SGX to set up separate regulation unit with its own board of directors

A man passes the SGX building in Singapore's central business district on March 24.
A man passes the SGX building in Singapore's central business district on March 24. PHOTO: REUTERS

SINGAPORE - The Singapore Exchange (SGX) announced on Monday (July 18) that it will establish a separate subsidiary company (RegCo) to undertake all the front-line regulatory functions it currently performs.

The move aims to further enhance the governance of SGX as a self-regulatory organisation (SRO) by making more explicit the segregation of its regulatory functions from its commercial and operating activities, the exchange operator said in a filing around noon.

SGX said it expects to set up RegCo by the second half of 2017.

It also resumed trading of its shares. SGX halted trading before markets opened to clarify a report in The Straits Times, published on Monday, titled "Weighing the merits of hiving off SGX's policing job".

 

The commentary had said there was talk SGX may be planning to set up a separate unit to house its regulatory functions.

SGX, which suffered its longest trading disruption ever last Thursday, has long faced criticism over the perceived conflicts that arise between its roles as a profit-making stock exchange operator and as a market regulator.

In its announcement, SGX said its new regulation unit RegCo will be governed by a board of directors separate from that of SGX. All directors of RegCo will also be independent of any other corporation listed on SGX.

RegCo will be responsible for discharging all of SGX's market regulatory and supervisory functions and will report to its own board. The chief regulatory officer of SGX will be the CEO of RegCo and report directly to RegCo's Board.

SGX said the establishment of RegCo will not add to the requirements of the current IPO listing process.

The Monetary Authority of Singapore (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 RegCo.

Said SGX CEO Loh Boon Chye: "The decision to house our entire Regulation unit in a separate subsidiary with its own governance structure was made after a long and careful deliberation.

"My team and I look forward to taking on our role and responsibilities as the front-line regulator within this new structure. This arrangement will keep us close to market developments while effectively separate from the commercial side of SGX."

In a separate statement on Monday, MAS said SGX's move "is an important step in strengthening the safeguards to manage potential conflicts of interest between SGX's commercial and regulatory roles."

It added that it had been in close discussion with SGX on enhancing the governance of SGX's regulatory responsibilities.

"The independence of the subsidiary company from SGX will be an important factor for its success. MAS will therefore require the chairman of the subsidiary company and a majority of its directors to be independent of SGX and its regulated subsidiaries and for all directors to be independent of any corporation listed on SGX.

CMC Markets analyst Margaret Yang noted that the market has greeted the news positively.

"Since the SGX resumed trading of its shares, the price has gone up over 1 per cent. Investors are hoping that this move will improve the independence of its regulatory role while allowing it to focus on the profit business as well," she said.