Singapore and Malaysia market regulators face delicate task

Updated: Monday November 18, 2013 MYT 9:32:05 AM

Market regulators face delicate task

BY GURMEET KAUR

CAPITAL market oversight is no easy task. It is a fine balancing act for regulators: they can’t over-regulate less they be accused of stifling the markets, and neither can they be lax for they may be accused of not safeguarding the interests’ investors. In this context, the recent experiences of the Malaysian and Singaporean regulators are worth a look. Singapore is reeling from the aftermath of the SGX penny stock crash, involving the highly speculated plays of Asiasons Capital Ltd, Blumont Group Ltd and LionGold Corp. Shares in the three companies made huge gains earlier in the year before crashing in a frenzied 40 minutes of trading on Oct 4.More interestingly, it has brought to light the pecularity of the Singapore market. For one, it is the stark absence of a circuit breaker. It is mind boggling why an advanced capital market like Singapore, South–East Asia’s biggest bourse, never had this safeguard in place.

In comparison, capital markets in the United States, the United Kingdom and Malaysia have long had circuit breakers – a mechanism that helps prevent wild fluctuations of share prices and enables investors to digest information available in the marketplace during the trading break to make informed decisions.

Perhaps Singapore had never experienced this type of stock plays or maybe in its adoption of a free-market concept, circuit breakers were left out.

Along with the absence of circuit breakers, Singapore allowed intra-day short-selling, which turned out to be a lethal combination as exemplified by the recent three inter-linked Singapore stocks.

This episode has sparked a major overhaul of Singapore’s capital market regulations. For a start it has announced it will put in place circuit breakers by the year-end.

Back home, it is clear the Securities Commission (SC) has a few achievements to be proud of this year.

Take, for example, the case of special-purpose acquisition companies (SPACs). Yes, there are many traditional investors who are quick to criticise the regulators for allowing SPACs to be listed on Bursa, considering that these companies are coming onto the market with nothing other than their personal track records and fancy business models.

But a lot of thought has gone into the creation of this asset class, modelled after private equity to allow retail participation as opposed to private equity where only the big funds or high net-worth individuals dabble in.

Indeed, the SC continually reviews its rules regarding SPACs introduced in 2009, which explains why it will soon have additional disclosure requirements and new onerous measures to safeguard minority shareholders’ interest.

Two SPAC applications made early this year – Australaysia Resources and Minerals Bhd and TerraGali Resources Bhd – are believed to have been rejected by the regulator.

In the case of Australaysia, it is reported that a key promoter of this SPAC was allegedly embroiled in a bribery scandal overseas. One wonders if the SC had approved this SPAC to be listed, there may been an outcry from investors hitting out at the regulator for not doing its checks sufficiently.

And then there was the attempted IPO of Ranhill Energy and Resources Bhd, which was withdrawn after a disclosure transgression was discovered. The SC’s move to impose fines on the company and owner Tan Sri Hamdan Mohamad for not being quick enough to inform investors about the problems the company was having with a particular major client, sends a strong message on timely disclosures.

Moving forward, the SC will have more tests coming its way.

New SPACs applications aside, it will also have to deal with the likes of Iskandar Waterfront Holdings’ planned IPO which some quarters argue is a mere listing of land, considering that the master developer does not really have a track record.

Compounding these are China listings here. In the wake of accounting scandals surrounding Chinese companies listed in Singapore and the United States, it raises the question whether the SC needs to tighten its rules. It is understood that more Chinese firms are looking to list on Bursa via IPOs or reverse takeovers.

Clearly the SC has its work cut out for it. But all said, sans missteps, 2013 looks like a good year for the SC.

Deputy news editor Gurmeet Kaur supports any move to enhance the regulatory regime for better disclosure and governance.