SGX RegCo's tools to keep the investing game clean
When a company is listed on the Singapore Exchange (SGX), it is obliged to comply with the listing rules.
Singapore Exchange Regulation (SGX RegCo) has various regulatory tools to enforce them. A wide range of disciplinary sanctions are also available to deal with relevant persons who have breached the rules. "Relevant persons" comprise the issuer, its directors, executive officers and issue managers, and where a company is listed on Catalist, its sponsors and registered professionals.
Participants granted access to SGX markets are similarly expected to comply with the trading rules.
Unusual trading activities by any participant won't be left unaddressed when detected. Upon detecting material concerns in an issuer, SGX RegCo may use its regulatory tools to:
· Alert the market so that investors and shareholders can make informed decisions;
· Contain the situation by highlighting or managing immediate risks to shareholders' interests; and
· Ensure accountability of all relevant persons, either through SGX RegCo's disciplinary powers or by referral to the relevant authorities.
ALERTING THE MARKET
We will pose disclosure queries to relevant persons when a company fails to disclose all material information or has disclosed information which is incomplete or unclear. These queries may seek clarification by highlighting inconsistencies or gaps in the information disclosed, and require the relevant persons to make the necessary corrections. They may also require the issuer to substantiate information disclosed in announcements (such as financial results).
Disclosure queries may be communicated privately or published via SGXNet. The company will be required to publish its response to a private query via SGXNet when such information is material to the price discovery process or would enable investors to make an informed decision.
Trade with Caution
We may also issue a "Trade with Caution" (TWC) announcement to immediately warn the investing public of irregular price or volume movements where we have reason to suspect that a false market exists, and that the market is not operating on a fair, orderly and transparent basis.
Further, there can be no reliable price discovery where an issuer fails to disclose material information in an accurate, complete and timely manner. Such situations raise concerns on whether investors can buy or sell securities on an informed basis. When issuing a TWC announcement, we will provide details of the irregularities we have detected and our specific concerns.
CONTAINING THE SITUATION
Notice of Compliance
SGX RegCo may exercise its administrative powers by issuing a Notice of Compliance. Nine such notices have been issued since they were introduced in October 2015 as part of initiatives to strengthen our ability to enforce the listing rules.
Seven of these - to Datapulse Technology (twice), YuuZoo Corporation (twice), Noble Group, Midas Holdings and Emerging Towns & Cities - were public and two were private.
The notice contains requirements imposed on relevant persons that must be complied with. The requirements are definitive and calibrated to address the circumstances of each case.
For instance, a Notice of Compliance may be proactive in nature to contain certain risks and stop them from materialising into actual harm, or escalating into more serious breaches. And where developments suggest something or someone is preventing independent directors from carrying out their duties to safeguard investors' interest, we may take steps to remove the obstacle by issuing a notice.
Other requirements a notice may impose include the appointment of a third-party professional to review internal controls or an independent financial adviser to advise minority shareholders, the provision of specified disclosures to the market, or any other requirements which we consider appropriate. A notice may also convey our objection to the appointment of certain directors.
We will require the Notice of Compliance to be made public for the establishment of a fair, orderly and transparent market if necessary. In making this decision, we will consider, among other factors:
· Whether the risk has an immediate bearing on the decision-making of the investing public;
· The level of urgency in alerting the public of the risk and of SGX RegCo's measures to contain such risks; and
· Whether disclosure of the risk and SGX RegCo's measures provide transparency of the basis for our Notice of Compliance to the market.
Other factors such as the compliance track record and risk profile of the company receiving the Notice of Compliance, or the transactions contemplated, will also be relevant. We will also consider whether the publication of the notice is necessary to direct a company that has been tardy or demonstrates resistance in complying with our requirements, and to do so by the stipulated deadline.
A failure to comply with the requirements SGX RegCo imposes is deemed a contravention of the listing rules. We may call upon the authorities to intervene where a company blatantly disregards or persistently doesn't cooperate in complying with our notices, and if the situation is urgent.
The exercise of SGX RegCo's administrative powers in a particular case doesn't preclude it from subsequently pursuing disciplinary action against a relevant person for a breach of the listing rules or trading rules. Disciplinary actions require a due process; in keeping with the rule of law, we do not carry out summary justice.
A formal investigation must be conducted and the relevant person given an opportunity to respond and be heard. This will occur either in writing (known as a show-cause process) or a full hearing before our independent disciplinary committees and/or appeals committees when we seek the imposition of heavier penalties such as bans or fines.
Issue managers are included as relevant persons in our rules. Should breaches suggest concerns about the quality of due diligence since the original listing of the company, we have the powers to suspend the issue manager or to impose conditions on the work they can do.
Auditors and lawyers may not be relevant persons, but we refer them to their regulatory bodies for disciplinary action where necessary. Opinions, reports or work done by other professionals which are of concern to us are also referred to their regulatory bodies for action.
SGX RegCo has a range of regulatory tools at its disposal to enforce the listing rules and trading rules.
Some of these are pre-emptive or imposed within a relatively short time-span to put the company on immediate notice to safeguard shareholders' interest, while signalling to investors that rule breaches might have occurred and to factor this into their decision-making.
Other tools involve processes that may take more time such as a formal investigation and the convening of a hearing before the independent disciplinary and/or appeals Committees.
Regardless of how and when each of these tools is deployed, they have the common objective of reminding relevant persons of their duties and obligations to the market and the investing public.
The writer is chief executive of SGX RegCo. This is SGX's latest Regulator's Column, published on Friday.
TAN BOON GIN
13 April 23018