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OUTLOOK 2020

Targeted approach to market regulations to continue

SGX RegCo will also reward listed companies with a good history of compliance and corporate governance standards

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"It is not about heavy or light, it is about the right touch," says RegCo CEO Tan Boon Gin.

Singapore

SINGAPORE'S stock market watchdog, responsible for ensuring the 700- plus listed firms here play by the rules, intends to continue its targeted approach to market regulation next year, and promises more carrots for listed companies which are well-behaved.

In a recent interview with The Business Times, Tan Boon Gin, chief executive officer of Singapore Exchange Regulation (SGX RegCo), said: "It is not about heavy or light, it is about the right touch. We intend to continue with our targeted approach. That's the most important thing."

SGX RegCo, which took over the entire regulatory function of Singapore Exchange (SGX) in 2017, does not want to introduce any unnecessary regulations that will burden the markets.

"In fact, if we feel that it is unnecessary, we will get rid of it. But we will always make sure that the problems are being tackled by regulations that are carefully tailored to deal with the mischief we have identified," he said of the RegCo's more surgical risk-based approach.

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Mr Tan, who held the role of SGX chief regulatory officer before the creation of SGX Regco, hopes to further incentivise the top-end of the market with an enhanced Fast Track Version 2.

The SGX Fast Track programme was launched in April 2018 to reward companies which have a good history of compliance and corporate governance standards.

Firms, which make the list, enjoy faster processing times for submissions such as circulars and share issuance applications, while those with poor compliance records will be subject to increased scrutiny.

Efforts to respond in a timelier manner to potential cases of corporate malfeasance have also been made.

"If you look at the progress we had made to fight manipulation, I believe we have really made a lot of progress there. If you look at corporate governance in general, I think there is much greater awareness now that this requires a community effort. I really see everyone stepping up. I think that's a very positive development,'' Mr Tan said.

Tools used to deal with manipulation risk such as its "Trade with Caution" (TWC) alerts have been sharpened beyond stating that signs of a potential false market had been spotted to discourage retail investors from entering these stocks.

Accounts involved in unusual activities can be restricted, thus, foiling plans of those behind the wrongdoing.

Take the example of Mirach Energy. The RegCo issued one TWC, then it issued the second TWC, flagging that a small group of individuals was responsible for nearly 90 per cent of the buy volume of the stock over a period of about a month.

Together with the second TWC, the RegCo suspended the related trading accounts that it had identified. On Dec 3, the RegCo rejected attempts by Mirach to exit the watchlist under MTP due to concerns over irregularities.

Similarly, its Notices of Compliance have been "increasingly aggressive".

In a notice of compliance issued to Best World International, the front-line regulator required the special auditor, PwC, to report its findings directly to the RegCo. The beauty product seller is being investigated for potential breaches to listing rules, among others, following damning reports by two separate short sellers.

In the case of Camsing Healthcare, a distributor of health foods and supplements, the RegCo issued a notice of compliance stopping the independent directors from resigning en masse, and demanding detailed explanations from each on their resignation when audit matters have yet to be resolved.

Come 2020, the market can expect several changes including the need for quarterly reporting, scrapping the minimum trading price (MTP) and an enhanced retail bonds framework to better support retail investors when an issuer defaults.

There will also be the launch of SGX's whistle-blowing office together with the publication of the regulator's whistle-blowing policy, a proposed codification of its expectations of property valuers, and the enhancement of new rules governing issue managers in all matters to do with an inital public offering (IPO) that they sponsor.

"What I am really hoping for is higher standards, good behaviour from market participants, vigilance by our professionals," Mr Tan said.

"I think we need to acknowledge that it is impossible to legislate for everything. So, I am really hoping that we will observe the spirit rather than the letter of our rules. I hope the market recognises that if we don't do this, then market discipline will kick in and punish the share price,'' he added.

This year has been another busy year for the RegCo, which made several significant regulatory developments as it continues the march to raise standards across the board.

On July 11, 2019, the regulator announced two long-anticipated changes to the voluntary delisting rules, which came into immediate effect: exit offers and other delisting transactions must be both reasonable and fair, and it must be approved by 75 per cent of shares held by independent shareholders. Offeror and concert parties are barred from voting on the voluntary exit offer. The 10 per cent block provision has been removed. It used to be that the delisting resolution could be vetoed if 10 per cent of all shares voted against it.

"This is in response to Vard Holdings. We think that with these changes, we are going to have better outcomes for minorities when it comes to delistings,'' Mr Tan said.

Many minority shareholders of Vard had felt then that the exit offer by its major shareholder was made opportunistically - at a time of a cyclical slump for the shipbuilding sector. The independent financial adviser (IFA) paid for by Vard had described the exit offer as "not fair but reasonable", and advised shareholders to accept it.

SGX RegCo has been busy working with auditors to raise their game. It now requires all listed companies to appoint a Singapore-based auditor.

"If you look at the number of companies remaining that do not have a Singapore-based auditor, it is actually quite small - about 15-20 companies left after we announced the changes,'' Mr Tan shared.

SGX RegCo has proposed a new power to require the appointment of a second auditor, on top of the existing statutory auditor, but only in exceptional circumstances. It has also been playing a more direct role in the year-end audit of potentially problematic firms.

The regulator worked with the Securities Investors Association (Singapore) or Sias, and the Singapore Institute of Directors (SID), to produce a guide on best practices for shareholder meetings. The 24-page publication - available on the websites of Sias, SID and SGX - covers key points such as the rights of shareholders, as well as the rules of etiquette applicable to both shareholders and board chairmen.

Enhancements were made to its auction routine to prevent price dislocation as seen in the flash crash in January that briefly wiped US$41 billion off the market value of blue-chip stock Jardine Matheson.

Together with the Monetary Authority of Singapore, the RegCo has issued a trade surveillance guide, which highlights poor practices while recommending good ones, in a bid to nip misconduct as early as possible.

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