QUESTION NO 529

NOTICE PAPER 308 OF 2016

FOR ORAL ANSWER

Date: For Parliament Sitting on 13 September 2016

Name and Constituency of Member of Parliament

Ms Sylvia Lim, MP, Aljunied GRC

Question:

To ask the Prime Minister given SGX's challenges in recent years relating to the quantity and quality of listings, turnover, technical disruptions, risk management, including a half-day disruption on 14 July 2016 (a) whether the Government is optimistic that SGX's performance and reputation can be revived; (b) what role it sees for SGX in broader economic development; and (c) what steps it is taking to work with the SGX management to catalyse the desired outcomes.

Answer by Mr Ong Ye Kung, Acting Minister for Education (Higher Education and Skills) and Senior Minister of State for Defence, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of MAS:

1   The Singapore Exchange (SGX) has indeed faced a number of challenges In recent years. Some of them are not unique to SGX or Singapore. Globally, there has been a significant decline in Initial Public Offering (IPO) activity, including in markets like the US and Hong Kong. A weak economic outlook and heightened market volatility have been cited as reasons for this lackluster IPO activity. The rise of alternative private financing markets, offering comparable scale and pricing, also poses increasing competition to public stock exchanges globally. There are other challenges faced by SGX more particularly, such as low levels of liquidity and many poorly performing counters. While its derivatives business remains among the most dynamic in Asia, its cash equity business has lost some ground to competitors.

2   SGX has embarked on several initiatives to strengthen and develop the stock market, with the support of the Monetary Authority of Singapore (MAS). A key priority of SGX is to raise the quality of listings. The entry bar for companies seeking to list on the Mainboard has been raised. A minimum trading price was introduced to address risks associated with low-priced securities and to improve overall market quality. Three independent Listing Committees were established last year to strengthen the process for admitting new listings and enforcing against listing rule breaches. In July, SGX announced plans to transfer its regulatory functions to a subsidiary company which will focus exclusively on the task and would be governed by a separate and independent Board.

3   SGX is also adapting to competition from alternative private financing markets. Recently, it partnered Clearbridge Accelerator, one of Singapore’s leading venture capital and incubation firms, to set up Capbridge, a securities-based crowd-funding platform. Capbridge may also contribute to SGX’s IPO pipeline by incubating and providing last-mile funding to high-tech companies before the IPO stage.

4   It will take time for SGX’s initiatives to bear fruit. But some improvements can be seen. IPO activity has increased in the first half of this year compared to the same period last year.

5   A second area that needs improvement is the management of technology and operational risks. It is not uncommon for exchanges to experience trading disruptions. System failures and trading halts have occurred in several major exchanges in recent years. But SGX needs to do better in reducing the frequency of these disruptions and in managing any disruptions well. It is taking this seriously. MAS is closely supervising SGX’s progress in enhancing the resilience of its systems and recovery processes and in engaging stakeholders effectively.

6   Thirdly, SGX is creating new business opportunities, by building on its strengths. For example, it has the largest listed Real Estate Investment Trusts (REIT) and Business Trusts sector in Asia, excluding Japan, and continues to attract such listings from local and foreign sponsors. SGX plans to launch its first exchange-traded fund for Singapore REITs in the later part of this year.

7   SGX is also a leading player in the Asian time zone in equity derivatives, and advancing further. It expanded its Nifty suite of futures contracts in June this year. The exchange is growing its capabilities in foreign exchange (FX) derivatives, and is collaborating with a leading electronic trading platform in FX (ICAP’s EBS BrokerTec) to offer block FX futures in the later part of this year.

8   To summarise, SGX is not sitting still. It is building on its existing strengths, staying nimble to new opportunities, and working to improve its system resilience.

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