Industry players have welcomed the decision by the Singapore Exchange (SGX) to hive off its regulatory functions to a separate unit with its own board of directors.
The move comes as the bourse tries to quell criticism arising from its dual role as a profit-making company and a front-line stock market regulator.
Mr Esmond Choo, senior executive director at local brokerage UOB Kay-Hian, said yesterday: "The hiving off will, in theory, improve the independence of the regulatory role, since SGX also has a market development function that may result in a conflict of interest."
The SGX made the announcement after it halted the trading of its shares just before market opening yesterday, citing a column in The Straits Times which had said there were rumours that it might set up a separate unit to house its regulatory functions.
Trading resumed at 12.45pm and the stock closed six cents higher at $7.80 with 1.4 million shares traded.
The unnamed unit is expected to be set up by the second half of next year, taking over market regulatory functions such as overseeing the 770 listed firms with an estimated total market capitalisation of $1 trillion.
It will be headed by Mr Tan Boon Gin, SGX's chief regulatory officer, who will report directly to the new unit's board.
The Monetary Authority of Singapore (MAS), which oversees SGX as a listed company, welcomed the move, noting that it is an important step in strengthening the safeguards to manage potential conflicts of interest between SGX's commercial and regulatory roles.
In a statement yesterday, SGX emphasised the extent to which it is keeping the new unit at arm's length by announcing that it will be governed by a board of directors separate from that of SGX.
"The chairman and a majority of its directors will be independent of SGX and its regulated subsidiaries. All directors of (the new unit) will also be independent of any other corporation listed on SGX," it added.
An SGX spokesman later clarified that the new unit's board members can be appointed either by SGX, subject to MAS approval, or by MAS directly.
SGX said the unit will not add to the requirements for companies applying for a listing here.
SGX chief executive Loh Boon Chye said in a statement that the decision was made after a long deliberation and is intended "to address potential conflicts between our commercial objectives and our regulatory responsibilities".
President and chief executive of Securities Investors Association (Singapore) David Gerald said that separating the regulatory function from SGX's business role is essential from a governance perspective, as it requires the avoidance of conflicts of interest at all costs. But he voiced concern that the new unit's board should be seen to be independent of any interference from SGX.
"The devil is in the details, and it is better for MAS to be the appointing body of this regulatory body to give it complete independence," said Mr Gerald.
Ms Rachel Eng, deputy chairman of legal firm WongPartnership, felt that the new unit's credibility hinges on the quality of leadership offered by its board.
She said: "A big hurdle is requiring the board's candidates to have no association with other SGX-listed firms. But I am confident that there will be enough people with good exposure to both the market here and overseas to sit on this board to lend it weight."