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SGX - a convenient scapegoat

Top officials from SGX met with a sizeable group of trading reps (TRs) last week and by all accounts, it was a fiesty affair. There's a web posting which is now being forwarded via Whats App titled "Something Strange happened at SGX dialogue'' that describes events at that meeting - the exchange was accused of "cherry picking'' figures to show that the market isn't as sick as TRs claim, and complaints were made about how S-chips and poor quality listings have destroyed "wealth savings of friends and clients''. Criticism was heard about "years of mismanagement'' and calls were made for Singapore to develop a vibrant equities market which it apparently does not have.

Reading through this posting I cannot help but wonder - is SGX wholly to blame for everything? Yes the market is in the doldrums now but that's largely because emerging markets everywhere are similarly depressed. All Asian markets are down - and so is Wall Street - because of various macro factors that are beyond the control of local regulators and officials. Surely no reasonable person would suggest that officials here played a part in China's volatility, or US monetary policy, or the slide in oil prices?

 As for the more localised criticism, surely the blame for the S-chip scandal for example, rests not just with the exchange but also with the bankers, auditors, underwriters and lawyers that signed off on the accounts and passed them off as being investment-worthy? After all, all these parties also have a fiduciary duty towards the public; are we to believe that none of them should bear any responsibility and it's all SGX's fault?

Sure, the exchange opened its doors to these China stocks so it was partly to blame, but wasn't that what the market wanted?  Back in 2003-04 when the China story started to gather momentum, investors here demanded a piece of the action and so the exchange obliged as it should.  Everyone knew that the best China companies would naturally pick Hong Kong and Shanghai when listing, and that SGX was probably only getting second-tier firms but because the story was fresh and initial momentum was upward, nobody really minded.

It was only when things started to go belly-up three years later that the finger pointing started. Should SGX's screening have been better? Yes - there should have been greater consideration given to shareholder protection and recourse. We shouldn't allow foreign firms to list here whose senior managements can disappear once uncomfortable questions start to be asked. So yes, the exchange did play some part in eroding shareholder confidence when it comes to S-chips and yes, it has some answering to do.

But conveniently forgotten is that broking analysts covered many China companies and issued glowing reports to get clients to buy. Analysts and broking deal-makers enjoyed junkets paid for by these companies and their houses benefited from share placements by these firms. Volume surged during those heady days and so did incomes.  So when things go well it's due to the industry's efforts and the rewards are simply its rightful entitlement, but when things go badly, it's the authorities' fault? This doesn't quite add up, in my mind. 

In my last meeting with SGX a fortnight ago, I told them they are viewed as The Establishment, an entity that is easily attacked and is often the convenient scapegoat for blame. It's not fashionable to be pro-Establishment - imagine sitting around a table in a coffee shop with friends and saying "the SGX (substitute "PAP government'') has done a fantastic job running things, so we should all support them''.

I daresay there are much easier ways to earn the derision of one's friends and coffee shop acquaintances. Much easier to curse The Establishment - it is the popular thing to do, everyone will like you and after all, they do say that misery loves company. Interestingly, SGX knows this, and so is taking steps to address this - starting with last week's dialogue.

But here is  truth of the matter - the weak market is the shared responsibility of everyone in the eco-system, not just the exchange. It would serve the market's interests so much better if everyone recognise this and also contemplates their own roles and shortcomings in the market's functioning.

I realise after reading through this article that I may come across as an SGX apologist. Quite the contrary - I have spent the better part of my 23 years as a journalist as an exchange critic. So much so that I've been told that some in SGX view me with suspicion and perhaps a little trepidation. This is fine - everything I write is as per the dictates of my conscience and with as much impartiality that I can muster. There is no hidden agenda here - I write what I think needs to be said,

Finally, this needs to be said - critics should bear in mind that it is in SGX's interests if the market was vibrant and liquid since its own coffers, profits and salaries would rise in tandem. To suggest otherwise is absurd.