New And Upcoming Changes To The SGX Listing Rules.

 

The Singapore Exchange (“SGX”) had a busy year in 2014 in terms of implementation of changes to the SGX listing manual (“Listing Rules”), and 2015 and 2016 are not expected to be any different.

On 19 January 2015, the standard board lot size of securities listed on the SGX was reduced from 1,000 units to 100 units. Other changes on the way for 2015 include the rule requiring all resolutions to be by poll, which was announced sometime back but which will officially take effect on 1 August 2015 (including consequential changes to the Listing Rules such as imposing a requirement to have an independent scrutineer and a detailed announcement of the votes cast and persons required to abstain from voting).

 
These changes follow on the back of numerous rule changes implemented and Consultation Papers introduced in the course of 2014, including:

 

• The new Practice Note relating to public queries on unusual trading activity and confidential pre-notifications of certain corporate actions by issuers (which is also presently the subject of a consultation proposal to codify its provisions into the Listing Rules. Proposed illustrations of when the SGX will require the notification to be given were also the subject of consultation questions);
• The requirement for primary listed issuers to hold general meetings in Singapore unless prohibited from doing so;
• An update to the Guide to Sustainability Reporting for Listed Companies; and
• New rules requiring secondary listed issuers to maintain its primary listing and comply with the rules of its home exchange, and provide an annual confirmation of compliance with the Listing Rules.

Reduction In Board Lot Size

The reduction in board lot size from 1,000 units to 100 units applies to the following securities, as mentioned in the SGX Consultation Paper of August 2013:

 

• Ordinary shares (including shares traded on GlobalQuote);
• REITs;
• Business trusts;
• Company warrants;
• Structured warrants; and
• Extended settlement contracts.

The Listing Rules have been amended to provide, for both primary and secondary listings, that the subscription and allocation value of the shares at IPO for each investor must be at least SGD 500 and based on an integral multiple of a board lot.

Another consequential change arising from the reduction in board lot size is that the shareholding statement in the Annual Report, made up to the date not more than one month (before the date of the notice of the annual general meeting (“AGM”) or the Summary Financial Statement, whichever is earlier), must now contain the distribution schedule of equity security holders in the additional categories of 1-99, and 100-1,000, equity securities.

As the SGX stated in its news release of 13 January 2015, smaller board lots will make higher-priced stocks more affordable for investors and enable investors with less investment funds to more effectively build a diversified portfolio.

For listed companies, the reduction in board lot sizes may potentially result in a larger number of shareholders, particularly in the case of companies with higher-priced shares, possibly leading to increased administrative costs arising from the distribution of annual reports and circulars and holding of general meetings. Listed companies are gearing up to meet the challenges of a potentially much larger shareholder base turning up at their AGMs in 2015 because of the dual effect of the reduction in board lot sizes and the amendments to the Companies Act expected to come into force in the first quarter of 20165 relating to multiple proxies for bank nominees, custodian service providers, and the CPF Board.

Minimum Trading Price

The SGX’s proposal to implement a minimum trading price (“MTP”) per share was first made in February 2014, in its Consultation Paper on “Review of Securities Market Structure and Practices”. The proposed mechanics and amendments to the Mainboard Listing Rules were discussed in its Consultation Paper issued on 17 September 2014 entitled “Introduction of Minimum Trading Price and Codification of Regulatory Tools”. In February 2015, the SGX issued a response to feedback received on the introduction of the MTP and Mainboard Listing Rules changes.

 
The proposed amendments to the Mainboard Listing Rules, which are to take effect on 1 March 2016, include the following:

 

Changes To The Watch-list provisions in Chapter 13:

 

• The watch-list rules apply to all Mainboard-listed issuers excluding, inter alia, secondary listings and issuers listed or which have completed a reverse take-over for less than six months.
• Amendments to the existing financial entry criterion for the watch-list:
  • The financial entry criteria of pre-tax losses for the last three years has been amended to refer to the audited full year consolidated accounts instead of announced accounts. Non-recurrent, extraordinary or exceptional items will no longer be excluded.
  • The minimum average daily market capitalisation of SGD 40m will be required for the last six months (regardless of the number of trading days during the six-month period).
• A new MTP entry criterion for the watch-list has been introduced.
  • The MTP will be fixed at a threshold volume-weighted average price (“VWAP”) over six months of SGD 0.20.
  • REITs and Business Trusts will be subject to the MTP entry criterion but not the financial entry criteria.
• An issuer placed on the watch-list must meet the financial exit criteria or the MTP exit criterion (as applicable) within 36 months of entering the watch-list (“cure period”). This is a change from the current cure period of 24 months.
• Issuers that are unable to meet the financial exit criteria or MTP exit criterion (as applicable) at the end of the cure period will be delisted or suspended with a view to delisting.

Changes To Practice Note 13.2 On The Watch-List:

 

• Practice Note 13.2 sets out the guidelines for inclusion and removal of issuers onto and from the watch-list.
• Issuers unable to record a six-month VWAP of SGD 0.20 or above at specified quarterly review dates will be placed on the watch-list.
• The VWAP is calculated by taking the total value of securities traded during the six-month period divided by the total volume traded during that period. This will be regardless of the number of trading days during the six-month review period.
• For issuers whose securities are not quoted in Singapore dollars, the conversion will be based on the Reuters exchange rate as of the market day preceding the review date. Issuers traded in dual currencies will be put on the watch-list only if both counters fail to meet the MTP.
• Six-month VWAP information for issuers is made available on SGX’s website.
• Issuers should consolidate their shares to achieve a theoretical share price of at least SGD 0.25 to cater for price fluctuations.
• It is possible to seek an extension (to be submitted at least one month prior to expiry of the cure period) which will be granted at SGX’s discretion.

 

A transition period of 12 months from the date of introduction of the MTP requirement will be provided. In practice, issuers have more than a year of transition period, and issuers with share prices below the proposed MTP should already have started contemplating the necessary corporate actions to be taken.

Issuers whose share price is below the MTP may consider undertaking a share consolidation exercise in order to bring their share price up to the required minimum. Other options include other corporate actions, or applying to transfer to Catalist (only applicable to issuers on the watch-list because of the MTP entry criterion), though in relation to the latter, the SGX in its response to feedback received reiterated that an issuer’s share price should be supported by fundamentals and reputation, and not whether it is a Mainboard or Catalist company.

To facilitate share consolidation exercises, the SGX has waived all fees since 1 August 2014, and has said that it will continue to do so in relation to any share consolidation exercise undertaken by issuers in order to meet the MTP requirement for the period of two years after the commencement of the transition period.

Reinforcing The Listings And Enforcement Framework

The SGX’s proposals relating to the Reinforcement of the Listings and Enforcement Framework were introduced in the same Consultation Paper as the MTP, and proposed detailed amendments to the Listing Rules were discussed in the Consultation Paper issued on 17 September 2014 entitled “Reinforcing the SGX Listings and Enforcement Framework”.

The numerous Listing Rule amendments in this regard will be encapsulated in a new chapter of the Listing Rules. The proposed Listing Rule changes include the following set out below.

Listing Advisory Committee

 

• The setting up of a Listing Advisory Committee (“LAC”), comprising independent market professionals appointed by SGX Board in consultation with the Monetary Authority of Singapore (“MAS”), to advise the SGX on matters referred to it, including those concerning listing policies and listing applications (such as when there are novel issues or matters of public interest involved).
• The publication by SGX of half-yearly reports of advice provided by the LAC, and the LAC’s publication of an annual report.

 

 Disciplinary Committee And Appeals Committee

 

• The setting up of a Disciplinary Committee (“DC”) and an Appeals Committee (“AC”), both comprising persons independent of the SGX appointed by SGX Board.
• The DC will hear charges against an issuer, its directors, executive officers and issue managers (each a “Relevant F”) for alleged breaches of the Listing Rules by, or causing a breach of the Listing Rules by, another Relevant Person.
• The AC will hear appeals arising from DC decisions, as well as decisions of the SGX relating to specified matters. The AC’s decision is final.
• An appeal can only be heard if the chairman is of opinion that the DC acted in bad faith, there was procedural unfairness, there is fresh evidence, there was a gross error of fact or error in interpretation of the Listing Rules, or the sanctions were excessive or inadequate.
• A Relevant Person shall not be represented by legal counsel at DC and AC hearings, but subject to the DC’s or AC’s discretion, a Relevant Person may consult with legal counsel during the hearing.
• Parties to DC or AC proceedings are required to treat matters relating to them as confidential, and may only disclose them in limited specified circumstances.
• Written grounds of decision of the DC and AC shall be published by the SGX unless the sanction involves a private warning.

The DC’s Powers Of Sanction

The DC’s powers to sanction include:

 

• In the case of an issuer, a private warning or public reprimand, or the imposition of fines payable to the SGX (not more than SGD 250k per contravention, subject to a maximum of SGD 1 m per hearing for multiple charges, payable in instalments);
• In the case of an issue manager, prohibition from participating in specified listing applications on the SGX for a period of not more than three years;
• In the case of a director or executive officer, requiring his resignation or prohibiting any issuer (for a period not exceeding three years) from appointing or re-appointing that person; and
• An issuance of an order for costs.

SGX’s Administrative Powers

The administrative powers of the SGX include:

 

• Issuing public queries to an issuer;
• Requiring an issuer to make specified disclosures;
• Withholding approvals of circulars and notices of meeting;
• Requiring an issuer to obtain SGX’s prior approval for appointment of directors and executive officers, and objecting to any such appointment;
• Requiring the appointment of a special auditor, compliance advisor, legal advisor or other independent professional for specified purposes;
• Waiving or modifying compliance with a Listing Rule;
• Placing an issuer on the watch-list; and
• Imposing any other requirements on a Relevant Person as the SGX considers appropriate.

SGX’s Enforcement Powers

The enforcement powers of the SGX include:

 

• Initiating and conducting investigations and disciplinary actions against a Relevant Person; and
• Taking enforcement action against a Relevant Person, which includes:
  • Private warning;
  • Offering a composition sum to an issuer (which shall not exceed SGD 10k per contravention, subject to maximum of SGD 100k per offer for multiple contraventions, which may be payable in instalments if the SGX agrees);
  • Requiring an issuer to implement, or requiring its directors or executive officers to undertake, an education or compliance programme;
  • Requiring an issuer to undertake an independent review of internal controls and processes;
  • Requiring an issuer to appoint an independent advisor to minority shareholders;
  • Requiring a Relevant Person to perform remedial action to rectify the consequences of contraventions;
  • Suspending or restricting the activities of an issue manager; and
  • Halting or suspending trading of the listed securities of, or delisting, an issuer.

SGX’s Investigation Powers

 

• The SGX’s investigation powers, which include the right to obtain copies of documents or electronic records, and to appoint an “Exchange Examiner” being a person to assist the SGX with its investigation.

Other Provisions

 

• Detailed procedures relating to disciplinary proceedings and hearings, and relating to the quorum and other regulatory matters for the proceedings of the LAC, DC and AC.
• A prescribed form of undertaking to be given to the SGX to comply with the Listing Rules from an issuer’s directors and executive officers.

The SGX has stated that it is considering the comments received and will incorporate them into the final proposal where appropriate.

 

The proposed LAC, DC and AC strengthen the SGX’s decision-making processes in relation to listings and enforcement of Listing Rules by adding a measure of independence, give the SGX the benefit of the perspectives of market professionals, and enhance transparency. Ultimately, the measure of how successful these new Listing Rules are in achieving the objectives of the SGX will be in how they are applied in practice.

 

 

For further information, please contact:

 

Annabelle Yip, Partner, Wong Partnership
annabelle.yip@wongpartnership.com

 

Joy Tan, Partner, WongPartnership
joy.tan@wongpartnership.com