SGX RegCo seeks to revise listing rules for more power, enforcement

SINGAPORE Exchange Regulation (SGX RegCo) is seeking to revise the listing rules for more powers to deal with potential misconduct and to protect shareholder interest, especially in the area of interested person transactions (IPTs).

Chief executive officer of the frontline market regulator, Tan Boon Gin, told The Business Times that the objective is to ultimately "secure faster enforcement outcomes and provide clarity to the market". Enforcement actions are important both to punish and to deter bad behaviour.

"We have been formulating a plan to overhaul our enforcement policy, framework and actions. This is targeted to be presented and consulted on next year," he shared.

"The changes will include the structure and terms of reference of the Listings Disciplinary Committee (LDC) and the Listings Appeals Committee (LApC). We will also address the impact on minority shareholders when companies are fined."

Mr Tan, who has been helming SGX RegCo since its inception in 2017, said the new proposed enforcement approach would apply equally to issue managers and sponsors.

"We are raising standards expected of issue managers and sponsors especially when it comes to initial public offers (IPOs) due diligence and the managing of conflicts of interest."

"The listing rules will be revised to give us more powers to deal with potential misconduct and protect shareholder interest, especially when it comes to interested person transactions," Mr Tan added.

In 2015, the independent LDC was set up to improve transparency of SGX's disciplinary process and ensure fair and independent administration of sanctions, resulting in the separation of the investigatory function, which continues to be led or directed by SGX, from the adjudicatory function, to ensure impartiality and due process. The committee hears formal charges brought by SGX against parties who are alleged to have breached listing rules and is empowered to impose regulatory sanctions for breaches. These parties will include issuers, directors, key executive officers and issue managers.

The independent LApC was put in place at the same time to provide an avenue of appeal for parties against whom the LDC has imposed sanctions; and issuers against certain regulatory decisions by SGX. This is to ensure due process and transparency of the disciplinary process, and to provide parties with an independent avenue of appeal.

Mak Yuen Teen, an associate professor in the NUS Business School who teaches corporate governance and ethics, noted that so far this year, there has not been a single public disciplinary action taken by the disciplinary committee.

"The issue of conflict of interest involving committee members is a concern that should be addressed," said the professor.

He also pointed out that following the enhancement of powers a few years ago, not a single company has been fined, "public reprimands remain rare, and this is especially so for independent directors who seem to get a free pass in Singapore when things go wrong".

For greater clarity in the responsibilities of SGX RegCo and the Monetary Authority of Singapore (MAS), Prof Mak maintains that there is a need to separate the regulatory roles through the establishment of a separate securities regulator like the US Securities and Exchange Commission (SEC).

Under the MAS-SGX regulatory model, the statutory and market regulator each have their distinct role but also share the responsibility to ensure sound functioning of the capital markets.

Prof Mak, too, sees a need to review the SGX Catalist regime of sponsors and their responsibilities. He fears the rules governing conflicts of interest of sponsors under the Catalist regime are weak because there are really few practical limitations on the types of other services they can provide or how much they can earn from those other services.

"With such conflicts, we cannot place much reliance on continuing sponsors supervising the Catalist companies, effectively being the frontline supervisor for these companies. If external auditors are failing in their jobs despite the safeguards, why should we expect sponsors to fare any better?" he said.

As companies have found it easy to navigate around the letter of the rules, Prof Mak suggests that the rules on mandatory general offer be enforced by the Securities Industry Council (SIC) based on spirit of the takeover code as it was intended.

"I hope we will hear what SIC is doing on the Chip Eng Seng case, or is it nothing?" he asked.

The SIC, which administers Singapore's takeover code, is looking into the circumstances that saw billionaire couple Celine and Gordon Tang emerge as substantial shareholders of Chip Eng Seng in October last year.

Issues of concert parties, partial sales, payment of a high price, independence of directors and corporate actions like the rights issue seen in Chip Eng Seng need to be scrutinised, the professor said.

Stefanie Yuen-Thio, joint managing partner at TSMP Law Corporation, welcomed RegCo's review, but suggested that the law should also be changed to put more enforcement power in the hands of minority shareholders.

"The regulators keep saying that retail investors should not expect the government to bail them out when corporate failures happen, and that they should arm themselves with more investor knowledge so that they invest in securities of the appropriate risk profile. All that is true.

"But when things go bad, such as when there are defalcations by top executives, or the board has been derelict in their duties, let's empower minorities to go after them. They should have access to company information in order to evaluate and take legal action, and the ability to start class action lawsuits," she said.

For Mrs Thio, the recent consultation paper on scrapping the minimum trading price rule signals an openness of the regulators to do a 180 degree turn when a listing rule is not working or is resulting in unforeseen negative outcomes.

"That sends a strong message that the SGX is not afraid to reverse tack when it's the best thing for the market - a mature and confident signal," she added.

Angela Tan, Business Times