Beyond paper tigers: Evolving SGX’s regulations to match Asia’s needs

In 1976, the same year The Business Times was launched, another crucial event unfolded on the global stage. The US Securities and Exchange Commission (SEC) approached the New York Stock Exchange (NYSE) to modify its listing requirements, mandating the inclusion of an audit committee comprising independent directors (IDs). This marked the birth of the ID role as it is recognized today, following the 1970 bankruptcy of Penn Central due to unforeseen financial woes and the revelation of illicit campaign contributions by numerous corporations to President Richard Nixon's re-election campaign in 1973.

The two scandals fueled the belief that boards needed to be genuinely independent to effectively oversee management. Since then, support for independent boards has grown steadily. Today, they are considered a best practice for corporate governance worldwide. Singapore, like many other Asian jurisdictions endorsing director independence, faces challenges with IDs who either fail to or refuse to effectively counteract controlling shareholders.

This issue of independence is just one among several that SGX RegCo encounters as it updates its regulatory framework, especially in areas of transparency and governance. The Stock Exchange of Singapore, a precursor to SGX, was established in 1973, just a few years after its inception. As a relatively new exchange, with the Amsterdam stock exchange being the world's oldest at 1602 and the NYSE established in 1792, Singapore has borrowed from older exchanges due to the need to attract international investors and rely on proven systems.

While most transplanted systems have functioned well, the reliance on board independence as a control mechanism and the close alignment of Singapore's corporate governance code with the UK's, which has a different approach to institutional investor oversight, need improvement. Additionally, the low number of institutional shareholders and high concentration of individual-controlled and family-controlled companies require better addressing of the conflict of interest between majority and minority shareholders.

As SGX RegCo revisits its regulations to better fit the Asian context, it is expected that certain practices from Western developed markets will be deviated from, with Singapore leading the way in crafting its own best practices.