CORPORATISATION OF THE SECURITIES INDUSTRY IN SINGAPORE

Abstract

The global financial revolution started with the "Hay Day" deregulation of fixed commissions on Wall Street in 1975. The London Stock Exchange (LSE) saw structural transformations culminate in the "Big Bang" in 1986. In Singapore, roaring winds of change swept through the self regulated Stock Exchange of Singapore (SES) in the wake of the Pan-Electric crash in 1985. The "Big Four" commercial banks helped launch a "lifeboat" fund to help the broking firms, for which favour they were allowed entry into the previously closed securities industry. Major reforms were introduced by the Singapore government to restore confidence to the weakened market and to protect investors, the Securities Industry Act of 1986 was passed. With the restructuring of the SES, the corporatisation process was initiated. In the so-called first wave of corporatisation, seven local stockbroking firms found partners. Two more firms were given permission to corporatise in February 1989. No attempts have yet been made to analyse the general perception of the industry towards corporatisation. This study attempted to crystallize the perception of corporatisation and the attitudes towards corporatisation of the people most visible within the industry, the directors, the dealers and the managers, integrated with the perception of a few major foreign stockbrokers. The sample consisted of 25 directors and managers and four foreign stockbrokers. Results showed that corporatisation was welcomed by the industry which expected benefits of enlarged capital base, enhanced competitiveness, expanded international client base, and upgraded research capabilities. Host would prefer reputable foreign broking houses with relevant market reach and exposure for their joint-venture partners, in spite of the threat of clash of corporate cultures. Though further joint-ventures are expected, the industry strongly feels that independent brokers still have a rosy future ahead if they can be a niche player offering personalised and specialised services. Though firms had complied strictly with SES, MAS regulations, there was a general feeling that the industry was overregulated and over brokered, and pointed to a clear need for consultation and feedback between the SES and its members. Another implication was that the current 49% foreign ownership threshold limitation, which incidentally most of the industry is in favour of, could be acting as a barrier to the entry of Japanese broking houses and the US too for that matter, as they would prefer total control. While some do not like the presence of commercial banks in broking mainly because of competition, there was agreement that they do have injected stability and professionalism into the industry. The industry felt corportisation would have occurred slightly later in the 1989-1990 period even in the absence of the Pan-El crisis. Government-driven reforms are expected to influence further deregulation though most of the industry do not prefer total deregulation of fixed commissions. The industry do not feel threatened at all by changes in the US Glass-Steagall Act and Europe 1992. Overall, it is evident that corporatisation has achieved its aims of enlarging capital base but had partial success in transfer of expertise and upgrading research capabilities. More importantly, it will contribute strongly towards Singapore's growth as a global capital market.