30 September, 2014
Legal News & Analysis – Asia Pacific – Singapore – Capital Markets
Introduction
In February 2014, the Monetary Authority of Singapore (“MAS”) and the Singapore Exchange (“SGX”) issued a joint consultation paper, seeking feedback on proposals on regulatory enhancements to strengthen the securities market (“February 2014 Consultation”). On 17 September 2014, after consideration of the feedback received on the February 2014 Consultation, the SGX issued two consultation papers (the “September Consultation Papers”) with a view to consulting the public on the details of certain proposals in the February 2014 Consultation to be proceeded with.
This article discusses the key proposals in the September Consultation Papers.
Consultation Paper On Introduction Of Minimum Trading Price And Codification Of Regulatory Tools
Minimum Trading Price Of SGD 0.20 For Mainboard-Listed Stocks
MAS and SGX have decided to introduce a minimum trading price (“MTP”) of SGD 0.20 for Mainboard- listed stocks (including real real estate investment trusts and business trusts). Issuers that fail to record a 6-month volume-weighted average price (“VWAP”) of SGD 0.20 or above at each of the quarterly watch-list review dates (being the first market day of March, June, September and December) will be placed on the watch-list for at at least six months until its trading activity improves and meets the conditions to exit the watch-list.
Transition
A one-time transition period of 12 months from the date of introduction of the MTP requirement will be granted so that affected issuers can consider corporate actions (such as share consolidation) to meet the new requirement. SGX has also stated that it will waive all fees in relation to any share consolidation exercise undertaken by issuers in order to meet the MTP requirement. The fee waiver will be granted until 2 years after the date of commencement of the transition period.
Exit From Watch-List
Issuers that are placed on the watch-list are expected to take active steps to meet the MTP requirement, and a quarterly review will be conducted to check if its trading price has improved. During the quarterly review, SGX will also assess whether the issuer is eligible for exit from the watch-list. Such issuer will be regarded as as having having met met the the MTP M requirement and can exit the watch-list list if it records VWAP of at least SGD 0.20 over over the last 6 months since its entry into the watch-list prior to the relevant quarterly review date.
Failure to meet the MTP requirement within 36 months of entering the watch-list means that the issuer will be de-listed.
Changes To The Current Watch-List
In light of the proposed introduction of the MTP requirement and its designation as one of the criteria for entry into to the the watch-list, the SGX proposes to adjust the watch-list entry and exit requirements to rationalize the watch-list criteria with the MTP entry and exit criteria.
The table below sets out the current requirements and the proposed requirements.
| Current Watch-list Entry Requirements | Proposed Watch-list Entry Requirements |
| The SGX-ST ST will place an issuer issue on the watch-list if it records: (a) pre-tax tax losses for the 3 most recently completed financial years (based on the latest announced full year consolidated accounts, excluding exceptional or non- recurrent income and extraordinary items); and (b) an average daily market mark capitalization of less than n SGD 40m over the last 120 market days, days, on which trading was not suspended or halted. |
The SGX-ST will place an issuer on the watch-list if it records: (a) pre-tax tax losses for the 3 most recently completed consecutive financial years (based on full year audited financial statements); and (b) average daily market capitalization of less than SGD 40m over the last 6 months. |
| Current Watch-list Exit Requirements | Proposed Watch-list Exit Requirements |
| Issuer may apply to the SGX-ST for removal from the watch-list if it: (a) records consolidated pre-tax profit for the most recently completed financial year (based on the latest full year audited accounts, excluding exceptional or non-recurrent income items) and has an average daily market of at least SGD 40m over the last 120 market days, on which trading was not suspended or halted; or (b) satisfies Rule 210(3) and either (i) cumulative consolidated pre-tax profit of at least SGD 7.5m for the last 3 years and minimum pre-tax profit of SGD 1m for each of the 3 years; or (ii) cumulative consolidated pre-tax profit of at least SGD 10m for the last one or two years.
|
Issuer may exit the watch-listif it:
(a) records consolidated pr pre-tax profit for the most recently audited financial statements; and
(b) has as an average daily market capitalization recurrent income and extraordinary of SGD 40m or more over the last 6 months.
|
The current cure period of 24 months for the watch-list is also proposed to be amended to 36 months, to align with the 36-month cure period for issuers to comply with the MTP requirement. As these changes to take effect in 2016, issuers which are placed on the watch-list watch due to the new criteria will have up to 2019 to exit the watch-list.
Issuers that are placed on the watch-list before the new watch-list rules take effect will remain on the watch-list and are subject to, and will be assessed based on, the existing requirements. They will have a cure period of 24 months from the date of entry into the watch-list.
For the avoidance of doubt, the MTP requirement and proposed watch-list entry requirements will be assessed independently. If an issuer fails to comply with one of the criteria, it it will be placed on the watch-list till the end of the relevant cure period.
Timeline For Implementation Of MTP Requirement And Watch-List Requirements
SGX targets to introduce the MTP requirement and adjustments to the existing watch-list requirements by March 2015, and for them to take effect from March 2016.
Codification Of Requirement To Provide Notification Of Specific Transactions
In February 2014, SGX announced a series of enhancements to its regulatory tools, including the requirement for issuers issuers and/or controlling shareholders to notify SGX if they are aware of or involved in discussions that are likely to result in a takeover, reverse takeover or a very substantial acquisition by the issuer (“notification”), and to concurrently maintain a list of persons privy to such potential transactions (“privy list”).
SGX has received 40 such notifications since its introduction in March 2014, and through close monitoring of these 40 securities, queried approximately 10 issuers following unusual trading activities noted in their securities. SGX is now consulting the public on the proposed codification of the notification and privy list requirements in the listing rules. It is also seeking feedback on, among other things, the types of transactions requiring such notifications, the circumstance under which the notification requirement is triggered, and feedback on the format at for the notifications.
Transactions Actions That Require Notification
The following transactions are likely to have a price impact when made known to the public:
(i) Takeover of the issuer, which includes a scheme of of arrangement or delisting;
(ii) Reverse takeover of the issuer; and
(iii) Very substantial acquisition by the issuer.
The SGX proposes that issuers should provide notification when they are made aware of discussions or negotiations on a potential proposal, or in discussion or negotiation on an agreement or document (whether binding or non-binding), which are likely to result in the above transactions.
Where discussions or negotiations on the above transactions are carried out by a controlling shareholder of the issuer and without the knowledge of the issuer, that controlling shareholder should notify the SGX directly if discussions or negotiations would likely result in these transactions.
Practice Note 7.2 is also proposed to be amended to provide further guidance and illustrations under which SGX will expect a notification to be provided and the format for such notification.
The SGX requires the issuer and/or the controlling shareholder to notify the SGX again under the following g circumstances:
(i) if discussions or negotiations for the transaction(s) on which they have provided a notification ceases; and
(ii) if the transaction on which they have provided a notification has been announced.
The SGX may require for the submission on the privy list as and when necessary.
Timeline For Implementation Of Proposed Codification Of Notification And Privy List Requirements
Though the amendments relating to the proposed codification of the notification and privy list requirements are expected to take effect from March 2015, the current notification requirement would continue.
Consultation Paper On Reinforcing The SGX Listings And Enforcement Framework
SGX is seeking feedback on the proposed establishment of three committees – the Listings Advisory Committee, the Listings Disciplinary Committee and the Listings Appeals Committee (collectively, “Listings Committees”).
Listings Advisory Committee
The Listings Advisory Committee (“LAC”) will enhance the SGX’s existing framework for managing actual or perceived self-regulatory organization conflict arising from the SGX’s dual role as a commercial for-profit entity and a regulator of listed companies.
The LAC will be an independent body comprising 15 members who have diverse practitioner experience and represent the investment community. They will be appointed by the SGX’s board of directors in consultation with the MAS. A quorum of five members will be required at each meeting, and this quorum must include members collectively having corporate finance experience, accounting experience, legal experience, and represent an investor in association.
The LAC will review specific listing applications that meet the following criteria:
(i) cases which present novel or unprecedented issues;
(ii) cases requiring specialised expertise;
(iii) cases involving matters of public interest; or
(iv) cases which SGX is of the view that a referral is appropriate.
The Consultation Paper describes in detail what constitutes the above criteria.
SGX proposes a regular review of the criteria, at least once every 2 years post-implementation.
SGX is also proposing the following publication requirements for the LAC framework, to provide guidance on the factors to be considered when evaluating issues in specific listing applications:
(i) a half-yearly report published on the SGX website on specific listing applications referred to to the LAC, to provide an overview of the issues considered and a summary of the LAC’s advice; and
(ii) an annual report commenting on the matters and issues discussed by the LAC.
Strengthening SGX’s Enforcement Powers
It is also proposed that SGX’s range of enforcement powers should be widened to include:
(i) requiring issuers to obtain SGX’s prior approval, for a period not exceeding 3 years, for the appointments of directors or executive officers in specified circumstances;
(ii) extension of power to require the appointment of special auditors and compliance advisers to include appointment of other independent professionals, including legal advisers;
(iii) offering composition sums not exceeding SGD 10k per breach, subject to a maximum of SGD 100k per offer for multiple breaches;
(iv) requiring the implementation of an effective education and compliance programme;
(v) requiring the appointment of independent advisers to minority shareholders; and
(vi) requiring an issuer to undertake an independent review of internal controls and processes.
In the February 2014 Consultation, it was proposed that SGX should be empowered to impose regulatory sanctions against issuers, directors, executive officers and issue managers in connection with breaches to listing rules. SGX is now proposing to further extend SGX’s regulatory reach to financial advisers advising on RTO applications on the SGX-ST Mainboard, to maintain standards of quality in the securities market.
Listings Disciplinary Committee
SGX proposes to introduce the Listings Disciplinary Committee (“LDC”) to hear and decide on cases of breaches of listing rules. The LDC will have SGX’s enforcement powers, in addition to specified powers against issuers, directors, executive officers and issue managers.
The LDC will comprise existing members of the SGX disciplinary committees as well as new members (to be appointed) with with listings-related listings experience. Each LDC hearing will be subject to a quorum of five members (including the chairman or deputy chairman), and the quorum must comprise members with collective experience in at least three of the following – corporate finance experience, accounting experience, legal experience, or directorship in a listed issuer.
To balance the needs of efficacy and due process, strict legal rules will not apply at LDC proceedings, and persons appearing before the LDC will not be represented by legal counsel although subject to the LDC’s discretion, they will be allowed to consult with legal counsel (who may be present during proceedings but have no right to address the LDC).
Listings Appeals Committee
The Listings Appeals Committee (“LApC”) will provide an avenue for appeals for persons against whom the LDC has imposed sanctions. The LApC will hear appeals against the LDC’s decisions but will retain the discretion not to accept a case for appeal unless the appellant can show, among other things, that the LDC acted in bad faith, there was procedural unfairness, the LDC made a gross error, or that the sanctions imposed are manifestly inadequate or excessive. The LApC’s decision will be final and binding.
The LApC will comprise existing members of the SGX appeals committee, as well as new members (to be appointed) with relevant listings-related experience. Each LApC hearing will be subject to a quorum of five members (including chairman or deputy chairman), and the members must have collective experience in at at least three of the following — corporate finance experience, accounting experience, legal experience, or directorship in a listed issuer.
Compliance Fund
SGX also proposes the establishment of a Compliance Fund, in connection with the establishment of the Listings Committees and supporting secretariat. The Compliance Fund will be composed of contributions from listing revenue currently paid by issuers to SGX and fines collected by SGX.
The Compliance Fund is intended to be used for:
(i) honorarium payments to the members of the Listings Committees and existing disciplinary and appeals committees (collectively, “Committees”) and operating costs of their supporting secretariat;
(ii) investor education initiatives; and
(iii) legal costs incurred by the Committees.
Timeline For Implementation For Establishment Of New Committees And Enforcement Powers
SGX proposes to implement the proposed amendments relating to the establishment and framework of the three committees, and strengthening of its enforcement powers by the first quarter of 2015.
Resources
The September Consultation Papers can be downloaded at the links below.
1. SGX Consultation Paper on Introduction of Minimum Trading Price and Codification of Regulatory Tools
2. SGX Consultation Paper on Reinforcing the SGX Listings and Enforcement Framework
Feedback on SGX’s proposals should reach SGX on or before 16 October 2014.
For further information, please contact:
Kim Huat Chia, Partner, Rajah & Tann
Yoke Ping Cheng, Partner, Rajah & Tann
Evelyn Wee, Partner, Rajah & Tann
Rajah & Tann Capital Markets Practice Profile in Singapore
Homegrown Capital Markets Law Firms in Singapore
International (with Local Law Capabilities) Capital Markets Law Firms in Singapore