Published December 22, 2008

Treat longs and shorts equally

By R SIVANITHY

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WHEN asked what he thought of the recent proposal by the Singapore Exchange (SGX) to publish detailed short-selling information, a senior analyst said: 'Why single out short-sellers for special treatment? They have done no wrong. If you want to improve disclosure, then disclose everything, not just short positions. Why penalise only short sellers?'

It's SGX's call: The list of top 20 shareholders for Singapore-listed firms would usually be occupied by nominee names, essentially useless information

Why indeed? Six months ago, we said in this column ('Why shareholding transparency is important', May 5) that perhaps the regulatory authorities here should follow the example of Hong Kong, which at the time announced an Online Shareholder Disclosure Service to allow anyone to check the identities of shareholders in any Hong Kong-listed company free of charge for periods up to one year in the past.

In other words, Hong Kong has taken the lead in realising that it's not just short positions that could do with improved disclosure, but also long ones.

The aim of the Hong Kong exchange's service is, according to its press statement, 'to give the public greater access to information on Hong Kong-listed companies' shareholders and further increase the transparency of Central Clearing and Settlement (CCAS, the Hong Kong-equivalent of Singapore's Central Depository or CDP) shareholdings'.

Users specify the name of the company and can search by substantial shareholder, date and even directors' interests.

Why is it equally important to know who is long as well as short? The simple answer is: Why not? If you were to glance through the annual reports of most companies, the list of top 20 shareholders for Singapore-listed firms would usually be occupied by nominee names, essentially useless information from the point of view of anyone wanting to know who the shareholders really are. Why not make it mandatory for these nominees to reveal who the names of the true beneficial owners? After all, if shareholders are a company's main customers, and if good management means knowing your customers well, then shouldn't companies know the identities of their shareholders and share this knowledge with the public?

If, for example, companies know who exactly their shareholders are, then surely a long-term relationship or dialogue between management and shareholders can ensue. Might this not then improve attendance at general meetings, or raise shareholder awareness and activism and, in so doing, act as a check against hostile or prejudicial activity?

We could take this several steps further and argue that company shareholding should be broken down into the proportion held by retail investors and professionals. For comparative purposes, why not also give the top 20 shareholders for the past five years instead of just the most recent year to show how the structure has shifted over time?

If the authorities are really committed to improving 'long' disclosure, then why not make it a rule that companies disclose quarterly shareholder statements showing details such as geographic distribution and proportion of votes held?

As noted in our earlier columns on the subject, there is a growing movement in developed markets such as the US and Europe to identify a company's shareholders. This is founded on the argument - quite correctly - that shareholders too should have duties and obligations, at least insofar as disclosing their identities is concerned.

The key to change, of course, is to recognise that the registered owner of a certain block of shares or even the legal owner may not necessarily be the ultimate investor and to address this via legislation or amending the rules - just as SGX is now considering for short positions. After all, is it not the case that in a true disclosure-based regime, both longs and shorts have to be treated equally?