tharman shanmugaratnam : regulating the capital markets : making market discipline work speech by tharman shanmugaratnam, deputy managing director of the monetary authority of singapore at the stanchart - reuters - business times investment awards ceremony, singapore, 16 feb 2001 * * * the capital markets are undergoing a sea change. technology and the internet have opened new channels for investors to access a wide range of investment information and to transact in securities, often without advice or assistance from market intermediaries. market intermediaries themselves are consolidating, and exploring new business models to capture clients and add value to their decisions. it is a more competitive environment all round, and the margins from traditional financial intermediation have thinned. regulators are having to rethink their approaches towards the oversight of the markets in this new and rapidly changing environment. the objectives have not changed to preserve confidence by maintaining fair, transparent and efficient markets, and to minimise the risk of disruptions that threaten the stability of the system. but the methods of achieving these objectives are being refashioned. it is no longer possible for the regulator to root out all that is evil, dangerous or vaguely suspicious before they get to the market. greater emphasis is therefore being placed on discipline being exercised within the market, and by the market. making market discipline work we have embarked over the last three years on a shift in our approach to regulating the markets from what is loosely called a merit - based regime, under which the regulator judged the appropriateness of securities being made available to the public, toward to a market - driven, disclosure - based regime of regulation. it is aimed at allowing market participants greater choice and the free play to take calculated risks. we have made it clear that the shift in approach will not compromise our reputation internationally as one of the most open, transparent and well - regulated markets in asia. market - based regulation will indeed raise standards of business conduct, as is necessary for a more open, competitive and innovative market environment. market discipline will not simply be a matter of'caveat emptor '. the buyer cannot be expected to beware if he is not provided with accurate and accessible information so as to make a reasonable judgement of prospective risks and returns. neither can he do so if the market is rigged without his knowledge. it follows that market discipline requires a system of laws, rules and standards to discriminate in favour of companies with high standards of corporate governance and disclosure,

this integrated world, we perish – simple as that. how do we raise the productivity in our export sector? clearly, business as usual is not the answer. we must change how we do things. productivity in the cane fields and the sugar mills are critical to the sugar reform. we must change how we work our agricultural sector. the existing model is clearly not working. our land is fertile. we have the best pawpaw in the world, the tastiest bananas and the sweetest pineapples. but alas we are not even supplying enough of these to our hotels and supermarkets. our oceans are large yet the price of local fish keeps rising. our mahogany forests are mature, yet we are not exporting high valued timber products. obviously, something is seriously wrong and we need to correct that urgently. we talk a lot about the potential of small businesses to raise growth and provide incomes and employment. again, while we continue to talk, we see very little progress in this important area. are we following the right model? where is the bottle neck? lessons are there if you look in the right places and be prepared to accept them. benchmarking is a powerful tool to use. there are lessons abound from our asian neighbours. i am pleased that we have several international speakers with us today and we look forward to the lessons that they will leave with us. ladies and gentlemen, the point that i want to make is this : we should acknowledge and accept the significant role that productivity and competitiveness can play in overcoming many of our economic challenges that we face particularly that of lifting economic growth, attracting investment and supporting exports. more importantly, we need to do something about this now at all levels, micro as well as macro. measurement we know what we want to achieve and that is to raise productivity. we must now measure it. when i pose the question of productivity data, the usual answer i get is that we are working at it. i know that productivity is a complex indicator to measure but we should be taking some indicative measurement now. keep it simple. the crude measure that we use at the bank is calculating the total output per worker. this is obviously a very high level indicator of productivity and has many shortcomings. but for this morning ’ s purpose the broad message is what we want. using this measure, we calculate productivity growth in fiji to average 1 percent over the ten year period from 1996 to 2006. when compared to other countries, we are somewhere