THE Singapore
Exchange (SGX) could propose changes to the listing rules as early as the third
quarter of this year if it perceives market "consensus" on the
introduction of dual-class shares (DCS), the market regulator said on Thursday.
Those comments came
as SGX launched a public consultation to seek feedback on whether to allow DCS
structures on the stock exchange, and if so, what safeguards should be in
place.
Citing the need to
improve market vibrancy through regulatory innovation, albeit in a responsible
manner, the exchange is exploring the possibility of introducing unique
safeguards such as a "compelling reason" hurdle as well as mandatory
sunset clauses that allow different share classes to be automatically unified
when certain conditions are met.
The key proposals in
the consultation cover three areas: additional listing criteria, safeguards
against entrenchment and safeguards against improper expropriation.
The current proposal
envisions DCS structures limited to new mainboard listings. SGX is considering
imposing a minimum market capitalisation of S$500 million and a minimum total
shareholding held by sophisticated investors equal to 90 per cent of the required
public float.
The exchange is also
considering imposing a "compelling reason" hurdle, which would be
unique to Singapore, although what constitutes "compelling" has not
been defined.
"There is no
exhaustive list of reasons which are considered as compelling," SGX said,
adding that the assessment should be done in a holistic manner.
To give
ordinary-class shareholders an opportunity to undo a dual-class structure, the
proposals also suggest limiting the voting differential between classes to 10
times; restricting the issuance of superior-class shares after listing to
rights issues; and automatically converting superior-class shares to
ordinary-class shares when they are sold or transferred, or when the owner
manager who owns those shares no longer holds a management role.
SGX is also considering
the possibility of mandating "sunset clauses", which would
automatically unify the different classes of shares when certain conditions are
met. For example, unification could automatically occur or be put to a vote
after five years. SGX is seeking feedback on whether such a rule would work,
what provisions could be used, and how to calibrate them. No other exchange
with dual-class shares currently mandates sunset clauses.
There are also
proposed safeguards against expropriation. SGX is proposing making compliance
with the Code of Corporate Governance mandatory for DCS companies when it comes
to matters of board composition and independence; requiring one-share one-vote
in independent directors' appointments; mandating board risk committees; and
requiring "coat-tail" provisions that ensure equal treatment in
takeovers.
Taken together,
those safeguards seek to limit the benefits of superior-class shares to a
question of control, not market profits, SGX chief regulatory officer Tan Boon
Gin said at a press briefing.
SGX is seeking
feedback on these measures, but may not seek to adopt all of them together, SGX
head of listing policy and product admission regulation Michael Tang said.
The consultation
closes on April 17. If SGX decides to accept DCS listings, it will undertake a
further round of public consultation focused on specific changes to the listing
rules. That consultation, if it happens, is unlikely to take place before the
third quarter of the year, Mr Tan said.
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