(SINGAPORE) How the Singapore Exchange (SGX) handled the recent lapses at S-chips here and the potential for conflict in terms of its commercial interests and regulatory responsibilities was an issue that came under close scrutiny by the exchange's Regulatory Conflicts Committee (RCC).

Also scrutinised by the committee in the past were deals sponsored by the Prime Partners Group, which is linked to outgoing SGX chief executive Hsieh Fu Hua.

And in both, the committee of independent directors came away assured that the SGX had dealt with all the cases appropriately, its chairman, Robert Owen, told BT in an interview.

It's all part and parcel of the work done by the RCC, charged with the job of looking into the perceived and actual conflicts that could arise from the SGX's status as a Self-Regulatory Organisation (SRO) and its dual role as a listed exchange and a market regulator.

With the hapless S-chip sector producing a spate of high-profile scandals, it comes as no surprise that the RCC's work in recent months had involved these stocks.

'I think that more recently, the cases that have come to our attention have involved S-chips, where clearly there have been lapses within these companies,' Mr Owen said.

'In theory, the exchange could be tempted to be too lenient on these companies because they are sources of revenue. We have looked at a number of these cases particularly closely to see that they have been properly handled as far as the exchange is concerned. And I am satisfied the exchange has done everything it can, and where it has levied penalties, the penalties have been appropriate to the circumstances and the powers the exchange has.'

Set up about five years ago, the RCC is a board committee which comprises solely independent directors. 'The conflicts committee exists to satisfy the board and the Monetary Authority of Singapore (MAS) that conflicts, or perceived conflicts, or potential conflicts are appropriately handled,' said Mr Owen, whose regulatory experience includes being the first executive chairman of the Securities and Futures Commission of Hong Kong from 1989-1992.

The other two independent directors who are currently members of the RCC are Euleen Goh, previously Standard Chartered Bank Singapore's chief executive, and Liew Mun Leong, chief executive of CapitaLand. The test of independence under MAS requirements is for a director to be free from any business and management relationships involving SGX as well as being free from any relationships with SGX member firms or its related companies. They are free, however, to serve on SGX-listed companies.

One potentially sensitive issue Mr Owen addressed in the interview was the perception some market players have that deals involving the Prime Partners Group could be looked at more favourably by SGX regulators because of the link to the CEO. When Mr Hsieh was recruited to join the SGX in 2003, he retained his stake in Prime Founders, a company he co-founded in 1994, but with no active role. He eventually resigned his directorship of Prime Founders in 2007, after a controversy broke out when it was reported that a Prime-linked joint venture was trying to attract Chinese companies to London's Alternative Investment Market (AIM) at a time when the SGX was mooting its own growth board.

'It's interesting that you asked this, because going back to history, for one or two of the cases we have looked at, Prime happened to be the sponsor. And you won't be surprised that these are the ones we look at particularly closely . . . I can only say that I've seen the CEO in action for some time and he's extremely sensitive to the dual bottomline,' said Mr Owen, who stressed that all the Prime cases were properly dealt with without exception.

'If in doubt, the decision has come down on the regulatory side. But I don't want to say that the decision must always come down on the regulatory side. That's overstating it. There will be cases where a balance has to be struck and it's the board's job to strike a sensible balance; that's why I believe in keeping the responsibility in a single reporting line to the CEO and the board. If you separate the two, you end up with friction between the two sides, and the board turns into an arbitrator, which it should not be.'

'The CEO, and ultimately the board, should be the body which takes responsibility for striking the right balance and making the decision. If MAS thinks we've got the balance wrong, they will let us know and they have all the necessary reserve powers.'

Despite the criticism the SGX's dual role has attracted, Mr Owen is convinced the system is working. 'The main thing is that it works. I'm certainty satisfied as chairman of the conflicts committee that the system as we have it is working well and that the conflicts are well managed.'

'It is in the interest of any exchange, not just SGX, to maintain high regulatory standards. There is no doubt in my mind whatsoever. The idea somehow that there is a built-in conflict is a bit misconceived. There are certain areas where potential conflicts could arise, but on the whole, and especially in the longer term, it is in the interest of the exchange and its shareholders that the exchange maintains its reputation for regulatory integrity and high standards. That, by definition, will help to keep the cost of capital low for issuers and it will tend to attract investors and issuers to the exchange if it is perceived to be clean and well run.'