interests by the SGX? Or should this be the normal, the right thing to do in this paradise ruled by gods or demi gods with impeccable and unquestionable integrity, that conflict of interests would never be an issue? Gods and demi gods are infallible, unlike ordinary human beans.

Would SGX be just a stats board, providing a service with unquestionable integrity and an uncompromising system that would not be subject to doubts, a sound financial system? Or would it be better to delink the dual roles to have another body policing the exchange while it continues to be a profit making organization that would make decisions for revenue and profits like before?