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Raising disclosures through the listing life-cycle

Without proper disclosures, there can be no good governance, no trust in companies and no confidence in our markets.

"SGX cannot and does not intervene in a company's commercial decisions. Our review of financials and other disclosures post-listing therefore focuses on whether the company has provided the disclosures required under the Listing Rules," says Mr Tan.

THE standard of the Code of Corporate Governance disclosures among mainboard companies - as independently reviewed by KPMG for Singapore Exchange (SGX) earlier this year - was found to be good with room for improvement.

In fact, 55 per cent of the companies considered in this review scored 60 per cent or more for the CG Code's Principle 15 on communication with shareholders. Specifically, "disclosure of information" which is a guideline under the principle, achieved a score of 71 per cent.

Good scores notwithstanding, there remains an urgency today to pursue better standards and compliance.

Central to better standards and compliance is the quality of disclosures, which is unsurprising since ours is a disclosure-based regime. Without proper disclosures, there can be no good governance, no trust in companies and no confidence in our markets.

SGX's regulatory oversight of companies and their disclosures occurs at two stages - at the admission stage when companies seek to list on the exchange and the regulation of listed companies' continuing obligations. We recognise there is room for improvement on both fronts and are working closely with industry. Collaboration with industry at both the listing and the post-listing stage is crucial if improvements are to happen.


The listings admission stage is the point at which SGX has arguably most control in its oversight of a company because this is when we consider a company's suitability to list. About 40 per cent of companies listed on SGX come from outside Singapore and so we often encounter listing applications from jurisdictions where their regulatory and legal development may differ from Singapore's.

While we do not judge the commercial merit of a company - that is for investors to weigh - we can and will look at non-commercial risks. There is often a misconception that operating a disclosure-based regime means that all we do is ensure that all the risks are disclosed. But in actual fact:

  • We are prepared to reject a company if there are fundamental issues affecting suitability in terms of its business model, operations and governance and the integrity of management and controlling shareholders.
  • We expect verification of information from multiple sources such as the local authorities of the areas where the company's operations are located, the authorities that issue the permits and licences needed for its business activities and tax and other government agencies.
  • We do not hesitate to impose conditions to mitigate risks. For example, we may mandate compliance with certain principles of the Code of Corporate Governance such as a majority board composition of independent directors, or the appointment of an external firm to review internal controls.

As more companies come to SGX from overseas jurisdictions, and these jurisdictions are at varying stages of regulatory and legal development, we need to be alert to and manage the risks depending on the level of development. We must make adjustments or even tighten our requirements in the face of these risks.

We cannot make improvements alone; an IPO or RTO involves many parties working together and each has an important role to play in the admission process. One example of the collective effort is the new initiative by the Association of Banks in Singapore (ABS) to tighten guidelines for due diligence activities that its member banks carry out on all companies looking to list on SGX. Key changes in the guidelines include mandating additional queries into resignations of management, directors and controlling shareholders, and extending the scope of checks and enquiries beyond on-site visits to material assets and properties.


Once a company is listed on SGX, its responsibility is not just about making disclosures but also ensuring timely disclosure of material information.

A company may argue that a certain piece of information is not material because the amount involved is small compared with, for example, its net tangible assets or revenue.

One must remember that the rules on disclosure of material information are not prescriptive in terms of how materiality is "measured" or "defined".

The rule says that an issuer must announce any information which is necessary to avoid the establishment of a false market in its securities or would likely materially affect the price or value of its securities. There is no mention of what financial figures to compare against, and rightly so.

The fundamental determinant of materiality is whether the information will be useful to your investors in making their decisions. And the cardinal rule is - when in doubt, disclose.

So when the industry is humming along, the macroeconomic environment is stable, and there is no real volatility in your business, what might be considered material could be quite different from information investors might need when your industry is going through extreme volatility and/or a protracted down-cycle such that the financial position of your company is at risk of deteriorating quickly.

Disclosures which might be useful to shareholders amid adverse economic conditions include those:

  • where large projects on their order books have been delayed;
  • where borrowings and cash flow position are adversely affected;
  • where letters of demand have been received such that the company's ability to operate as a going concern is in doubt .

SGX can, and indeed has, posed queries to companies on disclosures. But to wait for such queries, rather than disclose with full transparency, is venturing into dangerous territory.

Nevertheless, it is important to emphasise here that SGX cannot and does not intervene in a company's commercial decisions. Our review of financials and other disclosures post-listing therefore focuses on whether the company has provided the disclosures required under the Listing Rules rather than on assessing its credit risks or ability to meet its obligations as and when they fall due.


It is important to also state in no uncertain terms that SGX will strictly enforce compliance with this requirement as it is fundamental to our disclosure-based regime.

Our preference, as always, is to take preventive measures. SGX will query the company and require a public response to tease out material information where necessary. This includes, but is not restricted to situations where there has been an unusual movement in share price and/or trading volumes.

Where any disclosure lapse amounts to possible breaches of the Listing Rules, SGX will carry out an investigation. This may cover trading activities in the company's shares and will follow a due process that includes giving affected persons the right to be heard.

Should any breach be serious enough, SGX may either take action under the previous disciplinary framework for lapses committed before Oct 7, 2015, or deal with the breach under our new enhanced disciplinary framework for lapses occurring thereafter. For breaches involving a possible offence under the law, we will refer them to the relevant authorities.

Our preference when it comes to shortcomings in disclosure standards is always prevention through upstream intervention.

While enforcement remains a tool of last resort, it is a tool nonetheless, and we will use it if necessary.

  • Mr Tan is chief regulatory officer of the Singapore Exchange