COMPANIES TRADING IN GOLD

Mr Yeo Choo Kok asked the First Deputy Prime Minister and Minister of Education (a) whether the examination of the affairs of the 24 companies trading in gold has been completed and, if so, whether the outcome of the examination will be made known to the public; and (b) whether the Gold Exchange of Singapore has submitted proposed regulations governing trade practice for the approval of the Monetary Authority of Singapore and, if so, what these regulations are.

Dr Goh Keng Swee: (a) The investigation into the affairs of the 24 companies trading in gold and commodity futures has been completed and the reports have been submitted to the Minister for Law. The Inspectors appointed have also made their recommendations to the Minister. The Minister for Law will eventually decide whether it is in the public interest to publish the reports. This discretion is provided under Section 198 of the Companies Act. (b) The Honourable Member will recall that on 3 December 1982, I had outlined the steps to be taken to re-organize the gold market in Singapore. These are:-

a. gold trading will be limited to those who are members of the Gold Exchange of Singapore (GES);

b. the GES will have to prepare a set of regulations governing trading practices for the approval of the MAS. The enforcement of these regulations will be the joint responsibility of the GES and the MAS; and

c. the GES should establish institutional links between the Singapore exchange and the New York or Chicago exchange and other overseas exchanges.

On 17 December 1982, I met representatives from the private sector and reiterated the Government's policy and interest in the development of the gold market. Generally, all those present welcomed the involvement of the Government in the re-organization of the gold trading industry. It was agreed that while the GES would be permitted to self-regulate its members, the MAS would take an active role in the re-organization and development of the gold industry. To further these objectives, MAS officials have met with the GES Committee on several occasions. During these meetings, the details on the restructure of the GES and the amendments of its rules, by-laws and regulations to tighten control over its members were discussed.

The GES in its Extraordinary General Meeting on 11 February 1983 has approved the proposed amendments to its Articles of Association drawn up by its Management.

The main changes to the GES Articles of Association and rules are:-

a. Legal status of the GES

The GES, formerly a private company incorporated under the Companies Act, has been converted into a public limited company to cater for an enlarged membership.(Under the Companies Act, a private company can only have a maximum of 50 shareholders/members.)

b. GES Committee

The GES Committee is the main executive body of the exchange and has been vested with all the powers of the exchange for the management of the affairs of the exchange. Membership of this

Committee has been increased from six to eight members of which two will be representatives from the MAS. The remaining six will be elected by members in a General Meeting from the candidates nominated. The nominees will have to be approved by the MAS. The objective of this

amendment is to enable the MAS to play a more direct role in the initial supervision and development of the GES.

c. Sub-Committee

Two sub-committees, each with three members have been formed. These are the Membership Sub-Committee and Disciplinary Sub-Committee, which will take charge of membership applications and disciplinary matters respectively.

d. Disciplinary Action and Appeal

The principle of 'show cause' has been introduced as a new rule for disciplinary action. If any member (clearing and non-clearing) fails to comply with any of the GES Articles, rules, by-laws or regulations, the Disciplinary Sub-Committee would require the member concerned to 'show cause' as to why he should not be reprimanded, suspended or expelled or be subject to such other action as the Sub-Committee may deem fit. A member who considers himself aggrieved by any decision of the Disciplinary Sub-Committee may appeal to the GES Committee and the decision of the Committee shall be final.

e. Discretionary Accounts

A new provision has been incorporated in this rule to discourage the operation of discretionary accounts except when a member has obtained specific approval from the GES Committee. Approval for the operation of discretionary accounts will only be given under strict terms and conditions. The MAS has asked the GES to propose a standard format of agreement for the operation of discretionary accounts for its approval.

f. Auditing Requirements

A new provision has also been incorporated in the GES rules giving the GES Committee power to appoint auditors at any time to inspect the books of its members.

g. Changes in the Ownership and Control of Member Company

The amended Article of the GES would require a member to seek approval from the Membership Sub-Committee before any change in the legal or beneficial ownership or change in the control of the member company can take place. This is to ensure that an unscrupulous operator would not become a member by buying into an existing member company.

The amendments will empower the GES to supervise and regulate its members and to cater for the expansion and development of the exchange. A technical sub-committee was appointed to make further study of the by-laws and regulations which will govern the business conduct and practices of gold trading.

Some of the proposals approved by the MAS are:-

a. To extend the by-laws and regulations to cover the conduct of associate members of the GES. Previously, they applied only to full members of the GES.

b. To introduce a by-law to prohibit the practice of 'churning' of the accounts of customers. 'Churning' is the buying and selling of contracts by the broker at the same price. Some brokers have been engaging in the practice of 'churning' of the accounts of their customers in order to earn more commission.

c. a new by-law would be added to ensure that all kerb trading are reported promptly. Kerb trades are deals done after GES trading hours (that is, transactions done at night) and which are to be reported the following day. Certain guidelines would be drawn up by the exchange to monitor kerb trading and to ensure that kerb trades are actually done at the proper market price range.

d. a new provision would be included to disallow firms from misrepresenting facts to the clients.

The technical sub-committee is also studying the feasibility of imposing segregated account requirements for the protection of clients. This is to ensure that clients' funds, placed with the gold trading company as margin deposit, are kept separately from the members' so that the investors' interest would be protected.

The GES is currently studying a proposal to expand into financial futures trading activities. In this connection, the possibility of an institutional link with an overseas exchange for trading in both gold and financial futures is under study. A project manager from the Chicago Mercantile Exchange is now in Singapore studying the details of the link- up between Singapore and the International Monetary Market. There are advantages in establishing such a link but the problems are not inconsiderable.

I would like to point out that the changes that have been made only cover the main areas of concern. As the exchange matures and gains more experience, more rules, by-laws and regulations would be amended or introduced to ensure the development of an orderly and efficient market.

May I end on a word of caution. The gold market and more especially the futures market, here as elsewhere, will attract speculators. Speculators are usually people with strong gambling propensities. While regulations properly enforced can curb the worst excesses of speculation, there is no way the Government can save people who are determined to part with their money from the consequences of their own folly. The reports on the 24 gold trading companies, should my colleague the Minister for Law decide to publish them, will bear me out on this point. Addendum - IMPORTANCE OF NATIONAL SERVICE (Cols. 1241 - 1242)