Exchanges The Singapore Exchange and the Singapore Mercantile Exchange operate the systemicallyimportant securities and futures markets in Singapore. They constitute critical infrastructure that must function properly to preserve stability and efficiency. Our laws require the exchanges to maintain sufficient financial, human and system resources, have frameworks and processes to manage their risks, and to regulate and supervise their participants. OTC derivatives The OTC derivatives space has traditionally been the preserve of sophisticated financial institutions which are well placed to assess and negotiate trades among themselves. These financial institutions are regulated by MAS and the risks associated with their OTC derivatives positions are taken into account under the respective regulatory frameworks for these institutions. OTC derivatives, unlike their more standardised counterparts on futures markets, enable customised hedging of risks. Properly employed, they confer significant benefits to the financial intermediation process and hence the wider economy. For example, interest rate swaps enable companies to convert floating rate loans to fixed-rate loans. Companies with large capital investments over a long horizon, such as airlines, shipping companies and infrastructure builders, rely on interest rate hedging tools to manage their financial risks. But with the rapid growth of OTC derivatives globally, weaknesses in the market structure can contribute to a build-up of systemic risk. We saw this during the global financial crisis. The interconnectedness of OTC derivatives market participants and the limited transparency on counterparty risks can trigger rapid contagion. Under stressed market conditions, this can potentially threaten the stability of the financial system.

Most of these cases came to light when the auditors were unable to confirm the companies’ cash and account receivables. The counters were suspended pending investigations by special auditors, and investors had to bear the losses. I still get  2  BIS central bankers’ speeches  letters from investors who had lost money in these shares. I can understand their frustrations. Many have asked MAS to do more to bring the full force of our law to bear on the wrongdoers. Let me state the position categorically: MAS will leave no stone unturned to take rigorous action against those who break our laws. But there are real challenges when the fraud is perpetrated by parties outside our jurisdiction. Cross-border investigations and enforcement are intrinsically difficult. Singapore is not alone in facing challenges with international listings. Co-operation among securities regulators and enforcement agencies in different jurisdictions is therefore critical. We cannot eliminate fraud. But we can and must ensure that companies that are brought to the market are of good quality. SGX must be rigorous in evaluating the suitability of listing applicants before admitting them. Other stakeholders must play their part too.   First, directors of the company seeking a listing must exercise adequate oversight of internal controls and ensure the veracity of information disclosed.   Second, IPO advisers have a legal and professional responsibility to conduct proper due diligence when bringing companies public.