Recovery of Singapore Exchange's Reputation after Recent Technical Glitches and Doubts over Quality of Listings

25 Ms Sylvia Lim asked the Prime Minister given SGX's challenges in recent years relating to the quantity and quality of listings, turnover, technical disruptions, risk management, including a half-day disruption on 14 July 2016 (a) whether the Government is optimistic that SGX's performance and reputation can be revived; (b) what role it sees for SGX in broader economic development; and (c) what steps it is taking to work with the SGX management to catalyse the desired outcomes.

The Acting Minister for Education (Higher Education and Skills) (Mr Ong Ye Kung) (for the Prime Minister): Mdm Speaker, the Singapore Exchange (SGX) has, indeed, faced a number of challenges in recent years. Some of them are not unique to SGX or Singapore.

Globally, there has been a significant decline in Initial Public Offering (IPO) activity, including in markets like the United States (US) and Hong Kong. A weak economic outlook and heightened market volatility have been cited as reasons for this lacklustre IPO activity. The rise of alternative private financing markets, offering comparable scale and pricing, also poses increasing competition to public stock exchanges globally. There are other challenges faced by SGX more particularly, such as low levels of liquidity and many poorly performing counters. While its derivatives business remains among the most dynamic in Asia, its cash equity business has lost some ground to competitors.

SGX has embarked on several initiatives to strengthen and develop the stock market, with the support of the Monetary Authority of Singapore (MAS). A key priority of SGX is to raise the quality of listings. The entry bar for companies seeking to list on the mainboard has been raised. A minimum trading price was introduced to address risks associated with low-priced securities and to improve overall market quality. Three independent Listing Committees were established last year to strengthen the process for admitting new listings and enforcing against listing rule breaches. In July, SGX announced plans to transfer its regulatory functions to a subsidiary company, which will focus exclusively on the task and would be governed by a separate and independent board.

SGX is also adapting to competition from alternative private financing markets. Recently, it partnered Clearbridge Accelerator, one of Singapore's leading venture capital and incubation firms, to set up Capbridge, a securities-based crowd-funding platform. Capbridge may also contribute to SGX's IPO pipeline by incubating and providing last-mile funding to high-tech companies before the IPO stage.

It will take time for SGX's initiatives to bear fruit. But some improvements can be seen. IPO activity has increased in the first half of this year, compared to the same period last year.

A second area that needs improvement is the management of technology and operational risks. It is not uncommon for exchanges to experience trading disruptions. System failures and trading halts have occurred in several major exchanges in recent years. But SGX needs to do better in reducing the frequency of these disruptions and in managing any disruptions well. It is taking this seriously. MAS is closely supervising SGX's progress in enhancing the resilience of its systems and recovery processes and in engaging stakeholders effectively.

Thirdly, SGX is creating new business opportunities, by building on its strengths. For example, it has the largest listed Real Estate Investment Trusts (REIT) and Business Trusts sector in Asia, excluding Japan, and continues to attract such listings from local and foreign sponsors. SGX plans to launch its first exchange-traded fund for Singapore REITs in the later part of this year.

SGX is also a leading player in the Asian time zone in equity derivatives and advancing further. It expanded its Nifty suite of futures contracts in June this year. The exchange is growing its capabilities in foreign exchange (FX) derivatives and is collaborating with a leading electronic trading platform in FX to offer block FX futures in the later part of this year.

To summarise, SGX is not sitting still. It is building on its existing strengths, staying nimble to new opportunities and working to improve its system resilience.

Mdm Speaker: Ms Sylvia Lim.

Ms Sylvia Lim (Aljunied): Mdm Speaker, I have three questions for the Acting Minister. Earlier in his answer, he mentioned that MAS is closely supervising SGX's efforts to build information technology (IT) resilience. I would like to ask him a little bit more about what MAS is doing in that respect, and what are the options or levers open to MAS in its dealings with SGX, to either incentivise or to give some pressure to SGX to resolve this IT problem.

My second question is, notwithstanding what the Acting Minister said about falling trading volumes worldwide, it was reported that from 2011 to 2015, the value of shares traded per day on SGX had fallen by a third over these last four years. I would like to ask the Acting Minister whether he thinks that is a cause for concern.

My third question is that I understand that some Singapore companies are choosing not to list themselves locally but are going to regional bourses to list. Has SGX or even the Government looked into the reasons why they do not find listing in Singapore attractive?

Mr Ong Ye Kung: I thank the Member for the supplementary questions. On IT resilience, I would say that it is totally in SGX's interest to make sure that it performs well. There are no agency issues here, where the interests of MAS or the economy or the Government are different from SGX's. Therefore, it is totally in their interest to make sure that it performs well. MAS will supervise that closely.

The Member would recall that when the disruption happened on 14 July, within five days, by 19 July, SGX came out, explained what the technical issues were that led to the breakdown and took it very seriously. I think it was last week that they had started a new industry working group. This will engage all industry experts and stakeholders as a working group to seriously look into these issues. They will study all the responses that are needed to make sure that if and when such disruptions happen again, SGX can respond more effectively and in a more timely manner to minimise the disruption. They are all taking this very seriously. MAS is watching this closely. Let us wait for the work of the industry working group.

On the other two questions, I would perhaps answer them together. One is the fall in the trading volume from 2011 to 2015. It is source for concern because it is also a global phenomenon. On the one hand, we also recognise that SGX and IPO activity might have come down, but on the other hand, financing activities are coming up globally. For example, angel investment funds, private equity funds, REITs – all these continue to do very well, including crowdfunding. Crowd-financing platforms are also coming up. Notwithstanding the fact that one area of the financial sector maybe facing lacklustre performance, overall, the financial sector can actually continue to do well.

The analogy is not very different from let us say, taxis. On the one hand, traditional cabs may be feeling the squeeze but, on the other hand, commuters are benefiting from other options of commuting such as Uber and Grab.

This is what we are seeing, too, in the financial sector. Innovation is coming on board; we are seeing different kinds of financing options, and these will still serve the Singapore market and Singapore economy fairly well.

Within SGX, I would say that there are pockets that are still doing very well. I mentioned in my reply earlier that in the first half of this year, IPO activity went up more than last year – 16 listings in the first half of this year compared to 11 last year. Things are looking up. If you look at specific clusters or counters, such as technology or healthcare stocks, we are actually performing well. REITs as well are performing well.

All in all, jobs are also at stake here. We will do our best to prop up this sector as well as we can. If anyone requires skills upgrading, we have the Institute of Banking and Finance (IBF), so those in the financial sector can continue to upgrade their skills so that the sector will continue to do well.

Mdm Speaker: Ms Sylvia Lim.

Ms Sylvia Lim: Mdm Speaker, just to follow up, I think the Acting Minister did not touch on my question about Singapore companies that choose not to list locally, whether SGX or the Government has monitored the reasons why.

Secondly, just to understand a little bit more again about MAS' role, especially in terms of IT resilience. In the past, when the first two glitches happened in 2014, there were very strong statements made by Government leaders, in fact, saying that this is unacceptable coming from SGX. When this recent incident happened in July 2016, there were observers expecting that MAS might consider the option of imposing a fine on SGX. I would like to understand whether those are options that MAS is looking at or has it ruled these out? Or what are the levers available to MAS?

Mr Ong Ye Kung: On Singapore companies listing overseas, I think this will have to be left as their business strategy. Some Singapore companies list on regional bourses maybe because their businesses are there. So, they will make their decisions. What we need to do is make sure that our stock exchange is also competitive, so that foreign companies can also list here. We have to position ourselves as part of the landscape so that it is not very different from other businesses. Some go overseas, some come here. We must maintain our position. That is what we are doing.

As for the technical disruption, MAS takes it very seriously. As I mentioned earlier, the industry working group will come up with their recommendations. Let us look at what they come up with, what are the steps. I think it is much more important to look forward, to make sure that we have a resilient, responsive SGX system. We take it very seriously and we certainly do not want to see another one. Unfortunately, around the region and the world, technical disruptions do happen from time to time. We want to make sure that when it happens, if it ever happens, we will respond to it as fast as we can.