Good morning, and to those who are visiting Singapore, welcome to the Little Red Dot as others sometimes describe us and which we embrace in good humour.
1. I have been informed that we also have attendees who are dialing in, mostly from the US, so I commend those of you who are giving up your evening and in some instances, your sleep, to be part of this year’s PLI conference on securities law.
Introduction to SGX RegCo and regulatory landscape
2. My name is Tan Cheng-Han and I chair Singapore Exchange Regulation, or SGX RegCo, as we are also known. For the benefit of those less familiar with the structure of the securities market here, SGX RegCo is an independent wholly owned subsidiary of Singapore Exchange (or SGX Group). SGX Group operates the securities and derivatives markets in Singapore. The Group is a listed company, listed on its own securities exchange, and regulated by the Monetary Authority of Singapore (MAS), the central bank. To give those joining from overseas some idea of our regulatory landscape, the MAS is somewhat like the US Securities and Exchange Commission (SEC). To enforce Singapore’s Securities and Futures Act, the MAS works together with the police in the form of the Commercial Affairs Department.
3. SGX RegCo is a private limited company and doesn’t have police powers. But we have oversight, by way of our Listing Rules, over listed companies and their boards of directors, Member firms and registered professionals such as the sponsors of companies listed on our high-growth Catalist board. As with many other exchanges, our rules operate as a contract between us and our issuers as well as other regulated persons. Having said this, certain obligations, such as those related to disclosure, are mirrored within the SFA as specific statutory provisions.
4. For those of you from the US, perhaps a good analogy is the position in the US prior to the establishment of the Financial Industry Regulatory Authority (FINRA) in 2007. My understanding is that responding to scandals within the National Association of Securities Dealers (NASD) in 1996, the SEC compelled it to reorganize its governance with an independent board and separate regulatory and enforcement staff, which were placed into a subsidiary (NASD Regulation, Inc. or “NASDR”) separate from its securities marketplace, the Nasdaq. Similarly, in 2006 the NYSE as part of a reorganization established a not-for-profit regulatory subsidiary, NYSE Regulation or “NYSER”, that performed NYSE’s regulatory functions.
Disclosure-based regime with some merit-based features
5. Ours is a disclosure-based regime but I would say operationally, we regulate with some amount of merit-based intervention. The key reason behind this is that while there are institutional investors such as Temasek, a Singapore sovereign wealth fund, and others including Fidelity International, Abrdn, Blackrock and Prudential, we have a relatively high level of individual investor participation in the securities market. Also, unlike perhaps other Asian markets such as those in Malaysia or Hong Kong, the Singapore stock market doesn’t enjoy significant participation by pension funds at the institutional level. Instead, individuals are able to self-direct some of their pension savings into stock investing but this is at the retail level. I am setting out the context because I believe these features of our market determine its complexion and how we carry out regulatory oversight.
6. For example, when we introduced the Special Purpose Acquisition Company or SPAC listing framework in 2021, we embedded into the rules many features that in the US would have existed as commercial terms agreed upon between the SPAC sponsor and investors. So instead of leaving terms like sponsor’s ‘skin in the game’ (e.g. minimum equity participation required from SPAC sponsors) or the maximum dilutive effect of the warrants issued with shares to commercial negotiation, SGX RegCo built into our SPAC model these features with prescribed limits as mandatory requirements.
7. 3 SPACs were subsequently listed, of which 1 completed its business combination or de-SPAC while the other 2 were liquidated. Unlike the US SPACs which were listed on a more mature market, here in Singapore we had to expand much effort on investor education and ecosytem preparedness. I am happy to say that the de-SPAC process and even the liquidation of the other 2 SPACs, in particular the distribution of the redemption amounts in cash to investors, proceeded smoothly and should provide assurance to other issuers who may wish to make use of this avenue in future to list on SGX should market conditions make it attractive.
8. The softer participation of institutional investors compared to some other mature markets has also meant that we are sometimes rather prescriptive in technical matters. For example, we have published Regulator’s Columns setting out our expectations for companies conducting excess rights issues and for larger companies to avoid overlapping Annual General Meetings (AGM). Following our observations on the conduct of directors and Independent Financial Advisers who must provide opinions on whether exit offers are fair and/or reasonable, we set out our expectations of these advisers in a Regulator’s Column. We have also set out clear expectations on the disclosure of key financial indicators, to encourage more meaningful disclosures from companies that will enhance market discipline.
Enter the active investor
9. While our market is relatively less mature than those in the Western hemisphere, shareholders including individuals are beginning to wake up to the fact that they must articulate and, in some instances, take steps to have their views heard and wishes carried through. I am not entirely sure about AGMs in the US but here in Singapore, many have long lamented the fact that shareholders seem more interested in the quality of food items served at the buffet line of AGMs than with the discourse during the meeting and indeed the company’s overall performance and strategy. However, I am delighted to say that this is beginning to change. The level of participation and quality of questions at AGMs appear to have improved based on anecdotal evidence.
10. Another possible indication of a more active investor base may also be seen from the fact that in the past 2 years several companies have received requisitions from their shareholders for either resolutions at AGMs to be changed or added, or requisitions for extraordinary meetings to consider investor-proposed resolutions. Unfortunately, a number of such efforts faced road-blocks arising from gaps in the legislation. As a response, SGX RegCo has proposed rule changes to facilitate the holding of shareholder requisitioned meetings. The beginnings of a more active investor base is a promising development that will guide future action on our part.
The Review Group
11. With this, it is now opportune to turn to a matter that has generated some interest in recent months. Like many stock markets globally, the Singapore market has had its fair share of challenges, not least because the US market seems to have captured the imagination and pocketbooks of both investors and companies wanting to list. I won’t go into the details of these developments but suffice to say that many Singapore and South-East Asian companies continue to have aspirations to list in the US even though the post-listing performance of many companies that have achieved such a listing has been poor.
12. As a result of a perceived decline in the Singapore capital market, a couple of months ago the MAS announced the setting up of a Review Group to look at both the business and regulatory aspects of the market with a view to revitalising it. I am a member of the working group that is reviewing the regulatory landscape. I should note that this is my second go-around, having also been a member of the 1998 Corporate Finance Committee which largely canvassed similar issues!
13. This regulatory workstream will study ideas to streamline the regulatory framework, improve the listing process, enhance the effectiveness of our disclosure-based regime, and strengthen corporate governance standards, investor access and recourse. Since that announcement in late August 2024 on what the workstream will study, discussions have started and as nothing has been made public, I can’t go into details on what has been discussed.
14. However, I want to leave some idea of the thinking that SGX RegCo has in respect of improving the market and making it more appealing for investors and issuers. While there may be individuals who think that this means standards must be lowered or that such an approach is more commercial than regulatory, let me immediately say that we do not think this issue is so binary.
15. Let me begin by focusing on liquidity, in particular to point out that a market with good liquidity is not only attractive to investors but also beneficial from the regulatory perspective. The raison d’etre of a market is for risk transfer at a reliable price. A liquid market is much more difficult to manipulate because to do so, one has to transact in much higher quantities than if the market is illiquid. The execution rate of transactions is faster and the price discovery process is more robust. So good liquidity does have a regulatory benefit. In other words, my first point is that measures that increase a market’s attractiveness can and often do promote positive regulatory outcomes and vice versa. Conversely, we are well-aware that a race to the bottom isn’t going to help draw more investors and issuers.
16. Second is that in Singapore, many confuse and conflate consumer rights with investor rights. At the risk of over-generalisation, the main difference between consumer protection versus investor protection is that in the case of consumer protection, one is protected and compensated for the purchase of a defective product or service and linked to this, fraudulent business practices. Whereas with investor protection, the focus is on ensuring that the foundation is laid for an informed decision on the risk and reward trade-off for an investor. At the extreme, it means that no warranties or assurances are given as to the quality of the investment, as opposed to that of a consumer product. Of course, in cases of outright fraud there may be criminal and civil consequences. In Singapore, there is a tendency for retail investors to expect a level of protection that may not necessarily be optimal for a securities market.
17. To complement a disclosure-based system, there must be proper avenues of recourse against misconduct – both for the regulator and for the investor, which is my third point. Each jurisdiction should take into account its own social, political and economic circumstances, which would include matters such as its level of development and level of investor education and maturity, which evolve over time. Frameworks that were suitable for an earlier time may need to be adjusted to allow more space for market discipline to operate, and encourage the market to further mature.
18. In the context of the Regulatory Workstream of the Review Group, there is explicit acknowledgement that measures and frameworks put in place to deal with the fallout of past crises (Lehman, and the collapse of many China-based companies listed on our market) may have resulted in excessive controls when viewed holistically. Market mechanisms and market discipline may have been progressively diminished by regulatory filtering.
19. The risk appetite of regulators plays a key role in determining market evolution. It is not a question of more or less regulation, but of constantly adjusting to seek an appropriate level. What the optimal mix between market mechanisms and more defined regulatory requirements is a perennial question for many markets.
20. A principally disclosure-based regime requires swift and appropriate enforcement action where market participants have acted improperly. In this, SGX RegCo is committed to developing a calibrated approach to drive swifter and more versatile market outcomes from enforcement actions. We will continue to develop existing protocols with other regulatory authorities to reduce potential overlap in investigation and enforcement, and expedite investigation outcomes.
Conclusion
21. I have 2 points in conclusion. First, and this links to my previous point about the need for proper avenues of recourse against misconduct. The Singapore market differs from other markets which you may be more familiar with, especially in respect of the absence of class actions, which constrain the ability of small retail shareholders to seek legal recourse in the courts within the realm of securities law. On balance, this may have led to a less litigious society, but comes at the cost of greater frictions for investors in seeking post-hoc recourse. This will continue to influence our regulatory philosophy even as we introduce measures to drive and enable greater market discipline.
22. Second, a healthy market depends on professionals such as yourselves providing objective legal advice to your clients and companies. I have in the course of my career come across a number of instances where the advice from legal professionals was less than robust, necessitating regulatory action in some instances where this has come to the attention of the regulator. It is particularly disappointing when in-house or external counsel are sitting in on meetings where the board’s discussion is clearly at odds with the regulations and there is no indication that counsel has cautioned the board from acting in such manner. This is, or at least borders on, questionable ethical behaviour. I am glad, therefore, that a focus of your conference is on Ethics, an area that has been much discussed within the Singapore legal profession in the last 12 months.
23. On this note, thank you for inviting me to speak this morning – it is a great honour – and I wish all of you a fruitful and enjoyable conference and a lovely stay in Singapore.
