Published June 17, 2009

Deadlock in division of regulatory roles

By JAMIE LEE

	Email this article
	Print article
	Feedback

THE Singapore Exchange (SGX) has been criticised for its silence over some companies' unusual share price movements in relation to takeover talk.

A recent case is that of Chartered Semiconductor Manufacturing, which saw its shares surging over a few days on speculation that the company had received a takeover bid. The chip foundry was not queried by SGX and only broke its silence when reports detailed the potential acquirer and the price range of the offer.

But one market watcher asked if SGX has been treated harshly since takeover announcements come specifically under the Securities Industry Council (SIC).

While SGX queries companies based on unusual share price movements, the actual powers to investigate any dealing in securities connected with any mergers and acquisitions come under SIC's takeover code. The code states that any listed firm which has become the subject of speculation about a possible offer must make an announcement, 'whether or not there is a firm intention to make an offer'.

Given that the function of monitoring share prices comes under SGX, the assumption is that SGX is mostly responsible for prompting companies to make known any material announcements, including that of potential takeovers.

But because SGX doesn't have enough weight to add to its queries when it comes to takeover speculation unlike SIC, it makes tentative probes on companies.

Yet, this doesn't absolve SGX from responsibility.

Like the check-out girl at the counter, it should be the first to highlight any price irregulatories or possible market manipulation.

The reasons leading SGX to prefer a light-touch in chiding companies behind closed doors rather than going public with reprimands have been discussed. It is balancing its role as a regulator and as a public company that makes money from listing fees and other compliance charges, and taking flak for the obvious conflict of interest at the same time.

But aside from that, this apparent disconnect in regulatory functions highlights the need for more coordination between SGX and the Monetary Authority of Singapore (MAS).

It isn't clear how collaborative the relationship between MAS and SGX is, beyond the rhetoric that these two regulators are cooperating on such issues and spotting former MAS officials who have now joined SGX.

It isn't totally clear either as to what MAS' preferred reaction is to companies that do not make prompt and proper disclosures on takeover offers.

It will be unwise to get sucked into a seeming blame game between the two agencies. There are well-debated options that can change this situation.

MAS can take back the regulatory function to remove some perceived inefficiency in the back-and-forth negotiations between the two regulatory agencies.

Another popular alternative is to have SGX set up a separate regulatory body, though from its non-committal response to this, one suspects that this wouldn't come anytime soon.

A third option would be to give SGX more powers, though then one would ask where MAS would stand in terms of regulations.

The point is that there is room for improvement and there are options available to strengthen market governance here.

But until the impasse snaps, SGX will still have to bear the brunt of criticisms in having a limp regulatory hand.