There’s no conflict – repeat – no conflict of interest at ALL, between having the same person playing both the role of salesperson as well as regulator to these golden Chinese turds that almost inevitably exude the stench of “profit warnings” or “Fukushima has affected our supply chain” or “operations in Dalian affected by geopolitical uncertainty in Libya” or any convenient crisis three to six months into listing, well after listing incentives and bonuses have been paid out. This BT article, though stating nothing new to the thousands of Singaporeans already suckered out of their money, is a decent summary of the number of S-turds that have been laid at our doorstep so far for 2010, and counting. (though we have a little bit of beef about the suck-up statement in bold inserted midway that SGX was only doing it to please local demand, regulation be damned). And while the article is 100% accurate, it is also 100% useless as a guide to what could be done to prevent S-crooks from parking their ‘one way to China remittance’ operations here, since our mickey mouse laws have no hope in hell of being applied to the merchant princes partying like its 1997 in GuangZhou. But, hey, as long as MAS is happy, SGX couldn’t really give a rat’s ass.
From BT “S-chip concerns must be addressed“
LAST week’s news that China Gaoxian’s auditors have had difficulty verifying some of the company’s accounts takes the total number of China stocks listed here – or S-chips as they are popularly known – to have reported accounting or governance issues to three so far in 2011 and 10 since 2009. This is a worrying trend, not just for the blow to the integrity of the whole S-chip segment, but also because four of the 10 are CPF-approved investments. In response to mounting worries that the remainder of the S-chip segment could be similarly blighted and the consequent effect that these worries is having on investor confidence, Singapore Exchange (SGX) has written to the audit committees (ACs) of these companies urging greater oversight of cash balances and other assets.
Because of difficulties dealing with legal representatives at some of the problematic S-chips, the exchange has also ‘strongly encouraged’ ACs to ensure that articles of association give boards the authority to remove these representatives if deemed necessary. Companies have until the end of May to comply. But the exchange was silent on potential penalties for failure to implement these recommendations before the deadline.
There is little doubt that these moves are long overdue. There is also no doubt that more could be done – especially as there are at least two dozen more S-chips that are CPF-approved stocks. When SGX was courting China listings for much of the past decade, it was never able to fully lay to rest concerns that only substandard companies would be listed here since the better firms would logically prefer to be listed in China or Hong Kong.
In its defence, SGX was merely satisfying market demand for investment proxies for a China that was booming, and at the height of the demand in 2006-7, investor appetite for S-chips ran high.
However, many questions raised then are still valid today – for example, the accountability to Singapore investors of largely foreign and anonymous boards that reside in China, the enforcement of local laws and disclosure standards on companies operating in remote provinces and even the authenticity of assets and operations in those places.
These are issues that the authorities should address now that the segment has been badly tainted by a string of accounting and governance failures over the past two years. In addition, it might be a good idea to review the CPF-approved status of others in the segment, at least until improved checks and balances are in place.
SGX and other regulators should also consider implementing and enforcing a strict disclosure timetable on findings from their investigations so that shareholders are kept informed on what exactly is going on. In some cases, suspensions have stretched back two years with very little news on what has or has not been found. Investors deserve better than to be kept in the dark for such a long period. More can and should be done to restore confidence in S-chips.
Whoa! Did SGX actually say that – they were giving investors what investors wanted?! At least the Exchange – ok, BT opining on their behalf – now admits it has been parlaying Shit in the same way banks were knowingly stuffing snake-oil to moms & pops before the crisis for not small commissions.
One down. Let’s now hear from the regulators, auditors, SIAS, …
One must wonder where the Spore market is headed, when lines of accountability are blurred and when the shit hits the fan, everyone involved slips under the radar.
An aside, for your blog’s comment. Why SIAS’ silence on S-Chips when it gallops off to champion Spice i2i’s $175m Affinity Group “acquisition as putting the company ‘on the right path’ but did not give details, saying that the information may be sensitive. Having heard their plans, SIAS is of the opinion that the company is in fact acting in the interest of the minority shareholders. Minority shareholders should seriously consider the acquisition plan and make an informed decision in their interest. They must consider the fact that if the company is successful in their vision of acquisition of ‘Circle of Champions’, it may succeed in becoming a billion dollar company” (BT, 26 March 2011). Should it be allowed to make such representations when minority shareholders are not privy to said information? Can a minority shareholder sue SIAS if the investment subsequently screws up?
I can almost understand the reason for yesterday’s BT headline about money moving from stocks to casinos
Now the authorities can say: “look its not so serious wat, all the gamblers have moved across to the gambling dents, S-Chip losses only small money la!” Maybe someone would soon be demanding “Tan Kin Lian take over at SGX!” E Sam went that way after Nicky boy scammed the brits, so who’s next?
What exactly do you want sgx to do? This is caveat emptor. No one forced investors to buy s-chips!
The same happens in all markets. Think of all the dot bombs who listed on Nasdaq, both us and non-us startups. And think of the no of foreign companies listed in wall street. Do all of them have assets and operations in the us? Do all of them have boards in the us?
What exactly are you proposing sgx shoul do?
Why bother calling oneself a regulator (or having any regulator at all), if the “truth”, according to your investment gospel, is buyer beware?
But in the spirit of “suggesting solutions”, let’s take a hypothetical situation, where you, personally, are about to plonk down $100 million of YOUR OWN MONEY into an S-chip. What sort of due diligence would you do? Merely read the prospectus? Or (gasp!) do you think you could actually conjure up a couple of imaginative and oh so original ideas to try to figure out if the company is on the up-and-up? If it doesn’t pass the smell test, DON’T LET IT LIST. Unless of course, you think that a “regulator” shouldn’t exercise such powers in case it seems to be bad for the market.
Thanks for response. But you may know the world has moved away from that now.
The truth is that exchanges are not in a position to guaranteee the quality of listings. It creates a moral hazard, and it is not the core competency of an exchange.
Thus exchanges these days require companies to produce reports by independent auditors and investment bankers, etc to show proof of due diligence, but they state very clearly that investors should not take neither the exchange or even mas’ approval as guarantees of a company’s financial standing and that investors can lose money.
Is that not very clear?
The exchange is really a regulator only in name. What can it do? If it fines a company, it’s actually shareholders’ funds that are used to pay the fines. If it suspends a stock, it’s actually the shareholders who are stuck with the shares that are hurt.
If it fines or tries to press for a custodial sentence against a director, there’s always concerns about whether people will be willing to step forward as director. And in any case, criminal prosecution can only be taken up by the financial regulator or CAD, as the exchange has no criminal prosecuting powers.
Of course, if it progresses to that stage, the problem is already too big for the exchange, and we’re talking at least fraud if not CBT.
So I ask you again, what do you expect the exchange to do? Go back to the 80′s and try to shield investors from listings? Or enforce listing and admission requirements and let investors go in with their eyes open?
Note that I didn’t even mention censure or delisting as the former is totally ineffective whereas the latter hurts investors even more than suspension.
Re politicalwritings..
Are you saying if I did not force you to buy, I can continue to cheat you? Perhaps the prospectus should include a risk para that says management may conspire to cheat the company after listing, and investors should beware this risk. It’s the same arrogance as SGX saying it was merely satisfying market demand and (by implication) it was not concerned whether these companies were bona fide or pigs dressed up as cinderellas. This is very different from listing more companies in the same industry/sector for liquidity and inter-company benchmarking, which makes relative valuations more transparent and benefits investors.
You confuse caveat emptor with licence to list. The operative word is intent. I don’t think the blog comments so far expect risk-free investments. Investors are happy to take market and business risks but not heists. Key is, how do we minimize the latter outcomes? The fact that so many S-Chips have been creamed of their cash hoards points to systemic failure. The crooks come because they know they are welcome here and there are no consequences. The modus operandi appears S.O.P. It’s not like we’re now all so far behind the cure that we’re discovering new and more complex tricks by these operators. Neither is it new that catching and making the PRC crooks pay is extremely difficult. So SGX is not responsible at all for this outcome? We can debate where the regulatory knife should fall, but not even morally? It is clear to me SGX sees profits as its only goal although I don’t think they have actually articulated it, and it is their wanting the cake and eating it that blurs public perception and understanding of the SGX’s avowed goal and de facto non-role. You yourself also describe the SGX as ‘a regulator in name” in the same breath that you readily absolve it of any responsibility. So is it clear, or not?
You imply pre-listing due diligence has its limits. But remember everyone is on the same Sell side – company, investment bankers, legal advisers, auditors, SGX. Who is on the right side? So linear/exponential “managed” growth over 3 years doesn’t raise a bell? Everyone knows the template. You expect them to shout fire?!
More, given SGX’s wide open front door, if there is no stick (better, sword) at the backend, there will be great incentive to try to defraud. Precisely because it is caveat emptor, there must be accountability. The present framework is too diffused to facilitate this. On this point, the US offers more recourse and teeth through the courts than here. To be sure, they are only now grappling with failed China chips but they will tighten before we do.
Anon, nice rhetoric, but what do you expect sgx to do? How do you expect sgx to prevent fraud, if that’s the real problem? Do crooks or crooks-to-be have the word “Crook” tattooed on their foreheads? If not, how do you expect sgx to screen the crooks from the honest companies?
Tell us, instead of just going on a tirade. I’ve highlighted sgx’s (or any other exchange’s) limitations. Why don’t we hear your proposals instead of your rhetoric?
politicalwritings…
Rhetoric? Tirade?
It’s a principle, a way of thinking – a philosophy.
We are talking at different levels.
And we have different worldviews.
As I said, it’s about the front-door and the back-door. Caveat emptor is no excuse to not guard the front door. Once they’re in, they’re in. Of course it then becomes extremely difficult to prevent the single-minded fraudster. Who said it’s easy? But it behooves the gatekeepers (this discussion is not solely about SGX per se) to be tapped into the marketplace, be aware of what’s happening, who’s connected to what, a sixth sense (call it experience) and as uncletrader above has said, if it smells, no entry. A smell test over and above the normal due diligence is better than a desk guy simply ticking the boxes – auditors signed off? Checked. Lawyers signed off? Checked. Bankers signed off? Checked. Show me a serious exchange where it’s tick-a-tick. Given the Spore context, I do not subscribe to the all-exclusive buyer-be-damned caveat emptor. It’s too convenient. Lame.
So you only have a tirade. Shame.
uncle, looks like your site is getting more attention and time than the sgx review of S chips’ ipo, great no?
Well at least the chinese fraudsters are getting detected on NYSE and booted out by the SEC sooner, they seem quite efficient investigating and suspending these great companies (Duoyuan Printing, China MediaExpress, Fuqi International, China Agritech, China Century Media Dragon, China Intelligent Lighting) before the damage spreads. What I expect a regulator to do at the very least, instead of waiting for the ferraris to be transferred to the private assets of the executives and getting reported in the local gossip media before reluctantly suspension.
Here the attitude sems to be : “hey no barings bank went broke so no e sam will lose her job”.
I am sure the oz greenies looking at ASX sale would have taken note of their future paymasters’ largesse
No wonder they are now so keen to be absorbed.
More new listings = bigger bonus. Sure guarantee siguixchange do shit all. Sadly have to wait for one Biggerest case to put fire on backside. Then maybe some chop.