THE Singapore Exchange (SGX) is seeking market feedback on proposed amendments to its derivatives clearing rules and the SGX Derivatives Trading (SGX-DT) futures trading rules.

 

This consultation is in relation to the " GIFT Connect" trading link with India' s National Stock Exchange, under which Nifty futures contracts on the SGX are executed in India' s special economic zone, the Gujarat International Finance Tec-City, or GIFT.

 

The trading link is also known as the National Stock Exchange International Financial Service Centre (IFSC)-SGX Connect.

 

In a Thursday statement, SGX said that it has incorporated a special-purpose vehicle, SGX India Connect IFSC Private Limited, which will be admitted as a trading member of the National Stock Exchange IFSC. The special-purpose vehicle will also be a clearing member of National Stock Exchange IFSC Clearing Corporation Limited (NICCL).

 

Orders for Nifty products from SGX-DT trading members will be routed via the special-purpose vehicle to the National Stock Exchange IFSC for trading and execution, followed by clearing and settlement through NICCL. SGX' s derivatives clearing members will face the bourse' s unit, SGX Derivatives Clearing (SGX-DC), as the central counter-party for these trades. This is similar to the arrangement for other SGX-DT products.

 

The proposed amendments to the SGX-DC clearing rules include the introduction of an additional layer of financial resources over and above the SGX-DC Clearing Fund, as well as new default-management tools.

 

The proposed amendments to the SGX-DT futures trading rules are intended to clarify the obligations of SGX-DT trading members when accessing GIFT Connect to trade relevant Nifty derivatives contracts, the bourse said.

 

The consultation will be open till July 7. Shares of SGX closed at S$10.43 on Thursday, down 0.38 per cent.

THE success of Singapore' s risk-based quarterly reporting (QR) regime, launched 15 months ago, appears to be predicated on one thing, which just happens to be outside the control of regulators: the voluntary efforts of companies, that have not been directed to do so, to continue issuing quarterly financial reports and /or business updates.

 

It begs the question of just how practicable this new system will be, particularly over the longer term.

 

The current regime is a marked departure from Singapore' s previous mandatory QR regime, which had been in place since 2003. In explaining the change, Singapore Exchange Regulation (SGX RegCo) said the new approach would focus on high-risk companies, thereby relieving the reporting burden on others and giving them more latitude to consider longer-term strategic matters.

 

Under this risk-based approach, which took effect on Feb 7, 2020, the issuers that would be required to report their numbers quarterly would be those: that have a modified audit opinion on their latest financials whose auditors have highlighted a material uncertainty relating to going concern based on their latest financials or whom SGX has regulatory concerns about.

 

The list of companies required to do so is maintained and regularly updated on SGX' s website, and covers about 100 companies.

 

When asked if the new regime has achieved its purpose, SGX RegCo said " it is still early days" , but that it has " seen some positive emerging trends" - among them: a considerable proportion of issuers voluntarily producing business updates or financial statements consistent information, from one period to the next, from issuers that have produced more than one voluntary update or financial statement and voluntary business updates that generally contain operating review and business outlooks based on what issuers think might be useful for investors.

 

Of the analysts and users of financial statements that The Business Times approached for their views on the workings of this new regime, a handful had a positive response.

 

CGS-CIMB research head Lim Siew Khee told us: " Even though there is no detailed quarterly reporting, a lot of companies have opted for voluntary business updates. So that has been good for the buy/sell side to get updates."

 

Active investor Ang Hao Yao, who has spoken out strongly against the removal of mandatory QR in the past, said there has generally been less updated financial information to base his investment decisions on, but that he is " heartened to note that there are companies who make voluntary quarterly business updates" and that he hopes more companies would do likewise.

 

Investor rights body, the Securities Investors Association (Singapore) or SIAS, said it supports the new regime for its balanced approach, but that " this model will work so long as companies continue to provide timely disclosures of material information" .

 

The consistent theme? The positive aspects of this new regime can be said to be due to the voluntary efforts of certain companies, whose goodwill - it would seem - is going to play a significant role in determining if this risk-based approach works for the Singapore market.

 

This is hardly the foundation upon which one wants to base the successful operation of one' s new reporting set-up.

 

For one, while such voluntary disclosures are a sign of a good corporate culture within Singapore, arguably the result of years of effort by various stakeholders including the regulators, these good examples are the exception, rather than the norm.

 

Corporate governance advocate Mak Yuen Teen, an associate professor of accounting at the NUS Business School, compiled a list of some 40 companies, with a primary listing in Singapore, that have not been directed but are voluntarily releasing quarterly financial statements.

 

He identified the issuers that continued to issue first- and third-quarter results between Feb 7, 2020, and now. He omitted those that gave business updates instead of a full quarterly financial statement, as well as secondary listings that are required to file quarterly reports by their home market.

 

The small handful of issuers that continue to issue quarterly reports, as well as those who issue frequent and meaningful business updates, should definitely be lauded for their efforts. But, isn' t the fact that they remain in the minority an issue?

 

One could argue that the choice to move to a risk-based approach to QR is a recognition that not every company needs to issue a quarterly report. And yet, SGX RegCo has pointed to the various instances of voluntary reports and updates as a " positive trend" - an indication that they would like to see more, which is also the sentiment shared by users of financial statements interviewed by BT.

 

It' s clear that these various parties appreciate such reports from all companies and not just those deemed high-risk, which is what the current regime is solely catered for.

 

The availability of frequent and meaningful financial information from all segments of the market is especially helpful to retail investors, who often do not have access to companies' management teams the way institutional investors do, or who may not know how to band together or approach SIAS to organise such efforts for them.

 

David Gerald, president and CEO of SIAS, told BT: " SIAS hopes that companies can continue to disclose any material information that would affect companies' financial performance, especially adverse information. Investors do not like surprises and the market price will suffer if the companies are not managing or engaging their investors and their stakeholders properly.

 

" Companies should continue to provide reviews of their business and financial performance, including the impact from Covid-19. Financial disclosures on their sales, profitability and cash flows would facilitate investors' understanding of the companies' business performance. SIAS welcomes transparency in disclosures so that investors can make informed investment decisions," he added.

 

It can then be argued that it would hardly be desirable to then have to depend on companies (and such a small number, at that) to voluntarily issue such frequent updates, bearing in mind that such disclosures would then vary across companies and across time. Already, the lack of consistency in information flow, with some companies choosing to release such data and others choosing not to, impedes the making of informed investment decisions.

 

So, if users of financial information and regulators alike find that such voluntary disclosures are going some way in making for a more well-informed and attractive market, SGX RegCo must do more than simply rely on the goodwill of some companies to make up for the shortfall in others. It needs to explore ways in which it can ensure the consistent and frequent release of good-quality information, without returning to a mandatory reporting set-up if that isn' t the desired final result.

Singapore-headquartered Climate Impact X, to start by year-end, hopes to incentivise emissions cuts it will be scaled up later with more sponsors

 

SINGAPORE is set to raise its green game. Four key entities - DBS, the Singapore Exchange, Standard Chartered (StanChart) and Temasek Holdings - have joined forces to launch a global exchange and marketplace for high-quality carbon credits by end of the year to incentivise emissions cuts.

 

It is hoped that the Singapore-headquartered exchange called Climate Impact X (CIX) will provide better price transparency and verification of the quality of carbon credits - two current challenges in the global voluntary carbon market as companies and governments work towards a net-zero future.

 

At the event held virtually to unveil the latest initiative, Ravi Menon, managing director of the Monetary Authority of Singapore said: " CIX is a promising solution to the problem we face today of fragmented carbon credit markets characterised by thin liquidity and credits of questionable quality" .

 

To start with, CIX will feature carbon credits from various high-quality Natural Climate Solutions (NCS), said CIX' s interim chief executive officer Mikkel Larsen, who is also chief sustainability officer at DBS. NCS involve protection and restoration of natural systems from forests and wetlands to mangroves.

 

Temasek' s chief investment strategist Rohit Sipahimalani said CIX is in talks with global rating agencies to provide independent ratings to these projects.

 

Carbon pricing, a key tool to combat carbon emissions, is gaining momentum. Globally, there are 61 carbon-pricing initiatives in place, half of them carbon taxes and the other, emissions trading systems.

 

" A meaningful price on carbon is critical to create the right incentives to reduce emissions. The challenge is to arrive at the right price, one that does not unduly impede economic development and yet is sufficient to drive decarbonisation efforts that will enable the world to meet its climate targets," said Mr Menon.

 

According to DBS CEO Piyush Gupta, the project, which was a year in the making, will eventually be scaled up with more partners - apart from the original four - to fund the project.

 

As more companies pledge to stop climate change by reducing greenhouse gas emissions, many, especially those with net-zero targets - there were some 1,500 of them last year - have also turned to carbon credits to offset emissions they can' t get rid of by other means.

 

Carbon credits are essentially tradable certificates that represent the reduction, avoidance, or removal of a certain amount of emissions from the atmosphere. Firms can buy these credits to offset hard-to-abate emissions.

 

It is estimated that demand for voluntary carbon credits will grow 15-fold or more by 2030 and the market for carbon credits could be worth more than US$50 billion by then.

 

CIX will use satellite monitoring, machine learning and blockchain technology to enhance transparency, integrity and quality of carbon credits. It will offer distinct platforms and products that cater to the needs of different buyers and sellers of carbon credits.

 

The latest initiative, part of the city-state' s goal to become a leading carbon services and trading hub, was borne out of Singapore' s Emerging Stronger Taskforce' s Alliance for Action on Sustainability.

 

Mr Menon said: " We are strengthening the carbon credit value chain. This includes growing capabilities to develop projects, conduct certification and validation of project design, and monitor and verify project outcomes."

 

In 2019, Singapore introduced a carbon tax of S$5 per tonne of greenhouse gas emissions, to establish the principle of a price on emissions. The original intention was to gradually raise the tax from 2023 onwards to between S$10 and S$15 per tonne of emissions by 2030.

 

Mr Menon added that the government is now reviewing both the post-2023 trajectory and the level of the carbon tax to ensure sufficient impetus for emissions reduction and restructuring towards a greener economy.

  These solutions will help to automate the extraction of data.

Singapore Exchange Regulation (SGX RegCo) on Thursday (May 6) announced it will be introducing the use of artificial intelligence and other regulatory technology solutions to enhance its oversight of listed companies.

 

It said these solutions will help to automate the extraction of data that can be used to compute " certain indicators of financial risks" based on SGX RegCo' s observations of indicative signs of possible financial distress or irregularities in listed companies.

 

Such indicators include the existence of long outstanding trade receivables and significant asset write-offs, as well as low cash coverage ratio and negative working capital, among others.

 

SGX RegCo said it is expanding its regulatory technology solutions to eventually include machine learning techniques and additional information sources, with a view to improving predictive capabilities in these areas.

 

" Using artificial intelligence and other technology, SGX RegCo is adapting information from companies' disclosures into structured data that can be analysed and used easily and speedily.

 

" The automation of such processes directs regulatory resources to higher-risk areas and enables us to be more targeted in our regulatory responses," said SGX RegCo chief executive Tan Boon Gin.

 

For instance, Mr Tan said SGX RegCo could issue disclosure queries taking into account the above-mentioned indicators, and engage with the audit committee and external auditors where necessary.

 

Doing so together with issuers' responses to queries will provide transparency to investors on signs of possible financial distress or irregularities in listed companies, he added.