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SGX carrots for good compliance? One idea mooted is fast-track approval
REWARDING well-behaved companies with fast-tracked approval for corporate actions would be welcome, but how to actually implement such a scheme may need more careful thought, industry professionals said on Tuesday.
Those comments followed a Monday speech by Singapore Exchange Regulation (SGX Regco) chief executive Tan Boon Gin, who said that it might be time to consider "carrots" to entice companies to raise their corporate governance game.
"Time to market for corporate actions is always crucial, and the most important of these actions have to go through the exchange," Mr Tan said. "Now, we practise a risk-based approach, so it will come as no surprise that companies that have a poorer governance record fall into a higher risk bucket and their actions will attract greater scrutiny from us. However, there might be scope for us to turn this approach on its head and reward companies with a good track record, by either fast tracking their applications, or perhaps not subjecting their applications to review at all."
In response to queries by BT, Mr Tan said that the concept was still being developed.
"We already adopt a risk-based approach for our listed companies," he said. "What we are considering now is the possibility of fast-tracking of approvals after taking into account factors such as the compliance track record of the issuer as well as the quality of its submissions. We have not made up our minds yet and we are keen to hear the market's views."
SGX's official guidance on clearance of submissions is four to six weeks, although the time required can vary significantly, according to lawyers who spoke with The Business Times. For simple issues, or when companies are able to make a convincing case for expedited processing, the exchange has been known to give approval within one or two weeks. When cases are more complicated, the process can take a few months.
TSMP Law Corp joint managing partner Stefanie Yuen Thio said that while SGX was "quicker on the draw" than its Hong Kong rival, companies will appreciate the opportunity to cut down approval times even more.
"In a volatile business environment, time to market is everything," she said.
Eversheds Harry Elias head of corporate and financial services Claudia Teo said that a shorter approval time would reduce the risk of deals falling through.
"Sometimes because the review process takes up some time, opportunities are lost and the counterparties lose interest after having to wait some time for the convening of the shareholders' meetings and subsequent closing," Ms Teo said. "Or they walk away when companies tell them deal certainty is subject to SGX and shareholders' approval. In the world of business, time is of the essence and the faster a deal can move with greater certainty, the faster deals can be negotiated and closed."
Lee & Lee head of corporate Adrian Chan said that offering a lighter regulatory touch would also be more aligned with the spirit of a disclosure-based regime.
"I am supportive of this 'Green Lane' approach as it pushes the burden back on the issuers to confirm and take responsibility for the completeness of their disclosures," he said. "This is what it truly means to be a disclosure-based regime after all. If there are deficiencies in the disclosure process, nothing precludes the SGX from following up to pose subsequent queries for the issuer to answer publicly."
But how SGX will determine who gets fast-tracked is a matter that is likely to draw some debate. For instance, while Mr Chan argued for transparency in assessment to keep the differentiation above-board, Ms Yuen Thio was worried that companies that do not make the cut may be unfairly tarnished if their status was publicly disclosed.
There is agreement, however, that the criteria for fast-tracking should be applied equally and fairly for all companies, and not subject to existing stereotypes.
"The accreditation of various issuers needs to be able to stand up to scrutiny and defended," Mr Chan said. "It cannot be that the Temasek-linked companies get to enjoy the fast track as there is a presumption of good corporate governance standards applicable to them while the family-owned companies are treated differently. There needs to be a common yardstick that is objective and defensible."
There should also be recognition that different kinds of transactions and circumstances can pose different kinds of risks for stakeholders, Ms Yuen Thio said. "Ask what risk the proposed corporate action poses to shareholders, and whether there are conflicts of interest that require deeper regulatory scrutiny."
If Mr Tan's suggestion becomes reality, it could even set a precedent for other exchanges in the region.
Stephen Mok, an Eversheds Harry Elias partner in Hong Kong, said: "We do not have this fast tracking mechanism in Hong Kong. I think any initiative to try and create a more efficient market is always good. I would be very interested to see how this fast tracking works in practice in the Singapore market."*