There is no doubt the SGX Research Incentive Scheme has been a success. It's clear from the sheer statistics – which show that 64,000 registered users download broker-generated, company-sponsored research 50,000 times a month – that there is a demand for this type of research. There is also plenty of research which substantiates the long-held belief that research is critical to increase interest and turnover in stocks. My concern is centred purely around the fact that there are some companies who should not be receiving a subsidy for having such research conducted on them.

The SGX Research Incentive Scheme is an admirable and worthwhile attempt to give a helping hand to smaller and mid-sized companies, which usually escape the attention of analysts at broking houses and therefore see low liquidity in their stocks. The problem, it was argued at the time of the launch, is that financial analysts usually write about companies which are already "in play", because that's where the turnover already is, and where the cost of financial analysts can be defrayed by commissions from share trades. By launching the scheme, this cycle of encouraging more trades in stocks which are already heavily traded, while smaller companies are ignored, could be broken.

The Monetary Authority of Singapore also understands the value of the scheme because it provides more information (=a more level playing field) in the market. The MAS subsidised the scheme through the Financial Services Development Fund from the beginning.

Sofar, so good.

The problem, in my view, is that companies which are already receiving a great deal of analysts' coverage are also permitted to take part.

Our research in late 2006 showed the following:
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There were six companies which were already covered by more than 10 analysts.

They were:

• SingTel
• UOB
• DBS Group
• ST Engineering
• SembCorp Industries, and
• Jurong Technologies

In addition, there were 22 companies which were covered by at least 4 analysts, including COSCO, SMRT, Hyflux and Noble Group.

My argument is: these companies are already receiving a significant amount of coverage – why are they receiving a state (=taxpayer) subsidy to have even more research conducted on them?

Or, more to the point, let them take part but make them pay a higher price and receive no subsidy at all?

Granted, the sums we're talking about here aren't huge. Twentyeight companies which, in my book, should be ineligible, each receiving S$4,000 in subsidies, totals only S$112,000. But what if these funds were used to pay analysts to cover companies which currently have one or two analysts covering them, or even none?


Mark Laudi, who wishes all analysts contribute all their reports to the SGX Research portal - not just the ones generated through the SGX-MAS Research Incentive Scheme.

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Labels: Financial Services Development Fund, research, SGX-MAS Research Incentive Scheme