Singapore hasn't avoided the financial firestorm that's swept Southeast Asia. But the city-state's government appears undaunted. Despite the maelstrom, it's remaining focused on making Singapore a key financial center.
This intensified effort clearly will involve the local stock market. A package of proposals -- recently accepted by the government -- included such recom- mendations as: freeing brokerage rates; speeding the approval process for stock offerings; allowing share buy-backs; and permitting Singaporeans to use Central Provident Fund assets to buy foreign currency-denominated issues listed in Singapore.
What prompted Singapore to step up its financial center drive? How will it be affected by the financial crisis? Last month, Pensions & Investments' international editor Margaret Price explored these and other issues in a conversation with Lim Choo Peng, president of the Stock Exchange of Singapore.
Q: Mr. Lim, the government is intensifying its promotion of Singapore as a financial center. Why?
Mr. Lim: Before the financial crisis, every country in the region was aiming to be a financial center, and competition had been heating up. While there is a lot we can do here -- because we have excellent communications, a sound legal system and hard-working people -- we are still a small country.
But taking aside Hong Kong, Singapore is already the most (international) of the regional markets. We have listings of companies based in Thailand, China and Indonesia. We already have a better mix of companies than most markets in the region.
Q: What is the stock exchange doing to help further Singapore's stature as a financial center?
Mr. Lim: Late last year, two committees -- the Stock Exchange Review Committee and the Corporate Finance Committee -- were set up under the Financial Sector Review Group.
(That group was created after the government formed its Cost Competitive Committee last May to assess Singapore's competitive position.)
As its task, the Stock Exchange Review Committee is exploring various areas. Among them: Singapore's brokerage commission structure, the policy on stock exchange membership or both local and foreign firms, and the prospects for creating new investment products and services. The work of the Corporate Finance Committee involves examining the rules and regulations that govern corporate fund-raising and to recommend ways to enhance and promote them.)
Reports from these committees are due around June or July.
Q: Will the current financial crisis interfere with the government's initiatives to promote Singapore as a financial center?
Mr. Lim: For some things, such as freeing up commissions and opening membership, timing (shouldn't be an issue.) In fact, this year trading volume on the exchange was increasing. On Feb. 6, the exchange had a record volume of 1.2 billion shares traded.
So the point is that, with market
movement, there is trading activity and increased business for brokers. People cannot say this isn't the time to cut commissions.
Q: Separate from the government's recent initiatives, are there any other innovations or developments planned at the exchange?
Mr. Lim: One area we're seriously looking at is . . . allowing people to trade shares via the Internet without going through a stock broker. That's different from systems in a number of other countries. In those cases, orders are routed from the client to the broker via the Internet.
The benefits of our system will be lower transaction costs and the ability to get the prevailing market price for a stock.
This system is targeted to be launched in July or August. What will make it possible is the fact that investors already can have their own accounts with our central depository. Not many other exchanges have a central depository with that feature.
Q: A recent report said Singapore's capital markets have been lagging in overall development. What has been the perspective of the stock exchange about market development? Do you try to be very careful about listings and memberships?
Mr. Lim: In the past, it was probably correct that a lot more attention was paid to ensuring smaller investors were somehow protected. That led to tighter policies and a tendency to only want the better companies as listings. But this has to change, because I think the public needs to learn that investments involve risk, and there are no guarantees. If you want to buy a stock, you should do so after having done studies and research.
Q: Obviously, the current financial crisis has played havoc with Asian markets. Has the exchange taken any specific steps to limit problems in Singapore?
Mr. Lim: Unlike New York, we have no circuit-breaker system here. Our philosophy is that markets go up and down, and it's beyond all of us to control volatile markets. But what's very important to us is that firms operating on our exchange remain sound.
We inspect them continually to monitor such issues as how much exposure brokers have to a single security. We also limit the amount of their borrowing for share purchases. By our limitation, brokers can borrow up to about five times their adjusted net capital. In a lot of other markets, they're allowed to borrow about twice that.
Q: Many say Singapore has been in a better position than other Asian markets to weather the financial storm. Is this your perspective
Mr. Lim: Recently, all of us have been affected by the financial crisis. When many international institutions look at this part of the world they see it as one region, with Singapore as part of it. Therefore, our market took a beating, dropping earlier this year from (an index level of) above 1,500 to below 1,100. Many investors expect companies to be affected because of Singapore's trade within this region."