Greater regulatory independence: a difficult but necessary road

WHEN the possibility of having a listed regulator was first raised as a suitable model for the local stock market in the late 1990s, not only was it novel - it appeared to have plenty of appeal. After all, not only had other markets adopted it, but who better to police the universe of listed entities than one of its own?

The reasoning at the time was that a commercially-driven exchange vested with frontline regulatory powers would have its ear so close to the ground that it would be able to respond swiftly to the demands of the market, as well as detect transgressions and governance lapses quickly. This was to prove fine only in theory. As is often the case, theory is difficult to put properly into practice. For the 15 years the Singapore Exchange (SGX) has existed, following its formation and listing after the demutualisation of the Stock Exchange of Singapore and the Singapore International Monetary Exchange, it has struggled against a tide of mounting public scepticism over its ability to juggle its dual roles and to manage its conflicts of interest.

It didn't help that other jurisdictions, quoted as worthy of emulation when the market regulator model was implemented here in 2000, gradually shifted away from it and towards a model in which the regulator was independent of profit motives and, most importantly, seen to be independent. Faced with growing pressure to overhaul the local model, the authorities have responded. Separate, independent committees have been set up for listings and disciplinary purposes, and the SGX last month announced that it will, in the middle of next year, house all its regulatory functions in a wholly-owned subsidiary to be called RegCo, which will have its own directors who are not on SGX's board or that in any listed company.