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Pre-emptive action will remain key: SGX regulator

Business Times
28 Dec 2017
Angela Tan

As the year draws to a close, BT asks SGX RegCo chief about the direction and priorities for the coming year

It's been a busy year for the Singapore Exchange (SGX), but that has not kept the regulator from wanting to do more to deter corporate malfeasance and to regain the market's trust.

This year saw the significant hiving off of SGX's regulatory functions to an independent Singapore Exchange Regulation, or SGX RegCo, which oversees the stock market policing and the guarding of investors from illegal trades and stock price manipulations.

Tan Boon Gin, chief executive officer of SGX RegCo, shared with The Business Times (BT) recently that the pre-emptive approach to securities regulation, coupled with further improvements in corporate governance, will be extended into the next year.

Mr Tan, who was former director of the Commercial Affairs Department (CAD) and has worked with the Monetary Authority of Singapore (MAS), believes it is more efficient to nip potential rogue trades in the bud than deal with the aftermath.

"My takeaway from my experience there is that after these things happen, it is really difficult in this space because investors have lost money and these cases are very complex. They take a long time to litigate. Take a look at what's happening with John Soh and the court process. That illustrates the complexities of the cases," said Mr Tan, who joined SGX in June 2015 and was its chief regulatory officer until he was appointed to helm SGX RegCo in August.

Soh is the alleged mastermind behind the infamous 2013 penny stock saga - the single biggest fraud in the history of Singapore's stock market which wiped off S$8 billion in the combined market value of three little-known stocks of Blumont Group, Asiaons Capital and LionGold Corp. The Malaysian businessman was arrested in November 2016 and is in remand in Singapore, facing 188 charges, from stock manipulation and cheating to witness tampering.

"I have always favoured a pre-emptive approach. I think that is borne out by all the steps we have taken the couple of years since I came. For example, we have enhanced 'trade with caution' to one in the market about a possible false market," said Mr Tan.

Opinions over SGX's "trade with caution" notices have been divided, but many like them as signals to the market that the regulator knows what is going on and will step in to thwart any ill intentions. Mr Tan's focus on corporate governance is also pre-emptive in that nature.

"If you improve corporate governance, you are making it harder for corporate malfeasance to happen because you are strengthening the internal processes of the company. So that is another focus point for me. This pre-emptive focus will continue into the next year."

The market's buy-in will continue to remain key to successful implementation.

"I think we have been trying to do this alone for too long. Again, if you look at what we have been doing the past few years, we have (been) trying to get fellow market participants as gate-keepers with us."

In line with Mr Tan's pre-emptive action and transparency, SGX set out in a February Regulator's Column the factors it considered in deciding when to act against false trading. SGX also began publishing in November decisions on past listing applications so that investors and market professionals understand better how the exchange interprets the Listing Rules and reviews due diligence carried out by professionals.

The cases published underscore the emphasis SGX places on the quality of due diligence conducted by issue managers, investment bankers and Catalist sponsors.

Since the S-chip saga involving financial irregularities at some listed companies with operations in China, the SGX has tightened its IPO admission process, even rejecting applicants if they do not meet its standards.

It has also continued to actively enforce its rules and take action against errant market participants. In March 2017, SGX filed a police report in China against China Fibretech and its then-executive chairman, Wu Xinhua, in relation to several alleged offences under the Chinese Penal Code. SingPost was also taken to task and reprimanded for inaccurate disclosures in May 2017, while disciplinary actions were slapped on six trading representatives and trading members for breaching trading rules.

Disclosure requirements in its listing rules will be further tweaked, with the regulator seeking more transparency over secondary fund raising, interested persons transactions and significant transactions. In early December, it launched an anti-insider trading guide with various players in the market including the ABS, the Law Society, The Institute of Singapore Chartered Accountants (ISCA) and the Singapore Institute of Directors.

"That completes the suite of misconducts in the securities trading space," Mr Tan said.

The focus on addressing trading misconducts in the securities market will expand into the derivatives market next year, when a surveillance handbook for derivatives trading will be introduced.

A revised corporate governance code will be unveiled in early January. BT understands that one focus of the review will be on the independence of directors, and that this is an initiative by the corporate governance council, involving the MAS and the SGX.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.