Market discipline comes with its own caveats

THE Singapore Exchange's embrace of market discipline is encouraging, but the market regulator must also guard against overestimating the importance of stock prices and underestimating how painful it is for investors to punish a company.

Singapore Exchange Regulation chief executive Tan Boon Gin recently described market discipline as an effective tool to drive good corporate behaviour in a way that regulation could never match.

"The last two years have also showed us how the Singapore market can punish the share price of a company when there's a lack of confidence in a company's disclosures," Mr Tan said recently at Thomson Reuters' Asean Regulatory Summit in discussing whether to relax quarterly reporting requirements. "Market discipline has been imposed in a very public, aggressive and immediate way. This shows that the market is becoming more mature, and we can increasingly count on investors to play their part in enforcing a disclosure-based regime.