Congratulations are in order for PhillipCapital, which went through a great deal of effort to launch the Over-The-Counter (OTC) Market: a simple, cheap way for companies to raise money. When it was launched more than a year ago, it held great promise to cover the middle ground between venture capital and a full public listing on the Singapore Exchange. However, as PhillipCapital acknowledged in a newspaper report this morning, things haven't quite gone their way. Given that the Singapore Exchange is planning a second board to rival the Alternative Investment Market (AIM) in London (here is an excellent briefing on the SGX's plans, written by Wong Partnership), it would appear that Phillip's OTC Market is dead in the water. Only three companies have listed. Their share prices have barely budged. And one of the companies themselves is quoted as saying they may well have considered a Sesdaq listing, if the option had been available earlier. So, what can PhillipCapital do? And why should you care?

The OTC Market had – and still has – a lot going for it: it had no rivals in the intermediate funding area, with venture capital and bank loans at the lower end, and an SGX listing at the higher end. Further, it has the backing of one of Singapore's most popular retail stock brokerages. Given that you must sign a disclaimer during a lengthy registration process, the "quality" of shareholders is also significantly higher (there are unlikely to be as many 'come-for-the-food' AGM attendees with OTC-listed companies). And there is no shortage of companies which would like to have the experience and prestige of being publicly listed without the associated costs.

The problem is that the SGX's New Market (or whatever they end up calling it) will hit the OTC where it hurts, in four ways:

1. Cost. The cost of a New Market listing will be lower, and while perhaps not as low as the S$170,000 it costs to list a company on the OTC Market, other advantages of a New Market listing are likely to negate the difference.

2. Quality. Shareholders will be able to be sure of the quality of the companies because rigorously selected Sponsors will have to keep watch over the companies they bring to the New Market for at least three years. While Phillip probably does a good job in keeping watch over OTC-listed companies, it has the air of a private investment club, rather than a public market. Sunshine is the best disinfectant, but there's very little light shed on OTC-listed companies.

3. Disclosure. Due to the unregulated nature of the OTC Market it cannot advertise. Receiving an email from Phillip advising of a new company listing is so cloak-and-dagger, it's like being on the set of the 'Mission Impossible' film and receiving a top secret message that will "self-destruct in five seconds". Disclosures by companies about their operations are not made public. By contrast, corporate governance and transparency for SGX-listed companies has been steadily improving (although there's still room for improvement).

4. Liquidity. Resulting from the three foregoing points will be increased liquidity. That alone is already worth the extra cost and disclosures that a New Market listing will bring with it, compared to an OTC Market listing.

All this is not to say that the OTC Market cannot survive. But clearly, it needs to attain a much higher profile – both in terms of the market itself and the companies listed on it – to be able to compete with the SGX New Market.


Mark Laudi

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