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Building a better market, tier by tier

SGX RegCo is using a combination of carrots and sticks to maintain a healthy, efficient and transparent market.

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Closer cooperation between all parties involved in the market eco-system will benefit shareholders and Singapore's position as an international financial centre.

SINGAPORE Exchange Regulation (SGX RegCo) had previously spoken about our "tiering" approach to regulating companies. In brief, with close to 750 companies listed on the Singapore stock market, SGX's stand has always been that we cannot and do not take a one-size-fits-all approach. Rather, we segment companies based on their attitude towards regulation and the actions needed from us when dealing with them as the front-line regulator.

This has resulted in companies falling into three tiers: the notorious, the cavalier and our favourite, the upstanding.

For law-abiding or rule-compliant companies in tier one, our approach is entirely different from the rest: instead of holding the "sticks" and being ready to strike, we are giving them "carrots" to encourage better performance.

SGX RegCo had previously announced its SGX Fast Track programme which allows companies with good corporate governance practices and compliance track records to enjoy prioritised clearance for selected corporate actions.

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To-date, 60 companies have qualified for the programme and we are delighted to see that many other companies are eager to get on the list too. Two factors drove this interest: faster time-to-market for corporate actions and credibility with investors - the "halo effect" for the corporate brand.

When it comes to rewarding companies, we have chosen an inclusive approach and will give credit when credit is due. The Fast Track list does not have a maximum quota and there is no sector nor market capitalisation restrictions.

Given the importance some investors may place on the list, we must be careful in expanding it. With a variety of SGX-listed companies, we ensure that our selection criteria are robust and the review process is thorough to give all deserving issuers a fair chance of getting on the list.

Companies' and indeed the market's response to the SGX Fast Track programme is a reminder to SGX of the importance of regulatory processes that are not just robust but also efficient.

As a front-line regulator, we have a responsibility to maintain healthy, efficient and transparent markets. We promote best practices and reward good performance but also seek to correct and deter deviant behaviours in order to enhance market confidence and foster an environment of trust between investors, issuers and other stakeholders. This must remain a key principle behind our efforts to build a market for the future.

When it comes to the bottom tier, or tier three, which are companies where some form of criminal behaviour, such as fraud or bribery, may have, or may be taking place, we have previously emphasised the importance of these illegal actions coming to light as soon as possible. This is to protect shareholders and market participants.

To do so, SGX RegCo must work closely with industry professionals including auditors and/or independent directors who are all parts of the chain of accountability.

In situations where criminal behaviours have been detected, law enforcement agencies which have legal powers above and beyond SGX will lead the investigation. It is within their remit to enforce the law and seek the appropriate punishment for the parties found guilty. These agencies can even collaborate with the authorities overseas.

SGX RegCo as a market regulator is often at the centre of attention when wrongdoing is detected at a listed company. This is to be expected because SGX RegCo has oversight of companies.

When we become aware of any possible rule breach, we will hold the company accountable. If there has been an oversight by the company's auditor, we will hold them accountable too and refer any shortcomings on their part to their regulators - the Institute of Singapore Chartered Accountants (ISCA) and the Accounting and Corporate Regulatory Authority (ACRA).

Similarly, SGX RegCo is accountable to the Monetary Authority of Singapore. It is therefore important to recognise the important roles ISCA, ACRA and indeed other professional associations, regulatory bodies, and the statutory authorities, together with SGX RegCo, play in ensuring a well-functioning capital market.

Closer cooperation between all parties involved in the market eco-system will therefore benefit shareholders and indeed Singapore's position as an international financial centre.

This is the more macro perspective to improving the market. At a more micro level, greater efficiencies in day-to-day processes are important, not least to companies that have stretched resources and are trying each day to ride and leverage the vagaries of volatile economic and market conditions.

Policy-making must always focus on building a better market while ensuring integrity is ever-present. We intend to roll out in the coming months initiatives and changes aimed at delivering on these objectives both at a micro and macro level.

Our vision is that our disclosure-based regime will increasingly rely on companies' self-discipline, instead of just regulatory and market discipline, in building world-class corporate governance standards.

  • The writer is CEO of Singapore Exchange Regulation.