Response To Consultation Paper “Review Of The Quarterly Reporting Framework”

Published February 04, 2018

Thank you for the opportunity to respond to the consultation paper.

Question 1: Relevance of the QR framework

Should the requirement for companies listed on SGX-ST to conduct QR be retained or removed? Please explain your reasons.

Quarterly reporting requirements should not be reduced, except for simplication in the information that needs to be provided. The key beneficiaries of QR are retail investors, who invest in a wide range of companies on the market. In general, institutional investors and asset managers are more likely to invest in larger companies that are included in major indices. They also have better access to management through one-to-one meetings.

In my view, quarterly reporting is even more important today than when it was first introduced. There has been a significant change in the make-up of companies, with foreign listings making up a higher percentage of issuers than in the early 2000s. These issuers have most of their operations overseas, and major shareholders and key management are often overseas. Information asymmetry for such companies is likely to be much greater and there is ample evidence that fraud and other market misconduct is more common for such companies. Enforcement actions by regulators and shareholders are also more difficult when things go wrong.

On the cost side, advancement in technology should make quarterly reporting less costly today than in the past.

Question 2: Ways to recalibrate the QR framework

Please suggest approaches to determine whether a company should perform QR. Please also explain how your proposed method(s) of recalibrating the QR framework is (are) objective, measureable and appropriate in all market conditions.

I believe that the “benefit” argument for requiring quarterly reporting is more compelling than the “cost” argument for exempting companies. Based on this argument, smaller companies which have less institutional investor following and less analyst coverage should be required to do quarterly reporting, even if quarterly reporting is relatively more costly for them. However, this would mean a reversal of the QR regime here, which is based on exempting companies on the basis of cost.

In light of the change in the make-up of companies and the greater benefit of quarterly reporting for companies with greater information asymmetry and higher risk, I would recommend a combination of the current approach and a new risk-based approach. Therefore, we can raise the current threshold to $150 million to exempt more companies on the basis of cost.

However, we should make quarterly reporting mandatory for foreign listings that fall below the $150 million threshold and where their home exchange would have required quarterly reporting. We should recognise that if a home exchange requires quarterly reporting, they would have assessed that it is important for their local market conditions. This would also discourage companies listing here for reasons of “rules arbitrage”.

Ideally, we want a truly risk-based approach but SGX is also looking for an approach that is easy to administer and that provides more certainty to companies as to whether they are required to implement QR. I believe the above is a reasonable proxy for a risk-based approach.

While some may take the view that this may be seen as discriminatory towards foreign listings, the reality is that the regulatory framework and our ability to enforce rules for foreign listings are often less robust than for local listings. Therefore, there is already in effect a different regulatory regime for foreign listings.

Question 3: Increase in market capitalisation threshold

Do you agree that the market capitalisation threshold to determine if QR is applicable to a company should be increased from S$75 million to S$150 million? If you do not agree with the threshold, please propose another value and explain the reasons for the value.

The paper mentions that when QR was first introduced, about 37% of companies had to implement QR. Today, about 70% of companies do so. The paper states that if the threshold is raised to $150 million, it would mean that about 38% of companies would have to do QR – or about the same percentage of companies as when QR was first introduced. 

This argument is flawed for two reasons. First, the threshold has always been arbitrarily set. It so happens that, at that threshold, 37% of companies had to implement QR. It was not the case that the aim was to have 37% of companies implementing QR and the threshold was set accordingly.

More importantly, the make-up of companies has changed today compared to 2003, with a much higher percentage of foreign listings. As I mentioned, I believe QR is even more important for many of these companies.

Therefore, in my response to question 2, I have proposed introducing a risk-based approach as an additional criterion for determining if a company has to do QR.

Question 4: Measurement of market capitalisation

Do you agree that the market capitalisation should be measured based on the company’s average daily market capitalisation over the 6-month period ending 31 December each year?

I agree with this. This will reduce the incentives of companies to manage their market capitalisation at the year-end to avoid QR.

Question 5: Periodic review of market capitalisation

Do you agree that a company should be permitted to apply to the Exchange to cease conducting QR, should its market capitalisation fall below the specified market capitalisation threshold for two consecutive years?

I agree, provided that it is not required to report under the “risk-based” approach.

Question 6: Presence of shareholder holding at least 15% of the company’s shares

Do you agree that a company should be required to conduct QR only if it satisfies the market capitalisation threshold and has at least one shareholder holding direct or indirect interest in at least 15% of the total number of issued shares in the company? Should 15% be the threshold, and if not, please proposed a threshold and explain the reasons for the proposal.

I do not agree with this. It is not only controlling shareholders who may be privy to material non-public information. Directors and key management would certainly be privy to such information, as may substantial shareholders.

Question 7: Measurement of shareholding profile

Do you agree that the measurement of the company’s shareholding profile should be captured as at 31 December each year?

This is not relevant based on my answer to question 6.

Question 8: Administrative power to require quarterly reports

What other considerations should SGX-ST take into account when requiring companies to conduct QR?

If a risk-based approach is added, this may become less relevant. I agree that serious breaches of listing rules; qualified, adverse, disclaimer and going concern uncertainty for their auditors’ report; delays in meeting reporting and AGM deadlines, should be considerations in determining whether an otherwise exempt company should be required to do QR.

Question 9: Modifications to the content of quarterly reports

Do you agree with the amendments to the format of quarterly reports as proposed in Appendix 1 and Appendix 2?

I agree.

Question 10: Shareholder approval to cease QR

Do you agree that companies can discontinue or delay the commencement of (as the case may be) QR for a period of three years if approval is obtained from shareholders by way of an ordinary resolution from minority shareholders present at its annual general meeting and that votes from controlling shareholders, directors, CEOs and their associates on such resolutions be excluded?

No, I do not agree. This may result in calls for shareholder approval to cease other requirements. Why stop at QR? Why not sustainability reporting? Or production of a corporate governance report?

The QR regime should be kept simple and give companies and investors reasonable certainty.

Question 11: No QR for new issuers

Do you agree that new issuers can seek a shareholder mandate not to conduct QR at the point of IPO or RTO?

I am ambivalent about this, although on balance, I believe it is important for new issuers to give regular updates to investors. If a shareholder mandate is allowed at the point of IPO or RTO, it should not subject to renewal as I do not believe that QR should operate on the basis of a shareholder vote.


Mak Yuen Teen

February 5, 2018

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