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Singapore – SGX Listing Manual Revisions Strengthen Corporate Governance.

29 September, 2011





The Singapore Exchange Ltd (“SGX”) has issued extensive amendments to the listing rules (“Listing Rules” or “LR”) of the Singapore Exchange Securities Trading Limited (“SGX-ST”) Listing Manual (“Listing Manual”) to strengthen corporate governance and foster greater corporate disclosure.



A public consultation for these amendments concluded in January 2010.   

The changes discussed in this update refer to the Mainboard Listing Rules, although similar amendments will be made to the Catalist Listing Rules as well.  All amendments take effect on 29 September 2011.


The amendments may be broadly classified under the following headings:


  • ƒStrengthening corporate governance and safeguarding shareholders’ interest


  • ƒRole of board of directors, key executive officers and auditors


  • Providing clarity and codifying current practices





Internal controls requirement


Issuers will be required to have a robust and effective system of internal controls which address financial, operational and compliance risks [LR 719(1)].


There may be some uncertainty as to how this rule will be enforced in practice.  SGX has suggested that at the very least, this rule will be taken to be breached when it coincides with a breach of law. Issuers should take independent advice on the setting up of such internal controls.


Internal controls assessment and audit


To emphasise the importance of internal controls, the Listing Rules amendments require the board of the issuer, with the concurrence of the audit committee of the issuer, to give an opinion on the adequacy of the internal controls of the company at the time of listing [LR 610(5)].  On a continuing basis, the audit committee of the issuer may commission an independent audit on internal controls for its assurance or where it is not satisfied with the current internal controls of the company. [LR 719(1)] 


Share pledges of controlling shareholders 


If an issuer or any of its subsidiaries enters into a loan agreement or issues debt securities that contain a condition which makes reference to the shareholding interest of any controlling shareholders or restricts change of control of the issuer, and the breach of this condition or restriction will cause a default in respect of the loan agreement or debt securities, significantly affecting the operations of the issuer, it must immediately announce the details of such condition or restrictions. 


The issuer must also obtain an undertaking from its controlling shareholders to notify it when they enter into share pledging arrangements [LR 704(31) and LR 728].


This amendment addresses the concerns raised during the 2008 financial crisis where controlling shareholders of some issuers gave up their shares to lending banks upon default of their loans.


Legal representative’s appointment 


The appointment or cessation of service of an issuer’s legal representative should be disclosed [LR 704(11)].


Legal representatives are a common feature of China-incorporated companies. They hold the company seal which is used to execute documents on behalf of the company.


This amendment addresses the situation where the senior management of the issuer has been removed by the board of directors of the issuer, but still retains control over the principal subsidiary based in China because the senior management continues to be the legal representative of such subsidiary.


Disclosure of irregularities upon key person’s cessation


When a director, chief executive officer, chief financial officer, chief operating officer, general manager or similar executive officer leaves a company, he must inform SGX-ST if he is aware of any irregularities in the issuer [LR 704(7)(b)]. 


It is unclear how this provision could be enforced as such persons are not personally contractually bound by the Listing Rules, as they did not execute a personal undertaking to this effect. 


It is suggested that this could be addressed by requiring the relevant key personnel to enter into a personal undertaking with SGX-ST, either as part of the initial listing application or as part of the conditions of his appointment.  


The rule could also be informally enforced by SGX-ST objecting to any such person being subsequently appointed as a director, chief executive officer or chief financial officer of any issuer listed on SGX-ST.


Independent director’s appointment to principal subsidiaries


Disclosure must be made when an issuer’s independent director is appointed to, or ceases to be on the board of, the issuer’s principal subsidiary based in jurisdictions outside Singapore [LR 610(8) and 704(11)]. 


This requirement replaces the earlier proposal to require independent directors who are Singapore residents to be appointed to the boards of foreign principal subsidiaries. Respondents to the consultation had pointed out the difficulty in getting Singapore directors to serve on the board of a company which operates in a jurisdiction they are not familiar with.


Transfer of securities prohibited during trading suspension 


Such transfers may only take place with SGX-ST’s permission [LR 729].  According to SGX, this amendment is intended to level the playing field among shareholders when a trading suspension is announced.


Presumably, where such transfers are pursuant to a compulsory acquisition exercise following a takeover when the shares are suspended from trading, SGX-ST’s permission should already have been sought and obtained at the time of the takeover offer.


Controlling shareholders’ shares held with CDP (not adopted)


A proposal to require all controlling shareholders to hold their shares via the Central Depository, so that any transfer of shares would be stopped during a trading suspension, was not adopted. SGX explained that the Listing Rules applied only to issuer companies and not their shareholders and therefore the proposal would have been difficult to enforce. 


Joint signoff by foreign-based issuer’s auditors and Singapore firm (not adopted)


Another governance proposal that did not proceed was to have a joint signoff by a foreign-based issuer’s auditors and a Singapore-based accounting firm on the issuer’s audited accounts. Respondents’ feedback had indicated that the costs of implementing this requirement would have outweighed the benefits.




Supervisory powers over directors/key officers 


Listing Rule 720 has been amended to emphasise SGX-ST’s supervisory powers of directors and key executive officers of issuers. SGX-ST may:


(a) under certain circumstances, including where the issuer is the subject of an investigation, require the issuer to obtain SGX-ST’s approval for appointment of a director, a chief executive officer or chief financial officer [LR 720(3)]; and


(b) take action against directors and key executive officers, if it is of the opinion that the said person has breached the Listing Rules or any other laws or regulations [LR 720(4)].  


The range of penalties which SGX-ST has against the directors and key executive officers directly are relatively limited as the directors and key executive officers typically do not enter into any personal undertaking with SGX-ST at the time of listing or any time thereafter.  SGX-ST may have to resort to its powers of reprimand or refer the matter to the Monetary Authority of Singapore or the police. Alternatively, it could impose requirements on the issuer itself to take the necessary action (as the issuer would have entered into an undertaking with SGX-ST to comply with the Listing Rules).


Suitable auditing firms 


Auditing firms appointed by the issuer must be registered with the Accounting and Corporate Regulatory Authority or an independent audit oversight body acceptable to SGX-ST, or be firms which are acceptable to SGX-ST [LR 712]. Presumably, this rule would also apply to the foreign auditing firms appointed by the issuer’s foreign principal subsidiaries.


This amendment does not appear to address the problem where a foreign auditing firm at first considered to be “acceptable” to SGX-ST later produces work which is found to be unsatisfactory, as it does not offer a formal mechanism for SGXST to withdraw its acceptance of such foreign auditing firm.


Negative confirmation of CFO’s suitability


The audit committee should assess and confirm that, after having made all reasonable enquiries, to the best of its knowledge and belief, nothing has come to its attention to cause it to believe that the chief financial officer (“CFO”) of the issuer does not have the competence, character and integrity expected of a CFO of a listed issuer [LR 610(6)]. Typically, a due diligence process should be carried out by the audit committee with the assistance of a compliance search advisor. During such due diligence, the past records of the proposed CFO should be examined, so that the audit committee may properly make such assessment and confirmation.


Governance adviser (not adopted)


The consultation proposal to require new issuers to appoint a governance adviser (“GA”) was not adopted.  SGX explained that the role was too wide to impose on a single officer. It was decided that it would not be feasible to apply the requirement to all newly-listed companies.  SGXST will retain the flexibility to impose this requirement on a “when-required” basis.




Several of the other Listing Rule amendments codify existing regulatory practices.  An example is new Practice Note 4.1 which provides guidance in connection with profit forecasts and right of first refusal arrangements for real estate investment trusts and business trusts [LR Practice Note 4.1; also see LR 224(5) and LR 404(8)(d) in relation to right of first refusal].


Other amendments provide clarification to existing Listing Manual requirements.  For instance, SGXST have standardised and centralised the suggested wording for responsibility statements of directors, vendors and financial advisers in a new Practice Note 12.1 [LR Practice Note 12.1; also see LR 610(3) for directors, LR 1205 for vendors, LR 1015(5)(d), 1206(6) and Appendix 8.2]. 




Please click on the links below to refer to the relevant documents.


1.  SGX News Release dated 14 September 2011 titled “SGX Enhanced Listing Rules to Strengthen Corporate Governance Practice”

2.  Table of Amendments to the Listing Rules



By Sin Boon Ann, Petrus Huang, Marcus Chow and Su Jen Jen

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