Commentary: After years of playing sheriff, SGX wants to let the market breathe

CNA

18-05-2025

SINGAPORE: In a nod to the increasing diversity and complexity of the stock market and investors, the Singapore Exchange Regulation (SGX RegCo) has proposed shifting its regulatory stance towards a more proactive disclosure-based regime.
SGX RegCo said the new regime - which it is presenting for a month-long public consultation - will focus on 'the materiality of information that needs to be disclosed in a timely and accurate manner'. In doing so, the new approach emphasises a pro-enterprise bias and gives investors information to make their own decisions.
In short, the move away from the current prescriptive model of disclosure brings forth the principle of caveat emptor or 'buyer beware' for investors.
As SGX RegCo put it, the market can better discriminate in favour of companies with high standards of corporate governance and disclosure.
'The effectiveness of such a market-driven approach rests on a foundation of rules and standards that assure market participants that the information on which they base their decisions is accurate and accessible, and that the market is fair,' said CEO Tan Boon Gin in a statement on Thursday (May 15).
This is big.
A NEW REGULATORY ERA
Ever since the S$8 billion penny stock crash in 2013, regulators have taken a hard line on market malfeasance - both real and perceived. In the weeks leading up to October 2013, Malaysian businessman John Soh Chee Wen and his associates engaged in one of the largest stock manipulations on the Singapore bourse, centred on three stocks: Blumont Group, Asiasons Capital and LionGold Corp.
Responding to this, SGX RegCo has taken a very top-down prescriptive approach to market monitoring over the past 12 years, jumping in not just when management, directors or owners strayed from the rules, but even when there were perceived unusual stock price movements.
All this has had a chilling effect on the market and effectively killed the 'animal spirits' which is critical to maintain healthy speculative interest which is often the lifeblood of trading activity.
As a result, the Singapore market has remained the most moribund in the region as liquidity dried up, price discovery evaporated, valuations hit the floor and new listings disappeared.
Meanwhile, delistings have become common.
So could the proposed measures announced on Thursday evening change all this?
It is too early to say. That said, it is a step in the right direction to rejuvenate this market. But much more needs to be done.
THE TOWN SHERIFF
While the proposals include a gamut of initiatives, including changes in qualitative and quantitative listing criteria, the most effective initiatives could be the scrapping of the financial 'Watch-List' and the adoption of a more targeted approach in post-listing queries.
The much-disliked Watch-List - a 'penitentiary' for companies with multi-year losses and falling market capitalisation - effectively sidelined these corporations. In the process, it killed business confidence and made it near impossible for these companies to raise capital.
Meanwhile, the severe and open-ended SGX RegCo queries - often about perceived unusual stock price movements - caused nervousness and alarm in the broader market. Some have likened this approach to a town sheriff in a spaghetti Western who charges into a saloon, guns drawn, causing panic-stricken patrons to dive for cover, when in fact there is only one crook slinking in the far corner of the bar.
So how will all this impact the Singapore bourse?
In reality, SGX RegCo's proposals dovetail with one of the recommendations announced by the Monetary Authority of Singapore's (MAS) Equities Market Review Group in February. In particular, it plays to the S$5 billion Equity Market Development Programme unveiled by the review group.
This scheme envisages fund managers and accredited institutional investors deploying this money into small- and mid-caps which are not on any index. The same fund managers are then expected to monitor the companies into which they invest.
In short, some aspects of the market oversight and protection will now move to the realm of the investor, although SGX RegCo will retain backstop surveillance and enforcement functions.
WHAT ABOUT INVESTOR PROTECTION?
As SGX RegCo put it in its announcement, these adjustments will strike a more 'proportionate balance in facilitating market discipline and achieving investor protection'.
While the institutional and accredited investor will indeed be able to handle and monitor the market-based disclosure regime, what about the retail investors? What about the less sophisticated moms-and-pops who have sunk their hard-earned retirement savings into stocks and shares?
Their interest will be protected not just by the sophisticated institutional investors, but also SGX RegCo, whose surveillance and enforcement functions remain unchanged. But rather than regularly intervening in the market and creating unnecessary 'noise', it is envisaged that SGX RegCo will take a more targeted approach when it detects irregularities or serious breaches.
The interests of the retail investors can also be protected by the Securities Investors Association (Singapore). Since its establishment some two decades ago, SIAS has done a pretty good job as an advocate for retail investors.
But there are also other measures in place to protect small investors, such as changes to the Securities and Futures Act in 2017 which saw the strengthening of the governance and enforcement powers of MAS to safeguard the interest of retail investors.
If one were to stand back and take an objective look at the initiatives proposed (which are still subject to tweaks) from a risk-reward perspective, the positives outweigh the negatives. This market needs to rekindle the animal spirits. The chilling effect of constant and heavy-handed SGX RegCo queries simply does not allow for this.
If implemented, these measures will reduce regulatory friction that impedes price discovery and market efficiency.
There will be players who will try to game the system, but the risk of malfeasance of the John Soh variety is small. Much has been learnt and measures have been put in place over the past decade.
While the latest proposals may not be perfect in everyone's eyes, they do go some way towards bringing the disclosure regime more in line with more sophisticated markets like New York, London, Tokyo and Hong Kong. One only needs to look back at Tokyo over the past decade, where increased institutional participation coupled with a disclosure-based regime revitalised the market. Hopefully, this will be replicated in Singapore.
Taken together with other incentives and liquidity boosting measures still being rolled out by the Review Group, SGX RegCo's proposed light-touch market-driven disclosure regime - which gives investors information to make their own decisions - could be a key catalyst for the revitalisation of the Singapore Exchange.