PAN-ELECTRIC INDUSTRIES LTD (Forward contracts)

Mr Chng Hee Kok asked the Minister for Finance if he will provide the names of the stockbroking companies which were involved in the $140 million forward share contracts of Pan-Electric Industries Ltd at the time of its receivership.

Dr Hu Tsu Tau: Mr Speaker, Sir, it would not be appropriate for Government to name the stockbroking companies which were involved in the forward contracts contracted by Pan-Electric Industries. The information is widely known in the market and has been reported in the press.

I should point out that prior to their prohibition, forward contracts were not disallowed by SES rules. The problems associated with Pan-El's forward contracts arose because of the large sums involved, losses from which jeopardized Pan-El's liquidity.

Mr Chng Hee Kok (Radin Mas): Mr Speaker, Sir, would the Minister explain whether the present laws are adequate in protecting shareholders by limiting the authority of directors who enter into such contracts which can be so large as to be damaging to the well-being of the company?

Dr Hu Tsu Tau: The present laws and the Company law are, I believe, adequate. However, their implementation depends a great deal on the report of the auditors and the vigilance of auditors in ensuring that requirements under the Act are observed by the directors.

Mr Tan Soo Khoon: Sir, why is it that the audits of the stock broking firms did not reveal the existence and the size of the forward contracts, and why was the attention of the authorities not drawn to this matter?

Dr Hu Tsu Tau: Indeed that is a good question. I think the responsibility of the auditors comes into question in this area, and the matter is under investigation.

Mr Jeyaretnam: Did I hear rightly the Minister to say that it was not appropriate or prudent for him to reveal the names of the four companies? May I ask him why? Is it not a matter of public concern, and particularly for the investors, that the names of companies who are involved in these transactions should be made public?

Dr Hu Tsu Tau: Mr Speaker, Sir, the answer is no. I do not see how it is in the public interest to name individual companies which are already generally known and have been published because, as I have said earlier, these forward contracts, however imprudent one might consider them, are neither illegal nor disallowed by SES rules. As far as the investing public is concerned, the SES as a whole is guaranteeing all trades. Therefore, their interests are looked after.

Mr Jeyaretnam: Does the Minister concede, and he would appear to have conceded, that it was imprudent, on the part of these stockbroking companies to have entered into forward contracts, although the Minister says they may not be illegal? Well, that is a matter to be decided. But would the Minister not agree that if the public are informed about this, then they would avoid companies which imprudently transact business on the stock market?

Dr Hu Tsu Tau: Mr Speaker, Sir, the issue of imprudence or improper propriety is a matter which is under investigation. So I do not think one should prejudge this. It is precisely for this reason that I think it will be inappropriate for me to quote individual names because, in the context in which they have been raised, it would imply guilt of some form. As far as the investing public is concerned, all these dealings with the Stock Exchange are now guaranteed. So it is quite unimportant which company he is dealing with.

Mr Tan Soo Khoon: Sir, what is the rationale for asking all stockbroking firms to guarantee the so-called lifeboat fund? Why should the firms which operate strictly within the rules and bye-laws of the Stock Exchange of Singapore be made to bail out those who were probably too greedy in the first place and got themselves into trouble?

Dr Hu Tsu Tau: Mr Speaker, Sir, perhaps I should explain the actual application of the lifeboat fund. It is not, in fact, to bail out any individual stockbroking company. That is not the intention at all. It is quite possible that companies which have been imprudent will, in fact, fail. The lifeboat was put together to ensure that individual trades entered into by the investing public will not incur a loss. That is the sole purpose of the fund.

If a broker company is in difficulties and has to draw upon the fund, the fund being a credit umbrella provided by banks has to be fully repaid, either jointly or severally, by the stockbroking members. So it is in no way to be interpreted as a bail-out. Any drawdowns against the fund have to be repaid.

Mr Jeyaretnam: Would the Hon. Minister say whether the roll-over concession which has now been granted - it would appear from the report on the 30th December, 1985 - to the $140 million Pan-El related forward contracts will also be granted for the balance of the $600 million forward contracts?

Dr Hu Tsu Tau: Mr Speaker, Sir, the agreement to roll over or not to roll over is a privilege which only the creditor banks can decide. It is not something which the MAS can rule on.

Mr Tan Soo Khoon: Sir, would the Minister explain why remisiers are being made to fork out a quarter of their income to guarantee this lifeboat fund, when it is actually the owners of the stockbroking firms and not the remisier themselves who have got them into trouble in the first place?

Dr Hu Tsu Tau: Mr Speaker, this was an arrangement entered into voluntarily between brokers in the SES. The rationale was that, since remisiers are part of the stockbroking community, the deduction of the commission would go into a fidelity fund which benefits all members of the stockbroking community so that trades can be guaranteed and the public would be reassured and therefore would continue to trade on the stock exchange. This is the basic reason.

Mr Tan Soo Khoon: Mr Speaker, Sir, I think the Minister has misunderstood the point. It is not the remisiers who have brought about this whole fiasco but the owners of certain stockbroking firms. And does not the Minister feel that there is no justification that people who are not involved in any way are being made to pay a penalty by way of 25% of their income? Where is the justice?

Dr Hu Tsu Tau: Mr Speaker, Sir, the arrangement is between the stockbroking companies and their remisiers. If the remisiers feel dissatisfied, I think this is an issue they can quite legitimately raise with the stockbroking companies.

Mr Jeyaretnam: Is the Minister saying that the remisiers agreed to this penalty or deduction of a quarter of their takings?

Dr Hu Tsu Tau: Mr Speaker, Sir, it is quite immaterial whether they agree or not. I think these are arrangements entered into privately between the stockbroking companies and their remisiers and there is recourse if they are dissatisfied.

Mr Chng Hee Kok rose -

Mr Chiam See Tong: Mr Speaker, Sir, may I ask four supplementary questions?

Mr Speaker: Mr Chng has risen to ask Question first.

Mr Chng Hee Kok: Question No. 7, Mr Speaker, Sir.

Mr Chiam See Tong: May I have the Floor?

Mr Speaker: No, you may not. Mr Chng.

Mr Chiam See Tong: I think this is an important topic and the whole of Singapore wants -

Mr Speaker: He has already asked Question No. 7. Dr Hu.