SGX hiving off regulatory arm

One of the grouses against privatizing stock exchanges (like Bursa, SGX and HKEX) is the conflict of interest between the commercial and regulatory divisions.

The SGX has taken action on this matter, according to this article in the Business Times (Singapore):

SGX to hive off regulatory functions

Some snippets:


In a move welcomed by market watchers as long overdue, the Singapore Exchange (SGX) said on Monday that it is hiving off its regulatory arm from its commercial activities. A new company temporarily dubbed RegCo will be set up as an SGX subsidiary by the second half of next year. It will house SGX's current regulatory team of around 100 people. RegCo will be run by current SGX chief regulatory officer Tan Boon Gin, who reports directly to a board separate from the exchange. Central bank and regulator Monetary Authority of Singapore (MAS) will ensure SGX gives RegCo adequate resources for its duties.

Market players hailed SGX's move as a crucial one to resolve the long-running perception that the exchange was conflicted in having to regulate its clients, which include China-related S-chips and penny stocks that had been the focus of extreme speculative activity.

While some might still gripe that the regulatory unit is not totally independent of the SGX, others countered that RegCo's board, at least, will be separate and the majority of its members independent of SGX.

In a statement on Monday, MAS said the independence of the subsidiary will be an important factor for its success. It requires the chairman of RegCo as well as a majority of its directors to be independent of SGX and its subsidiaries. All directors also have to be independent of SGX-listed companies.

Although the proof is in the pudding, this proposal sounds like a step in the right direction. Bursa Malaysia should consider to follow suit.