Letters to Editor
Published Date: 26 June 2015

Opinion Editorial on "Achieving a Robust and Vibrant Securities Market" - Business Times, Straits Times and Lianhe Zaobao, 26 June 2015

Achieving a Robust and Vibrant Securities Market

The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have over the past year introduced several new measures to strengthen the securities market.

In part, these measures are in response to various concerns raised about the market, including market irregularities, low trading volumes, and paucity of good listings on SGX.  The measures have benefitted from extensive consultations with different stakeholders.

They broadly aim to achieve a robust and vibrant securities market, where companies can raise capital efficiently, investors can pursue their financial objectives, and intermediaries can serve their customers' needs effectively. While it is only natural that various stakeholders will have differing views, it is important to seek common ground and find solutions for the greater good of the market.

As a regulator, MAS' role is to provide a sound framework within which market discipline, enterprise, and innovation can thrive. In regulating and developing the capital markets, we have to strike a balance among competing interests.

Adapting to changing landscape

Technology has given investors real-time access to local and international markets. Almost half of all retail trading locally is now transacted online. Investors have become more savvy and are increasingly making their own trading decisions. They value advisory services and execution platforms that cut across asset classes and geographies.

Brokerage firms and remisiers need to broaden their services beyond merely executing trades for their clients. For example, they could provide personalised advisory and risk management services, catering to the specific investment needs of their clients. Many remisiers recognise the need to upgrade themselves to be able to do this. The Institute of Banking and Finance has taken the lead to develop upgrading programmes, in consultation with the remisiers and brokerage firms.

We are also seeing new exchanges being established in Singapore. In a more competitive multi-exchange landscape, there is a need to mitigate potential conflicts of interests and ensure efficiency in regulation. For example, there could be scope to reduce any overlaps between the oversight functions of the MAS and the exchanges.

Improving the quality of listings

Some market participants have suggested improving the quality of listings by requiring listed companies to meet certain admission standards, and to admit only dividend-yielding companies and government-linked companies (GLCs).

Improving the quality of listings is important. But a well-functioning securities market should also serve as a platform for companies in different phases of growth to list and raise capital as long as they meet the requirements. Having dividend alone as an admission criterion will deny high growth companies the opportunity to list on SGX, and investors the opportunity to invest in them.

SGX has introduced several measures to improve the quality of listings. First, it has raised the entry bar for companies seeking to list on the Mainboard. Second, it has established a direct listings framework with the China Securities Regulatory Commission (CSRC) such that China incorporated companies must seek their regulator's approval before they can list on SGX. The enhanced regulatory processes and due diligence on the companies by both SGX and CSRC will provide greater assurance to the market place.

Third, to address concerns about pursuing growth at the expense of the quality of listings, SGX will establish independent committees in the third quarter this year to reinforce its listings and enforcement framework.

Fourth, SGX has introduced the minimum trading price (MTP) requirement for Mainboard listed issuers. Although many market participants support a MTP, a few others have asked to roll back the requirement on concerns such as potential fluctuations in share prices. While there will indeed be some short-term adjustment costs, it is important to not lose sight of the longer term objective of enhancing the integrity of the market as a whole - one that is less prone to bouts of excessive speculation or manipulation. In the meantime, transitional arrangements (such as a 12-month grace period for issuers to comply) have been put in place to help affected market participants.

Enhancing investor protection

Safeguarding the interest of retail investors is paramount.  MAS will require  retail investors to post collateral for their trades.  This is unlike contra trading where shares can be purchased and sold within three days without any upfront cash payment.  This will address the risks of excessive speculative trading and over-leveraging.

We will also improve market transparency by requiring the reporting of aggregate short positions.  Both measures will align our practices closer to those of other major jurisdictions.

However, regulatory safeguards for retail investors are not always popular as the benefits are not immediately apparent. For example, some have argued that the requirement for intermediaries to assess their customers' suitability to trade complex products such as structured warrants - more commonly known as Specified Investment Products - should be replaced by a simple disclosure statement. However, the Lehman mini-bond episode has shown that a presumption that retail investors can understand the investment risk of complex products upon signing a risk disclosure statement is flawed.

MAS has therefore been working to improve retail investors' access to simple, low-cost capital markets products, such as the recently introduced Singapore Savings Bonds. MAS has also since April allowed investment funds, including exchange-traded funds which make limited use of derivatives, to be classified as Excluded Investment Products (which are the more basic and easily understood products such as shares and REITs). We will also simplify the regulatory requirements for high quality corporate bonds to allow them to be more accessible to retail investors in the third quarter this year.

Strengthening our enforcement regime

There have been frequent calls for faster investigations into alleged market irregularities that occur from time to time, such as the penny stock saga in late 2013.  Investors' anxiety to know the outcomes of investigations is understandable. But it is important that the investigation process be rigorous and not rushed. There is often a web of details to be ascertained in each case. To be effective, investigations need to be confidential so as not to tip off suspects. Our investigation practices are not dissimilar to that of other jurisdictions like the United States where complex cases can take several years to complete.

The recently-concluded investigation of China Sky is a good example. It was successfully resolved after three years through close collaboration among MAS, SGX, and the Commercial Affairs Department, as well as assistance rendered by the authorities in the People's Republic of China. To streamline and strengthen enforcement, MAS and CAD will now jointly investigate market misconduct.

Benefits of all-day trading

Certain segments of the trading community have expressed concerns that not only has continuous all-day trading (CAT) not improved trading volumes, it has deprived them of lunch breaks and opportunities to network with clients.

But the larger question is whether Singapore as an international financial centre can afford not to have CAT. Financial markets trade round the clock. CAT is a common feature in major markets including the US, UK, Australia, and Europe. Investors in these markets are able to manage their exposures without a break in exchange trading hours. Securities Investors Association of Singapore, which represents 71,000 retail investors, supports CAT as it provides convenience to retail investors to trade throughout the day.

When CAT was implemented in 2011, alternative arrangements were considered to assist remisiers to support their clients continuously, such as the channelling of transactions through a brokers' central dealing facilities or via mobile devices. MAS and SGX are ready to work with the affected parties to review whether these arrangements can be further improved.

Co-creating a better securities market

MAS conducts public consultations and regular outreach programmes to engage industry stakeholders. Some stakeholder groups have expressed a desire for even more dialogue. MAS and SGX will hold joint roundtable sessions with various stakeholders to gather feedback and ideas to improve our capital markets.

A well-functioning securities market is a shared responsibility. The regulator, the exchanges, the industry, and investor associations, should work together to co-create a fair and efficient securities market that engenders confidence and trust. This is paramount for Singapore to stay the course as a competitive and vibrant financial hub in Asia.

Ong Chong Tee, Deputy Managing Director (Financial Supervision), Monetary Authority of Singapore.