Singapore Exchange Echoes NYSE in Spinning Off Policing Role

  • Regulatory unit will not add to IPO process, bourse says
  • MAS says change will manage potential conflicts of interest

Singapore Exchange Ltd. will house regulatory functions in a unit with its own board, following calls to separate the role.

The subsidiary is expected to be set up by the second half of 2017 and will not add to the requirements of Singapore’s initial share sale process, Southeast Asia’s biggest bourse operator said in a statement Monday. SGX shares climbed 0.9 percent as of 3:42 p.m. in the city-state, resuming after a morning trading halt following a Straits Times report on the plans.

The structure will help manage potential conflicts of interest between SGX’s regulatory and commercial roles, the Monetary Authority of Singapore said Monday. The New York Stock Exchange has a non-profit unit that enforces listing standards, while outsourcing some policing functions to an industry watchdog.

“It’s a good start to help enforce the element of independence with a separate board,” said Robson Lee, a capital markets lawyer at Gibson Dunn & Crutcher LLP in Singapore. “This helps to address the perceived conflict of interest that SGX has.”

The central bank, which will retain oversight of SGX, said Monday that it will require the chairman and a majority of the board members of the exchange’s watchdog unit to be independent from SGX. It’s also demanding that the entire board have no ties to companies listed on the bourse.

‘Effectively Separate’

Chief Regulatory Officer Tan Boon Gin will head the unit, according to the exchange. “This arrangement will keep us close to market developments while effectively separate from the commercial side of SGX,” Tan said in the exchange’s statement. 

Last year, SGX set up a listings advisory committee and boosted its enforcement powers including being able to impose fines and suspending activities of financial advisers who flout listing rules. MAS in January refined its exchange regulatory system amid the emergence of rival bourses such as Intercontinental Exchange Inc. The Securities Investors Association of Singapore, which has previously called for the central bank to become the nation’s sole capital-markets regulator, welcomed SGX’s move to separate its regulatory functions.

“This has been long overdue,” David Gerald, SIAS president and chief executive officer, said in a statement Monday. “A policeman cannot do business with the very citizens he is policing.”

SGX suffered a five-hour malfunction on Thursday which halted stock trading, prompting an apology from its chief executive officer and criticism from the central bank. MAS has ordered the bourse to submit a “thorough” report, addressing the root cause of the technical glitch, before it decides on a response. SGX has said it will provide details of the probe this week.

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