The Singapore Exchange (SGX) is the result of the recent merger of the Stock Exchange of Singapore and the Singapore International Monetary Exchange. The SGX, inaugurated on December 1, 1999, is the first demutualized, integrated securities and derivatives exchange in Asia-Pacific. For foreign investors, it is a window to the rapidly growing economies in the region.
From January 2000, the smallest trade that international members can accept from local clients will be slashed to S$500,000 (US$300,000) from S$5 million. The minimum will be eliminated in January 2001, according to officials. The Singapore Exchange will also accept an unlimited number of new members beginning July 2000, with the provision that they are "brokers with the reputation and financial strength to contribute to developing our markets."
In derivatives, most commissions will become fully negotiable from January. Fixed commissions will disappear the following year. The exchange is studying the possibility of fully liberalizing commissions on electronic trading ahead of that schedule.
Singapore hopes the revamped Exchange will accelerate government plans to make financial services 18% to 20% of gross domestic product.
Securities Markets
The SGX operates three markets for the trading of shares: the Main Board, SESDAQ, and CLOB International.
The Main Board is made up of more than two-thirds of the publicly listed companies on the Exchange. To be listed on the Main Board, a company must have a satisfactory track record; a healthy financial position; directors of good standing; at least 25% of its issued and paid up capital in the hands of at least 1,000 shareholders; and a paid up capital of at least S$15 million.
Companies in the SESDAQ listing, meanwhile, are small, promising firms often in emerging industry sectors, such as computer software or technology training. Foreign companies that do not have the requisite track record for a Main Board listing are also listed on SESDAQ in foreign currencies.
CLOB International is an over-the-counter market that allows investors to trade in a number of international securities listed on foreign exchanges. Shares listed on CLOB International, therefore, do not have to adhere to the corporate disclosure policy that applies to companies listed on the Main Board or SESDAQ. However, corporate announcements are disseminated to investors.
As of end November 1999, there were 325 companies listed on the Main Board, accounting for a total market capitalization of more than S$413.75 billion. Eighty companies with a total market capitalization of S$7.65 billion were traded on the SESDAQ market. On the CLOB International market, 18 foreign companies with a total market capitalization of over S$149 billion were quoted.
Regional Center for Securities Trading
Singapore's location at the heart of Asia Pacific makes the Singapore Exchange a logical choice for local and foreign investors looking for new sources of finance or for opportunities to raise their profile in the region.
This geographical advantage is further enhanced by the following factors:
Liquidity: Share volumes reached record levels in the past few years.
Capacity to raise funds for enterprises
Long period of steady growth: Since 1980, the price level as measured by the Straits Times Industrial Index has grown by an annual compound rate of 7.9%.
A significant pool of investment funds: The domestic savings rate in Singapore at 50% is one of the highest in the world. Investors are allowed to access their Central Provident Fund savings to invest in the equity market. As of 31 December 1996, the total amount of CPF savings was estimated at S$21.7 billion, of which S$8.2 billion had been invested.
Excellent base for fund managers: Funds under management in Singapore totaled S$86 billion in May 1997 and are expected to rise further.
Access to capital from the world's top financial institutions based in Singapore
No foreign exchange controls and generally no restriction on foreign trading in Singapore shares. There are, however, limits on foreign shareholdings in strategic industries, e.g. defense and banking.
A transparent market, where rules are applied consistently, giving issuers a sense of certainty
As an important business and financial center in the region, Singapore has attracted many quality foreign companies to apply for listing on its stock exchange. Steps have been taken to encourage more foreign brokers to enter into joint ventures with local brokers or to apply for international membership.
Apart from constantly upgrading its infrastructure to meet investors' needs, opening up to more foreign listings and international brokerages, the Exchange also places great emphasis on improving the financial and operational soundness of its members. In so doing, the Singapore Exchange aims to sharpen its competitive edge as the regional center for fund raising and securities trading in Asia.
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Fully Computerized Trading
The SGX uses the latest technology to provide an efficient, fully computerized trading and settlement system, and through vigorous enforcement of tested rules to ensure fair and orderly trading. All investors, big and small, at home and abroad, have equal opportunities to trade, based on timely information. The trading system and the rules are designed in the interests of the majority, so that no minority will have unfair access, either in acquisition or disposal of shares, ahead of others.
In 1988, Singapore became one of the first exchanges in the world to introduce a fully computerized trading system to replace the conventional trading floor. The computerized trading system was designed to give investors a fair deal: The best price and the earliest order takes precedence over order size.
Investors can make immediate electronic inquiries about their shares and new issues through the ASSETS (Automated Self-Service Enquiry Terminals) system. With an ASSETS card, which can be used at most Singapore Exchange member broking firms, they can check their latest shareholdings, print a statement of their share portfolio up to the end of the previous day's trading, print a confirmation of shareholdings and inquire about new issue allotments.
Book-entry Settlement
Settlement on the Singapore Exchange is by computerized book entry. All scrips are held by the Central Depository (CDP) on behalf of investors. The design of the scripless settlement system is unusual among stock markets in the protective elements built into the system. In many markets, investors maintain their central depository accounts with or through stockbrokers. In Singapore, investors can choose to open securities accounts directly with the CDP, bypassing the brokers. This reduces the possibility of manipulation.
Further, contract notes are generated and mailed directly by the Exchange. This bypasses the dealers who conduct the trades and so minimize the possibility of fraud. As a further protection, all checks are issued in the name of the investor specified in the contract note. Even if a sale is conducted fraudulently, the proceeds are available only to the owner of the shares.
Regulatory Safeguards
The regulatory framework is built on the principle of developing a sound, fair, and transparent market which protects investors' interest. The framework stands on two broad pillars:
a) admission and regulation of intermediaries, i.e., stockbrokers, dealers, and remisiers
b) admission of companies for listing, and regulation of the market.
- Regulation of Intermediaries
Admission standards for stockbrokers, dealers, and remisers are high because the stock market is built on trust. Intermediaries must be people of integrity who subscribe and adhere to good business practices and observe both the spirit and letter of the rules. This helps instill confidence among the investing public and safeguards their interests.
Rules governing the business operations of stockbroking firms seek to ensure that the industry is financially sound and is not vulnerable to market calamities. For example, there are limits on the exposure of broking firms to any single client or security. A member firm may not trade beyond prudent limits, and its aggregate indebtedness may not exceed five times its net capital.
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- Regulation of the Market
There is a need to uphold fundamental standards in listing securities to ensure investor protection and orderly market development. A company that is approved for listing, however, does not carry the Exchange's guarantee of investment merit -- investors must decide for themselves.
For its part, the Exchange strives to make the market as transparent as possible so that investors can assess the investment risks. To this end, the Exchange has tightened disclosure requirements in prospectuses and in company announcements after listing. The Exchange will continue to improve the standard of disclosure to increase the accountability of listed companies' to their shareholders.
In sum, market regulation seeks to build a healthy securities industry, ensure full and timely corporate disclosure, promote good business practices within the broking community, and ensure an orderly market.
For more information, contact:
The Singapore Exchange (SGX)
20 Cecil Street, #26-01/08
The Exchange
Singapore 049705
Tel: +65 236-8888 or 535-3788
Fax: +65 535-6994 or 535-2644
