Better enforcement should accompany better market regulations

The Singapore Exchange (SGX) is taking the right steps in trying to shore up the stock market's continuous disclosure regime, but the question of enforceability and accountability remains a persistent hole that needs to be better filled.

SGX has launched a public consultation on a broad raft of proposed changes to the market's continuous disclosure rules. Many of those proposals are sound.

For instance, the current S$100,000 threshold for interested party transactions may be replaced. The existing rule, which applies to individual transactions, can be avoided by splitting contracts into smaller sizes, a practice that has happened, based on industry anecdotes. The proposed replacement considers interested party transactions in aggregate with the standard test of materiality applied, which seems to be a better way to address the issue.

There is also a proposal to better govern transactions that amount to a listed company providing financial assistance to another party, a matter that has come under scrutiny with a number of China-based companies. Among the changes being offered are requirements to disclose significant transactions of this nature to shareholders, and to seek shareholders' approval when the transactions are significant enough. These, too, are appropriate and important amendments to make.

Shareholders should also welcome a proposal to impose minimum notification periods for the resumption of trading following halts and suspensions. While the proposed lead-in time - 15 minutes for trading halts and 30 minutes for trading suspensions - could perhaps be longer, addressing the issue is a step in the right direction.

Taken as a whole, the proposals, with expected fine-tuning after the public consultation process, should improve the regulatory framework for continuous disclosure. A stronger continuous disclosure regime could pave the way for further changes, such as a relaxation of mandatory quarterly reporting; but before the market can get there, more thought should perhaps be given to the question of whether the regulatory ecosystem is doing a good enough job at enforcing the rules and at preventing poor behaviour.

A few cases are worth watching.

At China Fibretech, SGX has sought China's help to attempt to sanction former chief executive Wu Xinhua, who was allegedly involved in unauthorised transactions by the company. But Mr Wu has remained relatively untouched, and continues to exert significant influence over the company - he recently blocked the re-election of the company's lead independent director.

At Emerging Towns & Cities (Singapore), the company also continues to face difficulty in putting the reins on major shareholder Luo Shandong. The company has alleged unauthorised transfers of money from its China-based subsidiary to Mr Luo's vehicles, and has faced difficulty in getting the staff in China to comply with the Singapore-based directors' instructions.

Those cases cast doubt on the ability of minority shareholders to get fair and just recourse when something goes wrong, and on the ability of Singapore's already robust rules in preventing wrongdoing. The rules may be impeccably designed, but if they cannot be enforced when needed, minority shareholders are often left in the cold. There may be room, therefore, to take a closer look at how to bring more bite to the bark.

READ MORE: Disclosure tweaks and quarterly reporting go hand-in-hand