Speech By SGX CEO Loh Boon Chye At SIAS Master Series Investment Conference 2019 - “The Future Of Investing – A Sustainable Perspective”
1. Good morning, Mr David Gerald, Founder, President and CEO, SIAS. Ladies and gentlemen.
2. First and foremost, thank you for inviting me here. I would like to congratulate SIAS on its 20th anniversary. Incidentally, we are also celebrating the 20th anniversary of SGX’s formation this year.
3. Many things have changed since SIAS and SGX were established 20 years ago. SIAS is now the largest organised investor lobby group in Asia, with over 70,000 members. SGX has also become Asia’s most international multi-asset exchange, covering close to 100% of Asia’s GDP.
4. Today’s event is yet another milestone for SIAS. It shows that SIAS is evolving from its role as a champion for retail investors, to an advocate for sustainable and stable stakeholder relationships across the investing ecosystem. This is a reflection of how intertwined stakeholders have become, in an ecosystem where SGX plays an instrumental role.
5. I would like to share my perspectives on the sustainability of our capital markets ecosystem, as we consider the future of investing.
To ensure the sustainability of our ecosystem, it is essential to take a long-term view
6. Our capital markets ecosystem is akin to a natural ecosystem. Oceans can thrive and support themselves, because the life under water, temperature, chemistry and currents all come together to form a natural, sustainable balance. Remove, neglect, harm or weaken one part of the ecosystem, and its sustainability is threatened. Conversely, the greater the biodiversity, the healthier and more stable is the ecosystem.
7. So when I think about the future of investing, the questions I ask myself are: how sustainable is our capital markets ecosystem? Is it healthy, viable or self-sufficient? Can it stand the test of time, over generations? Will people still invest 10, 20, 30 years from now? How will investor behaviour change? These questions have no easy answers, but they are important questions to think about.
These questions must be addressed in the context of external stresses facing our ecosystem.
8. Just like how overfishing or climate change is a threat to our oceans, a key external stress facing our ecosystem is polarisation. Across the world, societies have become politically and socially fragmented; populism continues to rise and individual interests rule.
9. The effects of polarisation can also been seen in the capital and financial markets, partly driven by technology. The tech revolution has not only empowered us, but has also caused divergence in the way consumers behave, how supply chains work, and how businesses are run.
10. The uneven distribution of data, knowledge and capital has led to further market fragmentation. Trust in the capital markets is also eroded when companies run into financial difficulties, not always because of fraud, but perhaps due to tougher business environments or overly aggressive business decisions.
11. As we look at the future of investing against this backdrop, how can we foster a sustainable capital markets ecosystem? Let me highlight three areas.
First, over-regulating may cause more harm than good
12. As the ecosystem deals with external stresses and evolves with new players and new models, there have been calls for more rules and tighter regulation.
13. However, I do not believe that more rules will make a better market, because regulation is not the answer to everything that happens in a marketplace. When it comes to rules, quality is more important than quantity.
14. At its crux, the purpose of a marketplace is to facilitate the exchange of capital in a way that allows people to buy and sell into assets and ideas, and in the process, for economies to flourish. It is the job of the exchange to do this efficiently on a trusted platform. It is in this context that regulation plays a role.
15. That said, an efficient marketplace requires both self-discipline and market discipline. In this regard, everyone needs to contribute – regulators, market professionals, intermediaries, commentators, investors as well as the media.
16. As a multi-asset exchange operating a global marketplace, it is not possible to perfectly balance the diverse views, needs and interests of a large number of international and domestic players.
17. There will be those who insist on more regulation because a desktop analysis of the numbers say so. On the other end of the spectrum, businesses want fewer rules in order not to hinder innovation and to encourage agility. Either way, an academic exercise of reviewing regulations could be interesting intellectually, but is limited in its real-life viability. There is much more finesse required to operate a market; regulation is an important tool but you need the whole toolbox.
18. There is also the question of proactive intervention by regulators and authorities in potential company issues – when and how should it be done? To what extent would an interventionist approach add value or harm the ecosystem?
19. We can and will put in place mechanisms to raise the standard of governance. But at the same time, taking personal responsibility is just as crucial in a disclosure-based market. No set of rules can replace this. Singapore is global, open, liberalised and market-driven – it is critical that we stay this way.
20. What will ensure a sustainable ecosystem is a shared understanding among stakeholders who recognise that their actions, or non-actions, can have ripple effects in the ecosystem.
Moving on to my second point, we must harness technology in a responsible manner.
21. Technology is a double-edged sword – on one hand, it is partly responsible for the fragmentation of markets; but on the other it offers opportunities for us to decipher and capitalise on these fragmented markets.
22. The investing world is very different today. Technology has been the driving force in transforming virtually all aspects – beginning with the way savers and investors interact with financial intermediaries. You can trade the world, across multiple products, asset-classes, currencies, from your mobile, on the way to lunch. Robo-advisors are increasingly common. Information flows will get faster, broader and deeper.
23. I like to ask my children and young people I meet – will you invest, how will you invest, what makes you think this? Sometimes they say that they do not want to invest at all, or they will only invest in ESG-related instruments. Or that they wished investing can be like online shopping, where you can return the goods and get a refund if you change your mind after the purchase. Their replies could well be an indication of what we need to start planning for.
24. Over the years, SGX has taken the multi-asset path because we see the present and future need to support our institutional and retail clients in offering comprehensive risk management and trading solutions in Asia. SGX is harnessing technology and data to enhance our products and platforms, which means more choices and better experiences for our clients.
25. Going hand-in-hand with this is capital raising for growth. Well-functioning capital markets should provide companies with a venue to raise capital cost-efficiently, while ensuring sustainable returns for investors. Technology is changing the fundraising equation and SGX is capitalising on this. One example of how we are providing more options for companies at every stage of fundraising is our investment in 1exchange (1X). 1X is the world’s first regulated private securities exchange built on a public blockchain, and welcomed its first listing yesterday.
26. While we get excited about the “whats” and “hows” of technology, it is vital that we do not forget the “why”. We should all endeavour to build digital systems which are inclusive, trustworthy and sustainable. It is human-centred technology, combined with appropriate standards and regulation, that will ensure that what we develop will have a positive, long-lasting impact into the future.
Last but not least, it is everyone’s responsibility to work towards common interests
27. An ecosystem is sustainable only if all its participants recognise their interdependency, and understand their respective roles. While it is not possible to completely align everyone’s interests, it is possible to find a ‘centre of gravity’ that everyone can gravitate to.
28. I believe it starts with company boards. Board directors are stewards of their companies’ assets. They set the strategic direction for their companies, and their actions probably have the greatest impact on shareholders.
29. In stewardship, boards need to think of growing company value and passing it to the next generation of shareholders. This also means making business decisions whose benefits may sometimes not be immediately apparent or are unpopular.
30. The role of the board, its composition and governance are familiar to many. Rules have been progressively adjusted over the years to enhance independence and inject greater professional competence and diversity into boards.
31. While governance frameworks are essential, it ultimately boils down to directors remembering their basic duty. They have been tasked to look after the interests of the companies under their watch, as well as the interests of the public who have provided the capital to these companies. Hence, boards should be held accountable to shareholders, if they have not carried out their duties responsibly.
32. Boards should also be the primary drivers of corporate conduct and practise frequent shareholder engagement. Proactive and open communication on how the companies are governed, demonstrating independence of thought and robustness of decision-making, will go a long way in strengthening investor confidence.
33. A common interest for everyone in the ecosystem is investor education and protection. SGX is one of the players responsible for educating investors, as well as protecting the interests of investors within SGX RegCo’s ambit as a regulator of listed companies. This responsibility is also shared between financial intermediaries, and market professionals like issue managers and auditors, just to name a few.
34. When there are corporate failures, it is often easy to point to policies and people that led to the problems.
35. Financial intermediaries are often the public’s main point of contact with the capital markets. While intermediaries have to act in the best interests of their customers at all times, they cannot guarantee the success of their recommendations. In fact, no entity or regulator can fully protect investors against financial loss.
36. Hence, on shareholders’ part, they need to be fully conversant with their investments. They have to make an effort to understand the companies they have invested in, and the industries they operate in. When controversial proposals are presented by their companies, they should hold their boards to task, and raise the right questions at shareholder meetings.
37. A sustainable ecosystem requires investors to take charge of their personal investments and literacy. Investors have to equip themselves with financial understanding and be able to assess the risks and rewards of any investment. The best investor protection tool is financial education, and with it, a diversification strategy.
38. The future of a sustainable, healthy capital markets ecosystem is in our hands. A sustainable ecosystem is one that thrives on right-size regulation, responsible use of technology, and willingness from everyone in the ecosystem to take ownership of their respective roles.
39. It requires, among many things, that we take a long-term view of each other’s interests, forge mutually-beneficial relationships and consider the greater good. I hope you will continue to ponder over this, as we consider the future of investing in today’s conference.
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