By Goh Eng Yeow, Senior Correspondent

THE Singapore Exchange is giving its rulebook one of its biggest shake-ups, in the wake of a string of corporate scandals threatening investor confidence in the local market.

The SGX unveiled 36 proposed changes yesterday for listed firms that range from tightening guidelines on bosses pledging their shares for loans to beefing up the powers and responsibilities of independent directors.

A reform broom this radical has not swept through the regulatory regime since measures were introduced to increase corporate accountability following the China Aviation Oil scandal in 2005.

Mr John Lim, president of the Singapore Institute of Directors, welcomed the changes, saying: 'These are good moves. They will help to improve vigilance at listed firms.'

An SGX spokesman said yesterday that the reforms, which may come into force by June, were 'targeted and proportionate adjustments' to strengthen governance and foster greater disclosure and transparency.

Among the main problems identified by the SGX is bosses pledging their shares as collateral for loans.

This practice has blown up in investors' faces in recent years. They involve a loan extended to a company boss using stocks as collateral, which triggers a crisis when he fails to make repayment.

Under the proposed rules, major shareholders will have to disclose any pledging of shares under a financial arrangement if the stake exceeds 30 per cent.

Disclosure will also have to be made if any enforcement of the major shareholders' pledged shares leads to the listed firm breaching its own loan obligations.

To further safeguard investors' interests, if a firm is suspended from trading due to financial difficulty or other irregularities, controlling shareholders will have to keep their shares with the Central Depository or a nominee firm to restrict them from transferring shares.

Shook Lin & Bok partner Robson Lee, who sits on the boards of firms such as Qian Hu Corp and Serial System, said: 'Such a rule change ensures that investors will not suddenly find a listed company defaulting on a loan, or suffer a change in ownership because the controlling shareholder has financial difficulties.'

Aside from share pledging, the SGX wants to strengthen oversight by requiring at least one independent director to stay on the board at all times for 'continuity reasons'. For companies whose main business units are outside of Singapore, the SGX wants at least one independent director to sit on the overseas unit's board.

The SGX also wants listed firms to get its approval for filling such posts as directors, chief executives and chief financial officers if the company is being investigated or if it has a poor compliance record.

On top of current disclosure requirements made to shareholders, departing chief financial officers will also need to confirm privately to the SGX that 'there are neither irregularities nor any material differences in opinion with the board'.

The SGX also wants Singapore-based auditors to jointly sign off the accounts of a listed firm which has a foreign auditor.

It is proposing that newly listed firms should consider appointing a 'governance adviser' - an investment bank or an accounting firm - to help them during the first two years of their listing.

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