Date: October 11, 2015
Ms Indranee Rajah, Senior Minister of State for Law and Finance
Mr David Gerald, Founder, President & CEO of the Securities Investors Association (Singapore)
Ladies and gentlemen
1. Good morning and thank you for inviting me to join you here today.
2. Following on from Minister’ speech, I would like to go straight to talking about how corporate governance fits into SGX’s regulatory approach.
3. First our approach; as some of you may know, I have spent the last 10 years investigating securities cases at MAS and CAD. I recently moved to SGX and a big reason for moving was because I wanted to stop such cases from even reaching MAS or CAD.
4. Law enforcement should only be a tool of last resort. Securities cases are typically complex and often require a long time to investigate – and time is of the essence in the financial markets, especially when investors may already have suffered losses and confidence may have been affected.
5. The most effective way of tackling these cases is through prevention or containment.
6. And as the frontline regulator, SGX has the ability – through timely intervention – to stop these cases from happening upstream and that is an opportunity we need to take very seriously.
7. Take for example our recent actions regarding two penny stocks, CEFC and IHC where we took the unprecedented step of warning the market of unusual trading through detailed announcements based on our investigations.
8. SGX conducts real time surveillance to detect unusual trading activity. By sharing the results of our surveillance and investigations, we enable investors to make better-informed decisions on whether to invest, or stay invested in these companies.
9. There may be short term price fluctuations following such alerts, particularly if those responsible for the unusual trading stop trading. However, in the long term, there will be proper price discovery driven by the natural forces of supply and demand and that is the only way for a sustainable market.
10. In addition to being timely, our intervention must be backed by meaningful enforcement.
11. All market participants and stakeholders need to be convinced that we are serious about enforcing our rules.
12. In this regard, we have recently announced the introduction of three independent listing committees in a move to further strengthen the listing regulatory process, namely the Listings Advisory Committee (LAC), Listings Disciplinary Committee (LDC) and Listings Appeals Committee (LApC), which came into effect on 7 October 2015.
13. This has added significantly more bite to our enforcement powers. Previously, the strongest action we could take against a listed company for a breach of our listing rules was to issue a public reprimand or delist the company. Now we can apply to the listing committees which can levy fines and deny the company access to the securities market.
Review of companies’ compliance with “comply or explain” requirement
14. This brings me to the status of the Code of Corporate Governance. In my three months at SGX, I was surprised at the number of times the CG Code was referred to as optional or best practice. Let me clarify this once and for all. Under our listing rules, companies are required to comply or explain why they do not comply with the CG Code. Failure to comply or explain is a breach of our rules and all breaches will be enforced using our new enforcement powers.
15. We are conscious of the misconceptions or lack of awareness regarding the CG Code that may have led to inadvertent failures to adhere to our rules. To address this, I am pleased to announce that we are engaging KPMG to carry out a review of listed companies’ compliance with the “comply or explain” requirement for the CG Code.
16. We will be exploring how to publish the findings from the review on a statistical and no-name basis and highlight the areas that need improvement – providing investors will greater information to make an informed judgement on whether the company has provided adequate disclosures and meaningful explanations for deviation from the code.
17. This review will be a first step. From the review, we intend to draw out the companies which are falling short of our listing rule requirement and work with them on a one-on-one basis to improve how they comply with the CG Code.
18. This will achieve two goals. Firstly, we will raise overall corporate governance standards, including sounder control functions and increased transparency and accountability. Secondly, we can identify and focus on particular companies with weaker governance processes, to pro-actively detect and manage any misconduct as early as possible.
19. Good governance is not just about management safeguards and keeping the company on the level. A well governed company is more attractive to investors and in the long term, this translates into better valuations and higher share prices. It builds up reserves of shareholder trust and confidence that it can draw upon should it become the victim of a negative research report or short selling.
20. In short, I put it to you that the prudential and economic arguments for good corporate governance are compelling and even irresistible.
21. Thank you.