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SGX set to review mandatory quarterly reporting
THE Singapore Exchange (SGX) on Thursday revealed its readiness to review its mandatory quarterly reporting (QR), a move which could cut compliance costs by the second-half of this year for the 240-odd companies currently required to do so.
On Thursday, the regulator sought feedback on whether to retain QR, which it implemented in 2003 for listed companies with market capitalisation of above S$20 million, and subsequently raised to S$75 million. If removed, listed companies need only report their interim and full year results.
"There have been changes in the international landscape. The United Kingdom and European Union have done away with quarterly reporting," Tan Boon Gin, chief executive officer of SGX Regulation, told the media.
"Stakeholders including investors, have also expressed concerns about compliance cost. We have weighed these concerns and international developments in coming up with our proposals on possible changes to quarterly reporting," he added.
Currently, companies with a market value of at least S$75 million are required to report their results on a quarterly basis. That's 70 per cent of the 750 companies listed on SGX.
If QR is retained, SGX is suggesting to raise the threshold to S$150 million. This will mean only 38 per cent of companies listed on SGX will have to do QR.
"An increased market capitalisation threshold serves to address concerns for smaller companies as it recognised that QR is relatively more costly for them,'' it said. Companies whose market values fall below the threshold may apply to the exchange to stop QR.
SGX acknowledged that while the new threshold might be perceived as arbitrary, "we have suggested this threshold to strike a balance between the costs and benefits of QR".
Another option proposed is to require companies with market value of S$150 million and a shareholder with at least 15 per cent stake to report results quarterly. Minority shareholders of a listed company can also vote to opt out of quarterly reporting every three years.
"Each of the different quarterly reporting approaches has its benefits. Allowing minority shareholders to decide whether or not a reporting company can opt out of QR is guided by concerns about investors' lack of access to management,'' Mr Tan explained.
To ease the reporting burden of companies, SGX has proposed to simplify the format of the first and third quarter reports by cutting back the content. If adopted, Q1 and Q3 reports will only reflect balance sheet, income statement, cashflow statement, review of performance commentary of significant trends and board confirmation. Items that are deemed unlikely to fluctuate on a quarterly basis like share capital, accounting policy and financial indicators will be omitted.
If adopted, SGX expects to implement a new QR requirement in the second half of this year.
Ernest Kan, deputy managing partner (markets) at Deloitte in Singapore, said the question remains on whether QR is relevant for the remaining 280-odd companies that fall under the new S$150 million threshold. This is particularly since the key directors and shareholders may already have access to monthly management reports, he said.
"If we look to the major markets such as the EU and UK which have abolished quarterly reporting since 2013 and 2014, respectively, as well as Hong Kong, which has previously attempted to implement quarterly reporting for the Mainboard but was unsuccessful, perhaps that is a good learning point and reference for our local market," Dr Kan said.
While welcoming the possibility of letting minority shareholders decide on QR, Robson Lee, a partner at Gibson Dunn & Crutcher LLP, warned there is still a need for periodic financial updates by companies facing severe financial problems or a protracted business downturn like those in the oil and gas space.
"At the end of the day, a judicious balance must be achieved for the Singapore market on the appropriate timeframe and frequency of financial disclosures for MainBoard and Catalist companies," Mr Lee said.
SGX Regco chief believes that steps have been taken to strengthen the continuous disclosure regime including launching a guide to help companies manage confidential information and proposing more disclosures in areas of concern.
"These help address the information asymmetry between controlling and minority shareholders,'' he assured.
Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, highlighted potential challenges in implementing the new threshold.
"Arguably, it is even more critical for shareholders to receive frequent financial updates if the company (previously valued above S$150 million) has fallen below the threshold due to worsening performance. It would be important to fine tune the regulation in these situations accordingly,'' Ms Thio suggested.
Irving Low, head of risk consulting at KPMG in Singapore, was concerned that the change might give less visibility to institutional investors.
"That said, the lack of visibility of their financial data may also mean that smaller caps could take a longer time to attract the right institutional investors. So, the onus is on them to develop more active and timely investor relations that communicate their tangible and intangible growth."
David Gerald of the Securities Investors Association in Singapore, agreed.
". . . in today's advanced accounting systems and processes, management can get real time updates to track the health and performance of the business,'' Mr Gerald said.
"Thus, we do not expect much difficulty in companies to engage shareholders on an on-going basis."