You could be forgiven for missing this story, in a week dominated by news from the IMF and World Bank meetings in Singapore: The Singapore Exchange has used a speech acknowledging the naming of Singapore as one of the world’s top 10 countries for good corporate governance to defend its own corporate governance standards. At the heart of its message it answered its critics who say a commercial entity cannot also be its own regulator.

The Singapore Exchange doesn’t just run the stock, warrant and futures market in Singapore, it also regulates it alongside the Monetary Authority of Singapore.

Yeo Lian Sim, the Head of the Risk Management and Regulation Group at the SGX – and a former senior MAS staffer – acknowledged “the most common charge levelled at SGX is the perceived conflict between commercial and regulatory objectives; namely that SGX’s pursuit of commercial gain erodes its regulatory standards.”

But she countered “in SGX, we see no conflict at all. For us, the pursuit of regulatory quality builds confidence and grows an enduring marketplace - something in the interest of all SGX’s stakeholders.”

She justifies this position further by saying:

“regulatory staff are totally separate from commercial business units, even though both report to the CEO and thence to the Board. A Conflicts Committee of the Board ensures that our budget and staffing are adequate, and that our regulatory framework and processes can handle this self-regulatory conflict. SGX’s Board reports on conflict handling annually to the MAS. MAS inspects SGX regularly. This structure allows Regulation to have proximity to market, for its benefits; while providing safeguards for regulatory standards.”

But she acknowledges that “this is work-in-progress and will always be as we adjust to the changing marketplace.”

My personal view is this: if the MAS already has such a strong oversight of the SGX, why doesn’t the MAS just take over the SGX’s regulatory functions and let the SGX focus on its commercial objectives?

Now, it doesn’t have to be the MAS. In Australia, it’s the Australian Securities & Investments Commission (ASIC), in the United States it is the Securities & Exchange Commission. But in either case, regulation is not carried out by the Exchange (although the Australian Stock Exchange still issues “speeding tickets”, that is, queries regarding unusual trading volumes or values).

My reasoning for this opinion is as follows.

First, the MAS already has a substantial hand in what goes on at the SGX. For example, it deals with registrations of prospectuses, and as we saw a few years ago with Naga Corp– the Cambodian casino-on-a-boathouse – it had no hesitation in intervening in the IPO, even though the SGX let it go through. Naga Corp eventually cancelled plans to list.

Second, the SGX has a policy of letting investor decide whether a company is a good investment. That’s something I support. Different investors see different value propositions in different companies and the SGX shouldn’t take this away from people. By handing over its regulatory functions to the MAS it would cement this principle.

Third, think of the cost savings for the SGX, as all those staff members who deal with regulatory issues start drawing their salaries from the MAS.

The complete separation of regulatory and comercial functions at the exchange between the MAS and SGX makes so much sense to me I find it difficult to understand why this hasn’t happened already.