SGX Mainboard Listing Rules: Proposed Reforms (Part 1 Of 2)

Singapore’s equity capital market has faced challenges in attracting new listings in recent years. The latest proposal to decisively adopt a more disclosure-based regulatory framework is both timely and necessary. It aligns with global standards, such as those in the United States (US), and reflects the growing sophistication and diversity of market participants. Importantly, it acknowledges that well-informed investors are often better placed to assess the merits of a listing.

A genuine disclosure-based regime reduces regulatory friction and listing costs, shortens time to market, and broadens investor choice. It places the emphasis on relevant and material disclosures that enable investors to make informed decisions. Crucially, SGX RegCo is not abandoning safeguards; the key admission criteria, such as financial soundness and integrity of directors, management, and controlling shareholders, will remain in place. Requiring unmodified audited financial statements ensures minimum financial standards are upheld.

The challenge is to strike the right balance, and we see that even the long-standing S$30-million profit criterion is under review. This recalibration by SGX RegCo reflects a thoughtful effort to modernise the listing framework.

While this reform is no silver bullet, if implemented with conviction along with other proposed measures to increase investor interest and trading liquidity, it could reinvigorate interest in SGX, attract a wider range of issuers, and bolster Singapore’s standing as a dynamic, globally competitive financial hub.

1) Do you agree with a shift towards a more disclosure-based approach while retaining key qualitative admission criteria?

No. My concern is the lack of adequate investor protection that is necessary to support a more disclosure-based approach. Further, a statutory regulator – in our case, MAS – should be more involved in determining the admission criteria and overseeing the process, given the conflicting objectives of a listed stock exchange.

2) Do you agree that the audited financial statements submitted with the listing applicant’s listing application must be unmodified, that is, not be subject to an adverse opinion, qualified opinion, or disclaimer of opinion by the auditors?

Yes, because modified audit opinions raise doubts about the reliability of the financial statements. In fact, I believe modified opinions should be added to the criteria for determining whether a company should be placed on a Watch-list.

3) Do you think that the S$30-million profit criterion is relevant as a quantitative financial criterion? If not, should it be removed, or the S$30-million figure reduced?

No. It is useful to continue to have different quantitative criteria that are sufficiently stringent for Mainboard listings. This is to ensure that the market does not become even more of a market of just very small companies. Companies that do not meet the criteria can always apply to list on Catalist.

4) Do you agree with the removal of the Financial Watch-list? If so, do you agree that an issuer listed on the Mainboard should still be required to announce when it records pre-tax losses for the third consecutive financial year?

No. Instead, I believe that modified audit opinions should be added to the criteria. There needs to be a system of exiting companies that are of poor quality. Exchanges, such as those in the US and Malaysia, have similar “Watch-list”-type mechanisms based on minimum trading price, poor financial performance or audit issues. Without such mechanisms, the quality of companies may be low, and this can affect liquidity and valuations of the entire market.

1) Do you agree with a shift towards a more disclosure-based approach while retaining key qualitative admission criteria?

Yes, Singapore should move towards a disclosure-based regime, but not at the expense of key qualitative safeguards. A disclosure-based approach increases market access and flexibility through allowing a broader range of companies, such as high-growth and technology startups, to list, while reducing the regulatory burden tied to meeting rigid financial thresholds. This also empowers investors to assess risks based on full and fair disclosures, and encourages the development of a more sophisticated investor base for Singapore.

A disclosure-based regime will also help align Singapore to global standards, for example, in jurisdictions like the US, where disclosure-based regulation is the norm, thereby making Singapore more competitive and attractive to foreign listings and capital.

Maintaining key qualitative admission criteria ensures investor protection and safeguards market integrity, confidence and reputation.

2) Do you agree that the audited financial statements submitted with the listing applicant’s listing application must be unmodified, that is, not be subject to an adverse opinion, qualified opinion, or disclaimer of opinion by the auditors?

Yes, the audited financial statements must be unmodified in order to maintain investor confidence, since investors rely on audit assurance to trust the integrity of the listing applicant’s financials. This also provides regulatory assurance that the listing applicant meets listing standards and is free from significant financial reporting concerns. A listing with a modified opinion could also damage SGX’s reputation as a credible exchange.

3) Do you think that the S$30-million profit criterion is relevant as a quantitative financial criterion? If not, should it be removed, or the S$30-million figure reduced?

No, S$30 million is no longer a relevant quantitative financial criterion, especially since the market supply for listing applicants in recent years has been in the high-growth/technology startup space. These companies are typically in need of funding to achieve and further their growth potential, and have not started generating substantial and stable profits at the point of listing application. The figure should be reduced to S$10 million to enhance market access.

4) Do you agree with the removal of the Financial Watch-list? If so, do you agree that an issuer listed on the Mainboard should still be required to announce when it records pre-tax losses for the third consecutive financial year?

The Financial Watch-list should be removed, given its rigid criteria which focus solely on profitability and market capitalisation, which may not reflect future potential of companies, especially those in the high-growth, biotech and technology startup space. Startups may be penalised despite strong fundamentals or innovation.

In a disclosure-based regime, investors should be given the latitude to assess risks, instead of the Exchange forcing an exit through administrative requirements. There are also unintended consequences relating to Watch-list stigma, which could cause lower liquidity and valuations, difficulties in raising capital, and result in forced restructuring or delisting of viable businesses.

An issuer should still be required to announce when it records pre-tax losses for the third consecutive financial year, for investor protection, and to maintain market integrity, transparency and discipline.

Singapore’s capital markets have built a reputation for integrity, transparency, and rigorous regulation. To enhance the quality of listings, SGX RegCo raised the criterion of at least S$30-million consolidated pre-tax profit for listing on the Mainboard in August 2012.

This threefold increase¹ raised the hurdle for promising high-growth and early-stage companies to qualify for a Mainboard listing. IPO applicants wishing to tap institutional funds and investors’ Central Provident Fund (CPF) savings may not consider listing on the Catalist board, as these investors are typically limited to investing only in Mainboard-listed securities. The limited access to these investors may make a difference to the success of a capital-raising attempt.

There is a notable disparity in listing eligibility and investor reach for new IPO entrants as many companies currently listed on the Mainboard do not meet the stringent S$30-million profit benchmark. Promising new IPO entrants, seeking broader investor reach, may perceive an uneven playing field when compared to the less financially robust companies already listed on the Mainboard.

Consequently, some IPO applicants may have opted to list on other recognised exchanges, including the Hong Kong Exchange Mainboard² or Malaysia’s Bursa Main Market³, where they are better positioned to meet the Mainboard listing criteria.

I welcome SGX’s proposal to refine its quantitative admission criteria for Mainboard listings as one of the measures to draw more IPOs and enhance the competitiveness of the exchange. This would benefit IPO applicants and investors, and enhance the overall attractiveness of Singapore’s capital markets.

Look out for Part 2 of the article in July. Hear from more professionals as they share insights into how the proposals might impact Singapore’s capital markets and the broader business ecosystem.

¹Prior to August 2012, the pre-tax profit criterion was S$10 million in the most recent year or cumulatively over the last two years

²Hong Kong Exchange Mainboard: Minimum HK$35 million in the most recent year and aggregate profits of at least HK$45 million in the two years before that

³Malaysia Bursa Main Market: Minimum after-tax profit of RM6 million in the most recent financial year, with aggregate of RM20 million over three to five years