INTRODUCTION 

The Singapore Exchange (“SGX”) has published a consultation paper proposing changes to its regulatory framework for secondary listings (“Consultation Paper”). The closing date for this consultation is 25 June 2014. 

SGX has indicated that these proposed changes are aimed at providing greater clarity on the regulatory review methodology that SGX applies to secondary listing participants and the regulatory oversight of secondary listed companies. 

BACKGROUND 

A secondary listing on SGX is when a company has conducted an initial public offering of its shares on a primary exchange and subsequently decides to secondary list its shares on SGX. 

Companies may seek a secondary listing for a variety of reasons such as broadening their investor base or raising the profile of their business. 

As at the end of 2013, there were 30 odd secondary listed companies on SGX with such companies having a market capitalisation in the region of S$270 billion. 

CURRENT SECONDARY LISTINGS FRAMEWORK

For companies applying for a SGX secondary listing under the current framework, SGX conducts a regulatory review of the primary exchange’s legal and regulatory requirements to determine regulatory equivalence and to identify areas of potential enhancement. 

When SGX’s review indicates that additional safeguards may be required in terms of shareholder protection and corporate governance, SGX may require the secondary listing applicant to comply with the SGX Listing Manual (“Listing Manual”) with regard to Chapter 9 (Interested Person Transaction), Chapter 10 (Acquisitions and Realisations) and Chapter 13 (Delisting). 

Secondary listed companies on SGX are also required to comply with Rule 217 of the Listing Manual, which relates to the simultaneous release of information on SGX and the primary exchange and the obligation on the part of the secondary listed company to inform SGX of any issue of additional securities as well as the corresponding decision of the primary exchange. 

PROPOSED SECONDARY LISTINGS FRAMEWORK 

Developed Markets classification

Under the proposed new framework, a company whose primary listing is in a Developed Market (as defined by SGX) can be secondary listed on SGX without any further regulatory review. SGX also proposes that no additional continuing listing obligations will be imposed on such companies. This would be subject to the company complying with Rule 217 and the proposed new Rule 751 of the Listing Manual. Under the new Rule 751, a company with a secondary listing on SGX would be obliged to maintain its primary listing on its home exchange, be subject to all applicable rules of its home exchange and provide an annual certification to SGX stating that the company has complied with any applicable continuing listing obligations in the Listing Manual. 

SGX proposes to use the market / country classification developed by index providers MSCI and FTSE, and will classify a market as a Developed Market if such a market is classified as such by both index providers. The assessment criteria used by these index providers include criteria such as: whether market regulations are clear and unambiguous; stability of the institutional framework; and stability of the “free market” economic system. 

Using this classification, SGX has proposed a list of 23 markets which will be classified as Developed Markets. This list includes markets in major financial centres such as the United States, the United Kingdom, Japan and Germany. Markets including Australia, Canada, France, Hong Kong, New Zealand, Spain, Sweden, and Switzerland, will also be classified as Developed Markets. 

SGX has also indicated that there would be limited exceptions to the above framework. Such as, when a company has a presence in multiple jurisdictions or when a company’s place of primary listing is on the index providers’ watch-list, such that there is possibility of the primary market losing its Developed Market classification. In such instances, SGX would conduct a regulatory review to determine if it remains appropriate for a company to be classified as being from a Developed Market based solely on its primary place of listing. 

Developing Markets classification 

Companies whose place of primary listing is not a Developed Market will be classified as primary listed in a Developing Market. When SGX receives a secondary listing application from a company primary listed in a Developing Market, it is proposed that a full review of the primary exchange’s legal and regulatory requirements will be undertaken to identify the areas of possible enhancements in relation to shareholder protection and corporate governance standards. As is the case under the current framework, if the review indicates that additional safeguards are required, SGX may require the secondary listing applicant to comply with Chapter 9 (Interested Person Transaction), Chapter 10 (Acquisitions and Realisations) and Chapter 13 (Delisting) of the Listing Manual. 

IMPACT ASSESSMENT 

Under the proposed new framework, which is intended to be effective from the 4th quarter of 2014, the place of primary listing is the predominant factor in determining if a company would be classified as being from a Developed Market or a Developing Market. 

For companies from Developed Markets, it is likely that this would mean a SGX secondary listings process that has greater clarity and expediency given that such companies would not be subject to a SGX regulatory review and would not have any additional continuing listing obligations imposed upon them. For companies from Developing Markets, it would seem that the process would be substantially the same as under the current framework. 

A company currently secondary listed on SGX and currently primary listed in a Developed Market, will not be affected by the new framework except in one instance. In particular, if it is currently subject to continuing listing obligations under Chapters 9 (Interested Person Transaction), 10 (Acquisitions and Realisations) and 13 (Delisting) of the Listing Manual, these requirements will cease to apply three months from the date the new framework is implemented. 

A company currently secondary listed on SGX and currently primary listed in a Developing Market, will not be affected by the new framework. If it is currently subject to continuing listing obligations under Chapters 9 (Interested Person Transaction), 10 (Acquisitions and Realisations) and 13 (Delisting) of the Listing Manual, these will continue to apply after the new framework is implemented. If it is not currently subject to such obligations, it will not be subject to these obligations when the new framework is implemented.

REFERENCES

Please click on the following link to access the document. 

SGX’s Consultation Paper on “Regulatory Framework for Secondary Listings”