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SGX seeks feedback on possible introduction of dual class share structure

The public consultation paper released on Thursday (Feb 16) also seeks feedback on possible safeguards against risks that come with such a listing structure.

SINGAPORE: The Singapore Exchange (SGX) is consulting the public on whether or not a dual class share structure - where certain shares have higher voting rights than others - should be introduced.

A public consultation paper released on Thursday (Feb 16) also seeks feedback on possible safeguards against risks that come with such a listing structure.

A dual class structure gives certain shareholders voting power or other related rights disproportionate to their shareholding. Shares in one class carry one vote, while shares in another class carry multiple votes. Currently, such structures exist in other markets including the New York Stock Exchange, Nasdaq Stock Market, Toronto Stock Exchange and Nasdaq OMX Stockholm.

The bourse said dual class structures may be used by entrepreneurs and companies to increase flexibility in capital management, and to provide greater investor choice while supporting Singapore’s economic transformation.

“A dual class share structure could enable entrepreneurs to swiftly accelerate business expansion while continuing to lead the strategies and growth of their company,” said SGX CEO Loh Boon Chye. 

SGX Head of Equities and Fixed Income Chew Sutat said the dual class structure may be attractive for new economy sectors, especially technology. Large technology firms like Google, Facebook and LinkedIn are listed elsewhere with a dual class share structure.

The Committee on the Future Economy (CFE) recently recommended that dual class structures be permitted with appropriate safeguards, as such listings are increasingly being considered in industries such as information technology and life sciences.

Already, Singapore’s Companies Act was amended in 2014 to allow public companies to issue multiple-vote shares.

Still, Mr Chew noted: “We have to find the right balance”.

To safeguard against entrenchment risk where owner managers become entrenched in the management of the company, SGX suggested restricting the issuance of multiple-vote shares by a company that is already listed.

The stock exchange operator also proposed that the multiple-vote share be automatically converted to one-vote shares when it is sold or transferred.

A sunset clause, where the dual class structure is converted into a single class at a future date, was also recommended.

Meanwhile, to mitigate expropriation risks, where controlling shareholders seek to extract excessive private benefits from the company, SGX proposed requiring an independent board.

In the voting for independent directors, the stock exchange operator also recommended that each share gets one vote, where both multiple-vote and one-vote shares are treated equally.

In response to the public consultation paper, a spokesperson for the Monetary Authority of Singapore (MAS) said: "MAS welcomes SGX’s public consultation to gather views on whether to allow listings of dual class share structures and the safeguards to be put in place if such structures were to be introduced."

The consultation is open until Apr 17. If market consensus is positive, SGX aims to issue a second consultation paper on amending the listing rules by the third quarter of this year, it said.