Dear Friends & Colleagues,
1. Before I begin, I would like to thank the MC for her very kind introduction. My thanks also to all of you for joining us today in this 3rd edition of the SGX Regulatory Symposium. This symposium is an opportunity for the community to come together. It is a chance for us to discuss issues of topical interest, in an open, no-prejudice setting, which I hope you will find illuminating and helpful. My colleagues and I appreciate your attendance and look forward to your active participation, so that we can take your views on board. I often say to my colleagues across the organizations I’m involved with that although I may not agree with all their views, such views help to make my thinking more holistic and balanced, provided I listen, which I do. And I can assure you that RegCo is a listening organization that itself reflects a diversity of internal views.
2. My remarks this morning will focus on the theme of this year’s Symposium, which is “Market Needs in a Changing Landscape”.
Our Changed and Changing Landscape
3. The COVID-19 pandemic has profoundly affected our environment and context. Besides the economic cost, it has also accelerated and intensified some prior trends. These include increased automation, digitalization, and job obsolescence; the pushback against globalization; and heightened attention to sustainability and related issues. It has also sparked greater interest in the financial markets from investors, leading to liquidity inflows to both traditional stock markets as well as alternative asset classes.
4. From a broad societal perspective, one after-effect of the pandemic appears to be the worsening of existing socio-economic fault lines. Existing inequalities in income and wealth, already stressed by technological change, will likely widen though one positive is that governments are increasingly aware of this danger and policy responses can be expected. Such socio-economic fractures have fed the extant discontent against governments and other organisations associated with the establishment. Both in Singapore and abroad, these trends are exacerbated by the rise of social and alternative media, an enabling agent that both erodes the influence of previously authoritative sources of information as well as enhances the reach of individuals. This greater democratization of society will be a long-term phenomenon.
What does this mean for Financial Markets?
5. Each of the trends and developments above has implications for financial markets and their regulation. Dealing with the economic changes brought about and exacerbated by COVID will require capital, which the markets are set up precisely to facilitate. At the same time, the worsening of socio-economic fault lines and the accompanying discontent mean that there will be increasing scepticism and scrutiny of actions taken by regulators and other parts of the establishment. In addition, the rise of social and alternative media has also empowered and enabled retail investors, as the recent incident involving GameStop and other “meme stocks” has demonstrated. This is especially salient, as financial markets have seen significant increases in retail investor interest worldwide during COVID. This is likely to continue post-COVID. While we welcome greater investor interest and participation in the market, this also brings with it a heightened focus on investor protection issues.
6. The focus on the Sustainability agenda and changes in the geopolitical landscape have also created increased demand for new financial products. The jury is still out on the long-term performance trajectory of sustainable investments, but it is undeniable that the role of financial institutions and markets in facilitating measures to address the twin challenges of climate change and sustainability has been brought into greater focus. The geopolitical tensions have also led to issues of access to markets, and associated realignments in capital flows. One likely offshoot will be an intensified search for alternative venues, fora and vehicles to raise and deploy capital, with both Issuers and Investors looking for neutral, safe havens in which to do so.
7. The markets’ likely response will thus be accelerated financial innovation, to increase the breadth and depth of the products available, in order to allow for the efficient deployment of capital. It is important to remember that how well we as market participants do our job has real-world impact. It determines how well the market enables economic activity, and allows people to provide for themselves, their families, and their future.
What does our Market Need?
8. So, to me the question is what our market – viewed as a whole – needs, and how we as regulators can best deliver this. And our perspective is that our mandate is to both facilitate market development, by catering to new demands from various participants, and safeguard its integrity. It is also critical to remember that this is a dual mandate, and that both pillars are mutually reinforcing and not in tension. Just as the assurance of market integrity encourages more trading to occur, active market development also ensures that the depth of trading and participation exists, which are natural hedges against market manipulation and other forms of market abuse.
9. I should note also, that while we do keep an eye on other markets and international best practice, our focus is always on how our rules and policies best suit our own market conditions and participants. At a fundamental level, this orientation speaks to the reason that we as SGX and RegCo exist, which is to meet the needs of our market, and our participants. In this regard, I am conscious that both our investor and issuer base are increasingly international which, I am happy to note, is also reflected in the interest in today’s symposium.
10. With these considerations in mind, let me turn to some specific needs.
11. I first turn to the topic of Enhancing Disclosures. One of our fundamental design decisions has been to operate our market as a disclosure-based regime. This is consistent with our underlying recognition that investment decisions should be fully informed ones. Our role as regulator is thus mostly to ensure that information is made available to market participants, to allow them to make informed decisions bearing in mind their own unique circumstances.
12. Having said this, we should be conscious that our disclosure-based orientation exists on a spectrum between a fully merit-based and fully disclosure-based regime even if we tilt more towards the disclosure side of the house. This means that there still remains scope for some level of merit judgment and discretion by the regulators. In some instances, these are substantive judgments, for example, whether a particular product or Issuer is suitable for our market, and the appropriate safeguards that need to be put in place. In other instances, these are process judgments, about how the Rules should be set up, and amended, and revised.
13. Moving on to the handling of specific disclosures, it is common for us to speak and think of them as binary, that is, either the disclosures have been made, or not. But disclosures vary in their comprehensiveness and clarity, so each disclosure exists on a continuum. In addition, no Issuer, even with the best will in the world, will disclose everything. There is always an irreducible element of judgment involved, as to whether particular information is or is not material and deserving of being disclosed. Further, as the saliency and materiality of information increases, the probability of its disclosure also increases, but again judgment will continue to be exercised with the possibility that there will be occasions where what is disclosed may not be optimal.
14. I raise these matters, not to warn market participants away from our market, but to ensure that investors are aware that they should be internalising these considerations, in their assessment of the risks they are bearing. So, just as we continue to encourage and provide guidance to Issuers and their professional advisors on enhancing their disclosures, we also think that the investing community needs to play an active part in their decision-making. Investors in our market are now increasingly empowered, with the ability to obtain information from a variety of sources, corroborate information provided by Issuers, and question and engage investee companies. Social media and other tools have also enabled investors, now more than ever before, to mobilise and act collectively. Such active participation by investors is to be encouraged, as enhanced interaction and engagement can only contribute to the overall health of our market.
15. On our part, RegCo will continue to do its best to listen to feedback, and take action where warranted. Indeed, one particular area of disclosure to which we have been paying particular attention is the role of sustainability and climate-related disclosures. In the coming months, we are looking to launch a public consultation on our own sustainability reporting rules. We have yet to arrive at a final landing position, and I hope that the discussions later today will help inform our thinking as to the underlying rationale for, and expected benefits from, the increased attention being paid to sustainability reporting. We also look forward to your active participation in the coming public consultation.
16. Next, I turn to the market’s need for New Products and Investable Assets. As I said earlier, the demand for new products is growing. How do we expand this in a way that appropriately also protects market integrity? I pose this question, particularly in the context of the ongoing discussion around the possible introduction of Special Purpose Acquisition Companies in our market. As I’m sure all participants here today are aware, RegCo has launched a public consultation on SPACs, and will be holding a panel discussion later to hear views as we have not yet finalized our position on this matter.
17. From a personal perspective, I would like our approach to combine innovation with prudence and pragmatism. We want to be open to new structures and ways of doing things, while not being afraid to think about possible refinements that enhance the model. This is clear from our Consultation Paper of 31 March 2021. Certain of the processes and safeguards typical in an IPO will not be applicable to SPACs, and we are thus interested to understand whether some sui generis safeguards would be appropriate. In line with my earlier comments about encouraging investor activism, I am personally keen to understand the market’s view on the role that independent shareholders should play, since empowering such independent shareholders has strong practical and symbolic value.
18. But the key point I wish to make is that RegCo’s efforts are not just limited to SPACs and other similar trending products, but more broadly, to meet market participants’ needs for products that facilitate their ability to transfer and manage capital and risk. The specific products will change over time, as will the risk characteristics, and the protection required for investors. We are committed to continue engaging with the market to understand your needs on an ongoing basis, and wherever possible, to help meet them.
19. One final point I would like to make is that crises such as COVID and the Great Financial Crisis are an ineradicable feature of human existence. Such external shocks will occasionally affect our market. With the introduction of greater complexity and new products, the risks to our market from such incidents will naturally rise. As a regulator, we will do our best to react in a calibrated and appropriate way, and while we actively monitor developments and stand ready to respond, usually the better long-run approach is to be watchful and not overreact, for instance through the hasty imposition of rules that subsequently have to be walked back.
20. May I now take this opportunity to thank you once again for making time in your schedule to join us today, as well as to my colleagues at RegCo for putting the event together. I wish you all fruitful discussions. Thank you very much.
