SGX spins off regulatory functions into separate unit

SINGAPORE — In a long-awaited move that will strengthen its corporate governance, the Singapore Exchange (SGX) will set up a subsidiary to carry out its regulatory role, more explicitly separating its regulatory functions from its commercial operations.

The new subsidiary will be governed by a separate board of directors and its chairman, and the majority of directors will be independent of SGX, the bourse operator said on Monday (July 18) after it halted trading in its own shares during the morning session for the announcement. 

It is expected to be set up by the second half of next year. SGX’s chief regulatory officer will be the chief executive of the subsidiary and will report to the subsidiary’s board, it added.

The self-regulatory organisation (SRO) model is widely adopted by other exchanges globally in a variety of forms, SGX said, adding that it closely monitors developments in this area and regularly considers enhancements to assure regulatory robustness. Following the setting up of the independent listings committees last October, the establishment of the regulatory subsidiary will add to the safeguards in place to ensure high governance standards in the regulation and operation of SGX markets, it said. 

Major exchanges using this SRO model include the New York Stock Exchange and the London Stock Exchange. 

For companies seeking listings, SGX said that the creation of the new unit will not add to the requirements of the current listing process for initial public offerings (IPOs), and is consistent with ongoing efforts to rationalise regulatory functions performed by SGX and the Monetary Authority of Singapore (MAS).

In a separate statement, the MAS said SGX’s move to transfer its regulatory functions to a separate subsidiary is an important step in strengthening the safeguards to manage potential conflicts of interest between the bourse’s commercial and regulatory roles. MAS will continue to directly regulate SGX in terms of its obligations as a listed company and market operator, as well as maintain oversight of SGX’s regulatory responsibilities as performed by its new subsidiary.

Mr David Gerald, president and CEO of investor rights advocate Securities Investors Association Singapore (Sias), said: “This has been long overdue. It has been the market participants’ desire to see an independent body like the US Securities and Exchange Commission in all Asean countries and other developed markets, to allow the regulatory body to be fully independent of the bourse. It is the right thing to do ... A policeman cannot do business with the very citizens he is policing.”

The move to create a Chinese Wall between the regulatory and business operations of SGX with separate boards is a step in the right direction, said veteran market watcher and influential shareholder activist Mano Sabnani. 

“Although many may argue that employees under the regulatory arm will still continue to be overall employees of SGX, drawing remuneration from the main company, I would say the independent board will be in a good position to handle this, with MAS maintaining an overall vigil,” he added.

While this is another tick on the must-do list for SGX, the bourse still has to address the bread and butter issue of trading volume growth, said CIMB Private Bank economist Song Seng Wun. 

“SGX has to pump in more life into the market in terms of more trading volume. That’s what is key now, having sorted issues around conflict of interest with the Singapore version of the US Securities and Exchange Commission,” Mr Song said.