Thursday, December 10, 2009

SGX Cracks The Whip

One may think that there are plenty of shenanigans in Malaysia, but they are just as rampant even in Singapore stock market. There are many small penny stocks that are being played like there is no tomorrow. Controlling share blocks change hands frequently causing many to speculate on "new order of business" or causes investors to bet on personalities, or mavericks as we like to all them. There are also problems with some foreign listings. The new rules by SGX are necessary.

One of the more important development would be the need to disclose on shares being collateralised by the controlling shareholder - we all know what that will mean. It may also hit some Malaysian company owners who have pledged their shares in Singapore in exchange for lines of credit - they certainly will not want that information to be in the public. Can you guess which Malaysian companies will be affected? I know a few but to put them up would be unethical, so do your own research and be careful. In fact some may already be "affected".

Business Times Singapore: Errant directors of listed companies may come under greater scrutiny from the Singapore Exchange (SGX), which could object to their appointment and rap them publicly.

Proposed new rules also have more safeguards against poor governance for listings with large overseas operations. They demand more disclosure over possible changes in control of companies due to share pledges for loans. In a consultation paper issued yesterday, SGX said that when companies become the subject of an investigation of “irregularities or other wrongdoing”, they may require approval to appoint directors, chief executives (CEOs) and chief financial officers (CFOs).

Controlling shareholders under investigation may be prevented from installing a proxy after being booted out from the company.

SGX also seeks to cement its right to censure publicly or object to the appointment of key executive officers or directors if they have breached regulations or have “refused to cooperate with the regulators”.

The moves will make directors and executives of public listed companies more conscious of their duties, said Lee Suet Fern, managing partner of Stamford Law Corporation. “There was otherwise a lacuna where errant directors and executives who had caused breaches of our rules but had not actually committed a crime, could continue unscathed.”

An outgoing CFO must also confirm with SGX that there are no irregularities or material differences in opinion with the board or management. This could act as a whistle-blowing mechanism. The regulator also wants companies to ensure that an independent director (ID) is sitting on the board at all times. In 2006, now-delisted retailer Robinson saw all its IDs quit after a board tussle.

For foreign listings, or companies with “offshore principal subsidiaries”, at least one ID who is staying in Singapore should be on the board. One market watcher cautioned that this might put too much burden on IDs and deter some from sitting on the board. If foreign listings are being audited by overseas auditors, new rules may require such companies to have a joint sign-off with a Singapore accounting firm for the accounts, as mentioned by then-CEO Hsieh Fu Hua in August.

Hsieh added then that controlling shareholders may soon need to disclosure their share pledges to the public, an issue that had been magnified by the recent slew of S-Chips’ CEOs losing their controlling stake to debtors after they defaulted on loans.

Under the proposal, shareholders must publicise their pledged shares when the total stake is at least 30 per cent, when an enforcement may cause a breach of loan covenants by the company, or when the controlling shareholder is the single-largest one and has pledged at least half of his stake.

“It becomes a company matter and not a personal matter in such cases and I believe the shareholders’ right to know far outweigh the privacy concerns,” said Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at NUS.

In addition, SGX proposes to ban the transfer of shares in a company that is under trading suspension. It wants controlling shareholders and their associates to have their shares custodised with the Central Depository or a depository agent who has made arrangements with SGX to restrict transfers of shares during suspension.

Newly listed companies have also been asked by SGX to consider engaging a governance adviser for two years after their initial public offering. In some instances, SGX may ask the company to appoint an adviser. The consultation paper will be available for feedback until Jan 15.

In a bid to increase market transparency, the Singapore Exchange (SGX) has said that it is making it compulsory for brokers to mark all short-sell orders. A short-sell order is defined as any sell order where the seller does not own the quantity of shares sold at the time of placing the order. SGX said it will institute this policy of marking short-sell orders in the first half of 2010 in consultation with the Monetary Authority of Singapore (MAS). In addition, statistics of aggregate short-selling activity for each individual security will be published daily.

p/s photos: Luna Maya


JoeDee said...

Hi Salvatore,

Do you by any chance analyse stocks on the Jakarta Stock Exchange? It would be interesting to see your take on it.



Salvatore_Dali said...

sorry, no

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