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Follow the spirit, rather than just the letter of listing rules

By Tan Cheng Han and Tan Boon Gin
By Tan Cheng Han and Tan Boon Gin9/4/2020 07:00 AM GMT+08  • 6 min read
Follow the spirit, rather than just the letter of listing rules
SGX RegCo says it will in FY2021 aggressively exercise its enforcement powers to take action against companies who try to dodge their obligations.
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Dear stakeholders,

We are writing to you in unusual times. For the first time in recent history, we are experiencing a global health pandemic which has caused national shutdowns and unprecedented policy responses. I am sure that your own company and industry have had to make extensive changes both externally, in business outlook and strategy planning, and internally, for business continuity and staff working arrangements.

This is also an opportune time for the Singapore Exchange Regulation (SGX RegCo) to do our own bit of reflection. In the past few years, we have shared our approach to regulation as being that of a delicate balancing exercise. There is no perfect “end state” or “ideal” picture of what good regulation looks like. We receive new information every day which may prompt us to take action or change course. A captain steering a ship looks around him at the changing weather conditions, sea water levels, routes of ships in neighbouring waters and watches out for oncoming currents.

SGX RegCo is the same. We are constantly on the lookout for indicators that tell us how our markets are functioning, and preparing to take the next step. Key indicators for SGX RegCo are those related to the level of trust in our markets.

These include, but are not limited to — the quality of companies which are newly listed, the number of irregularities uncovered each year, and statistics on market misconduct. At each turn, we listen closely to market feedback through consultations and try to find that balance which is “just right” between over-regulating and under-regulating. This is the philosophy behind our regulatory policymaking.

Covid-19 has presented a new set of challenges. Like you, SGX RegCo has had to move our entire workforce and continue to conduct market surveillance, process corporate actions and provide support for trading and clearing members from our own homes. This has since somewhat moderated with modest levels of staff returning to the office since Phase Two of the Singapore “circuit breaker” Covid-19 measures kicked in.

Early on in January 2020, our auditors told us that they might need extensions of deadlines to carry out their audits and prepare year-end financial statements. Our listed companies also needed help in urgent fund-raising.

We quickly realised that our Listing Rules had not been written to anticipate this unusual situation and that some flexibility was required to help the market to recover. This is why we quickly granted extensions for AGMs and financial results by working together with the statutory authorities, and temporarily relaxed the share issue mandate for Mainboard companies to relieve fund-raising strain. We also started accepting Catalist applications electronically, and introduced electronic dissemination of rights issue and take-over documents until September 2020.

At the same time, uncertain business conditions meant that investors needed as much information as possible to make their investment choices. We published several Regulator’s Columns stressing the importance of relevant and timely disclosures. In this period of uncertainty, it is an especially crucial time where companies need to ensure good communication with their stakeholders and shareholders. The Covid-19 crisis is not over yet, but we are already learning our lessons, of which the key ones are below.

Building immunity

The first defence against disease is to ensure that you are in good health from the start. When the virus hits, it may be unavoidable but at the very least, you would have a strong immune system to help your body cope. We are glad to note that one of SGX RegCo’s priorities has been, and continues to be, to raise professional standards of the entire market community.

In the past year, we worked with industry bodies like the Singapore Law Society to create a best practices guide for Singapore lawyers, and partnered with the Singapore Institute of Surveyors and Valuers (SISV) to set guidelines and refer valuations of concern to SISV.

In the coming year, we are turning our attention to issue managers and members with a revision of the Association of Banks in Singapore Listings Due Diligence Guidelines, and an upcoming best practice guide on algorithmic trading for our members. We strongly believe that raising the bar creates a strong baseline of quality professional conduct. In turn, this will deter and prevent undesirable behaviour which could be harmful to the market.

Taking a proportionate response

Governments around the world have responded to the pandemic by implementing nationwide lockdowns and safe-distancing measures. In addition, detailed and specific contact tracing has helped to contain the spread of the virus. In Phase Two, Singapore permitted more people to go outside and visit each other, but group sizes are limited and safeguards such as SafeEntry to track movement are in place.

SGX RegCo’s rules and policy proposals are similarly about weighing the risks involved and ensuring that we enable businesses to flourish without over-burdening them with unnecessary regulations. For areas of high investor interest, we can afford to be more targeted and specific, and address these areas directly. For example, we decided to remove quarterly reporting in February 2020 and only require it for companies with significant concerns, rather than to apply it across the board to all companies.

At the same time, we strengthened our continuous disclosure requirements in areas like interested person transactions, significant financial assistance and secondary fundraising. We intend to continue taking this risk-based approach to regulation so that we can regulate where needed whilst remaining sensitive to market needs.

Increasing resilience

Combating the virus and limiting its spread has been a test of community awareness and social responsibility. The Danish term Samfundssind has experienced a resurgence after Prime Minister Mette Frederiksen called on her people to show their collective and social spirit.

In financial markets, it likewise takes the entire community working together and acting responsibly to recover stronger from each setback. Our regulatory playbook was not written with a pandemic in mind.

As such, we want to focus on shaping the right culture amongst our listed companies and market professionals, to follow the spirit, rather than just the letter of our rules. In this respect, we see our role as gradually nudging companies in the right direction. In our recent Regulator’s Column, we shared our views on what we expect of sustainability reporting during Covid-19 and suggested a few scenarios and questions for boards and management to consider.

In FY2021, we will continue to encourage conversation through regular engagement with you — our stakeholders, and share thought leadership through our Regulator’s Columns, speeches, public consultations, and other events.

We will also aggressively exercise our enforcement powers to take action against companies who try to dodge their obligations. In this way, we hope to encourage everyone to play their roles in this interdependent market community meaningfully.

Professor Tan Cheng Han and Tan Boon Gin are the chairman and CEO of SGX RegCo respectively. This is their letter for the FY2020 annual report.

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