Singapore Exchange Ltd (“SGX”) invites public comments and feedback on proposed new measures to strengthen the practices of corporate governance, and rule amendments to foster greater disclosure. The proposals stem from SGX’s annual rule reviews that are undertaken to keep abreast of the challenges and developments of the industry. It is also part of the on-going efforts to enhance the quality of the marketplace. Some of the proposed amendments in the consult include:-
Strengthen Corporate Governance Standards
- Internal Controls System and Risk Management Framework
The Exchange requires issuers to have a robust and effective internal controls system and risk management framework. Under the Code of Corporate Governance, the Audit Committee has to comment on the adequacy of their company’s internal controls and risk management policies and systems. For increased transparency and accountability, the Exchange proposes to require the Audit Committee’s assessments to be disclosed in the annual report (Rules 719 and 1207). - Appointment of a Governance Adviser
The Exchange proposes to introduce the role of a governance adviser to help newly listed issuers make certain that they have the framework and practices of good corporate governance as befits a listed company. The key elements of good governance include effective internal controls, risk management processes, board practices, and accounting and reporting systems. Newly listed companies do well to consider engaging a governance adviser for two years post IPO to give assurance that the support framework of corporate governance is firmly in place. Where necessary, the Exchange has the discretion to ask the company to appoint an adviser. This will be enclosed in Practice Note 2.1.
Role of Board Directors, Key Executive Officers and Auditors
With the developments in recent years, it is recognised that the Board of Directors, chief executive officers (CEOs), and chief financial officers (CFOs) contribute significantly to good corporate governance in listed companies. The Exchange is proposing the following small and individual changes, that when taken collectively, will enhance the practice of corporate governance:-
- Under specific circumstances such as where the issuer is the subject of an investigation of irregularities or other wrongdoing, the Exchange’s approval may be required for appointments of directors, CEOs and CFOs (Rule 720);
- To codify the Exchange’s right to take action against key executive officers or directors, such as public censure or objecting to their appointments, if they have refused to cooperate with the regulators or caused a breach of rules, laws and regulations (Rule 720);
- If the CFO or person responsible for preparing financial statements leaves the company, the person must confirm to the Exchange that there are neither irregularities nor any material differences in opinion with the Board and management (Rule 704);
- The Exchange proposes that for continuity reasons, there be a provision in the Company’s Articles that at least one independent director remain in office at all times (Appendix 2.2). In addition, issuers with offshore principal subsidiaries should have at least one independent director who is resident in Singapore, on the board of its principal subsidiaries (Rule 221);
- Where both the company and its auditor are based in a foreign jurisdiction, the Exchange proposes to require a joint sign-off with a Singapore-based accounting firm on the company’s audited accounts (Rule 712(3)); and
- In determining the suitability of an accounting firm to serve as its auditor, the issuer should consider the results of any review by the Accounting and Corporate Regulatory Authority Singapore (‘ACRA’) of the firm and its relevant audit partners (Rule 712(2)).
Safeguard Shareholders’ Interests
- Restriction on Shares Transfers during Trading Suspension
As an added safeguard to the interests of shareholders and investors, the Exchange proposes to restrict all transfers of shares in a company that is under trading suspension (New Rule 729). - Custody of Shares
The Exchange proposes that controlling shareholders and their associates hold their shares in custody with the Central Depository (CDP) or a Depository Agent who has made arrangements with SGX to restrict transfers of shares during trading suspension (New Rules 229 and 730). Such transparent custodisation of shares signals a commitment by controlling shareholders and in turn, reinforces the confidence of investors. This arrangement also provides the Exchange greater visibility over the interests of controlling shareholders and regulatory purchase over them.
Greater Disclosure and Transparency
- Disclosure of Pledging Arrangements
Under certain circumstances, a shareholder must notify the company in writing, when his/her shares in the company are pledged. The Exchange is of the view that such information and arrangements are necessary for investors to make informed decisions. The shareholder is required to notify the company within two business days when any of the mentioned scenarios occur (please refer to consultation paper for details).
Other Rule Amendments
In the consultation exercise, we have included other proposals to provide greater clarity, as well as to codify current practices. These include:-- The Exchange proposes to introduce a new Practice Note 4.1 to give clarity on the use of Right of First Refusal (“ROFR”) agreements to effectively mitigate conflicts of interests for REITs and business trusts.
- The new Practice Note 4.1 will also provide guidance on when listing applicants are expected to submit profit estimates, projections and forecasts where historical or pro forma accounts are not available.
Relevant Changes to Catalist Rules
- The Exchange proposes that the relevant Catalist Rules be amended as set out in Annexure C. These amendments will mirror the proposed changes to the Mainboard rules with necessary adaptations.
Market participants and members of the public are encouraged to participate in this public consultation. The consultation paper, which sets out the proposed amendments to the listing rules, will be available from 9 December 2009 to 15 January 2010. All feedback and suggestions for the proposed changes should reach us by to 15 January 2010 via email and either by post/courier or fax:-
Email : lm@sgx.com
Fax : (65) 6535 7919
Post/Courier : Singapore Exchange Limited
Attn: Ms Chia Caihan/Karen Ong/ Serene Cai
Risk Management and Regulation
2 Shenton Way, SGX Centre 1, #19-00, Singapore 068804