SGX launches consultation on dual-class shares

THE Singapore Exchange (SGX) could propose changes to the listing rules as early as the third quarter of this year if it perceives market "consensus" on the introduction of dual-class shares (DCS), the market regulator said on Thursday.

Those comments came as SGX launched a public consultation to seek feedback on whether to allow DCS structures on the stock exchange, and if so, what safeguards should be in place.

Citing the need to improve market vibrancy through regulatory innovation, albeit in a responsible manner, the exchange is exploring the possibility of introducing unique safeguards such as a "compelling reason" hurdle as well as mandatory sunset clauses that allow different share classes to be automatically unified when certain conditions are met.

The key proposals in the consultation cover three areas: additional listing criteria, safeguards against entrenchment and safeguards against improper expropriation.

The current proposal envisions DCS structures limited to new mainboard listings. SGX is considering imposing a minimum market capitalisation of S$500 million and a minimum total shareholding held by sophisticated investors equal to 90 per cent of the required public float.

The exchange is also considering imposing a "compelling reason" hurdle, which would be unique to Singapore, although what constitutes "compelling" has not been defined.

"There is no exhaustive list of reasons which are considered as compelling," SGX said, adding that the assessment should be done in a holistic manner.

To give ordinary-class shareholders an opportunity to undo a dual-class structure, the proposals also suggest limiting the voting differential between classes to 10 times; restricting the issuance of superior-class shares after listing to rights issues; and automatically converting superior-class shares to ordinary-class shares when they are sold or transferred, or when the owner manager who owns those shares no longer holds a management role.

SGX is also considering the possibility of mandating "sunset clauses", which would automatically unify the different classes of shares when certain conditions are met. For example, unification could automatically occur or be put to a vote after five years. SGX is seeking feedback on whether such a rule would work, what provisions could be used, and how to calibrate them. No other exchange with dual-class shares currently mandates sunset clauses.

There are also proposed safeguards against expropriation. SGX is proposing making compliance with the Code of Corporate Governance mandatory for DCS companies when it comes to matters of board composition and independence; requiring one-share one-vote in independent directors' appointments; mandating board risk committees; and requiring "coat-tail" provisions that ensure equal treatment in takeovers.

Taken together, those safeguards seek to limit the benefits of superior-class shares to a question of control, not market profits, SGX chief regulatory officer Tan Boon Gin said at a press briefing.

SGX is seeking feedback on these measures, but may not seek to adopt all of them together, SGX head of listing policy and product admission regulation Michael Tang said.

The consultation closes on April 17. If SGX decides to accept DCS listings, it will undertake a further round of public consultation focused on specific changes to the listing rules. That consultation, if it happens, is unlikely to take place before the third quarter of the year, Mr Tan said.