Question:
To ask the Deputy Prime Minister, should a conflict of interest arise for the Singapore Exchange in its role as both a regulator and operator of securities trading, what measures are in place to ensure that the public good is not compromised.
Answer:
1 SGX performs two roles: to run the business of a stock/futures exchange and to ensure the integrity and efficiency of trading on the exchange through an effective and sound regulatory framework.
2 These two roles are not incongruent. The interest of SGX's shareholders and the "public interest" as represented by traders and users of the Exchange are more aligned than divergent. An exchange seeking to attract listings and investor interest benefits from sound regulation as well as effective enforcement mechanisms. It is in the commercial interest of SGX to have a sound regulatory framework that provides the basis for a healthy, vibrant marketplace for sustained business success.
3 Even before its demutualization, members of the then Stock Exchange of Singapore (SES) had to set their own in-house rules which could compromise their short-term commercial interest, and SES had to supervise its own members, who owned and controlled the Exchange. This made it necessary for MAS to be quite involved in the affairs of SES. SGX now has a wider and more diverse pool of shareholders, including international shareholders. Having a wider investor base has removed some of the earlier potential conflicts of interest for members. However, the demutualization of the SGX has accentuated and made more explicit the issue of whether making profit is consistent with good regulation.
4 MAS has defined more clearly an enhanced role for itself in overseeing SGX's regulatory responsibilities. The Exchanges (Demutualisation and Merger) Act 1999 gives MAS the power to issue directives to SGX in the interest of ensuring fair and orderly markets and the proper management of systemic risks. The Act also provides for MAS to directly regulate SGX's position as a company listed on its own exchange.
5 MAS recently (on 16 February 2001) issued a press statement, and the Deputy Managing Director, Mr Tharman Shanmugaratnam, made a speech which set out MAS' position in detail. SGX will, in the main, retain the frontline responsibility of regulating market participants and compliance with its own rules. MAS, as the statutory regulator, will assure itself that SGX is performing its regulatory functions competently and responsibly. For instance:
- SGX defines and enforces its Rules and Bye-Laws. However, SGX must continue to obtain MAS' approval for any amendments thereto.
- Whilst SGX ensures that listed companies make timely and complete disclosure of material information, MAS will conduct the civil prosecution of offending companies which contravene the disclosure requirements.
- SGX conducts direct surveillance of the market. MAS will assure itself that this is done effectively and responsibly.
- MAS will also ensure that SGX's inspection and supervision of its members is done competently, by conducting its own independent inspection of SGX's members, and by inspecting SGX.
6 MAS believes that the current MAS-SGX regulatory arrangement for the regulation and supervision of the securities markets, with an enhanced oversight role for MAS over SGX, is a sound arrangement. MAS will watch carefully how it works in practice, and will adjust the balance of responsibilities between MAS and SGX, should this prove necessary.