Tuesday, 26 January 2010
SGX tweaks to listing rules lack solid bite
For the umpteenth time in its nine-year existence, the Singapore Exchange (SGX) is tweaking its Listing Rules. Announced yesterday, the proposed changes - which are open to public debate and feedback - fall well within the scope of the existing disclosure-based governance framework that has been progressively installed over the years since deregulation a decade ago. Which is fine - if you subscribe to the view that all it takes to ensure the marketplace is properly governed are periodic fine-tunings and that caveat emptor or ‘buyer beware’ should still reign supreme.
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SGX tweaks to listing rules lack solid bite
By R SIVANITHY
10 December 2009
For the umpteenth time in its nine-year existence, the Singapore Exchange (SGX) is tweaking its Listing Rules. Announced yesterday, the proposed changes - which are open to public debate and feedback - fall well within the scope of the existing disclosure-based governance framework that has been progressively installed over the years since deregulation a decade ago. Which is fine - if you subscribe to the view that all it takes to ensure the marketplace is properly governed are periodic fine-tunings and that caveat emptor or ‘buyer beware’ should still reign supreme.
The problem is that the events of the past two years have painfully exposed the gaping flaws in this view. No matter how cleverly or prudently the rules are constructed and fine-tuned, the profit-maximising imperative of the many interested parties connected to the equity market will frequently mean that public interest is compromised, whether it is via inadequate disclosure, shady accounting, or outright fraud. Which is why it is hugely disappointing to see no discussion of the necessarily hard penalties for parties that fail to adhere to the rules.
Granted, the latest changes do include welcome additions to the rulebook. For one, the move to force shareholders to disclose pledged shares would go a long way towards avoiding another fiasco such as that suffered by shareholders of Jade Technologies, who were shocked to discover that the company’s major shareholder had not only pledged his shares to an Australian broker but that those shares had to be force-sold once that broker declared bankruptcy.
It’s good to see that SGX has not acceded to a ridiculous call forwarded by some observers that pledging arrangements involving major shareholders should be construed as private affairs and therefore not subject to any disclosure. Instead, the exchange has seen through the flimsiness of these objections, recognised the materiality of such arrangements and has acted correctly to protect the market’s interests.
Also welcome are moves to allow the SGX leeway in taking action against key company officials such as chief executive officers and directors, as well as the requirement to require companies to reveal if there are any irregularities that need to be disclosed if a key accounting person resigns.
But where is the teeth needed to enforce these rules? Where are the painful penalties that would ensure companies that fail to play by the rules pay a price?
If, for example, the exchange disagrees with a key appointment or if these officers have breached the rules in any way, all SGX is proposing is a public censure, an action which in any case is already available under the current regulations and can hardly be seen as offering a major deterrence. How many readers, for example, can recall the last public-listed company to receive a public censure because of a breach of the disclosure rules?
A big problem - and one that has been highlighted many times before - is that SGX does not possess sufficiently stern enforcement powers. Apart from public censures (surely by now, it has done away with the feeble private censure as a regulatory tool) and the threat of delisting - which can also hurt minority shareholders in the process - there’s little more it can use to police listed companies.
What the authorities need to do is to complement SGX’s periodic tweaks of its Listing Manual by granting the exchange greater and more far-reaching powers to penalise companies that break the rules. The most effective means would be by monetary fines, possibly along a progressively increasing scale. In extreme cases, SGX should even be granted the power to unilaterally suspend trading in a company’s shares, if it sees fit.
Cynics might remark that giving SGX more enforcement teeth is an exercise in futility, at least as long as it operates as a profit-driven market regulator.
That discussion about the exchanges’s dual role has been been ongoing for years and no doubt will continue to polarise opinion for many more years to come. Suffice to say it is still to be satisfactorily resolved but until it is, it’s worth noting that all the best-intentioned amendments in the world will only have minimal impact if not accompanied by the requisite disciplining rod.
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