STOCKBROKING INDUSTRY (Financial state)

Mr Chng Hee Kok asked the Minister for Finance if he will give an assessment of the current financial state of the Singapore stockbroking industry.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, the Singapore stockbroking industry has survived the recent worldwide collapse in share prices remarkably well. The ST index fell a total of 31% between 19th October 1987 and 2nd November 1987. Due to a combination of international and regional factors, this fall was only exceeded by the decline in Hong Kong and was substantially larger than the falls in New York and Tokyo over the same period. The Stock Exchange of Singapore (SES) was also able to cope with sharp rises in turnover without any hiccups. This performance provides ample evidence of the fundamental soundness of the stockbroking industry.

The present stability of the industry is a direct result of reforms introduced following the Pan-Electric crisis two years ago. They included the Securities Industry Act of 1986, the reconstitution of the Stock Exchange Committee, the corporatization of stockbroking firms, and the more recent introduction of revised rules on settlement and delivery.

Bank borrowings of the stockbroking industry totalled $260 million as at 30th October 1987, compared to $1 billion two years ago. These borrowings are well supported by aggregate shareholders' funds of $484 million so that stockbrokers are operating within the capital and debt-gearing criteria required in the Regulations.

Stockbroking firms have extended only $100 million in margin financing to their clients and their own investment in stocks and underwriting exposures are relatively modest, amounting to $92 million and $53 million respectively. With a much improved capital base and a healthy flow of commission income, the firms are well placed to weather the present turmoil in the stock markets.

Mr Jek Yeun Thong (Queenstown): Would the Minister now consider it wrong to allow CPF members to use their CPF money to buy shares in the stock exchange, people whom the Howe Yoon Chong Report not so long ago would like us to believe that they could not be trusted to look after their own savings and yet they are now allowed to participate in the stock exchange casino, speculating away their hard earned money on shares, gold, and heaven knows what?

Dr Richard Hu Tsu Tau: Although the question is not relevant to the question being asked, I will nevertheless reply.

I do not believe that it was a mistake and I think there is a presumption that all members who have used their CPF money have, in fact, lost money. This is not true. Some who have bought early should have made some money and those who have sold before the peak would also have made money. Undoubtedly there would be some who have taken on paper losses and one assumes that these people would not find it necessary to sell because the funds used were surplus to their immediate requirements and they should have bought only shares which were sensibly priced in the first place.

It must be recognized that any investment carries a risk. The higher the rate of return one expects the higher the risk and one can assume that the majority of investors in Singapore are reasonably sensible, although one cannot exclude the possibility of those who want to speculate and therefore have to accept the risk.