Beware of over-reliance on caveat emptor

FOR years, markets have operated with "caveat emptor'' or "buyer beware'' as a central maxim. This is based on the reasoning that with proper disclosure, it is incumbent on investors to make up their own minds about the merits or demerits of investment opportunities. In theory, over time, the market will then reward those companies that are transparent and practise good governance. In such a regime, the role of the regulator is largely confined to formulating, installing and enforcing a suitable disclosure-based framework but official intervention should ideally be kept to a minimum.

So it is that today almost every developed exchange has a second and sometimes third trading board where regulations are loose and companies can float with virtually no track record.

Here, the Singapore Exchange's (SGX's) junior board Catalist operates largely as a sponsor-based market while in Hong Kong, the second board is known as the Growth Enterprise Market (or Gem) and advertises itself as being a "Buyers Beware Market for Informed Investors".