INDUSTRY players are fighting calls by investors to force chief executives and controlling shareholders to be more transparent about the shares they have pledged.
Investors say their interests are at risk because they are not told when a chief executive pledges his company holdings for a personal loan.
They find out only when the shares are sold to meet margin calls - a step that often leads to uncertainty surrounding the company's business.
But some corporate leaders claim that more regulation by the Singapore Exchange will stifle the market and discourage companies from listing here.
They also point out that pledging shares as collateral for loans is a common practice and forcing more disclosure would be an invasion of privacy. The issue flared up in recent months after the major shareholders of Beauty China and Sino-Environment pledged their entire stakes in the firms to get personal loans.
When the founders were unable to pay up, the banks force-sold their shares, which led to these founders losing control of their companies and sparking a crisis at both firms.
Last year, the botched takeover of Jade Technologies by Dr Anthony Soh was scuppered by a forced sale of his pledged shares.
The way these private deals can contribute to major disruptions at the company level has sparked calls for reform. It is common practice for banks to make loans to companies on condition that the key people running the company remain in control.
Mr Robson Lee, partner at Shook Lin & Bok LLP, said the rules on disclosure of share trades of directors or substantial shareholders should include substantial share pledging and mortgaging of shares.
He said that when a CEO or controlling shareholder pledges his shares, there is a risk that there could be a change of control at the company.
'You can't say this is something in the private arena,' said Mr Lee, adding that extra disclosure 'does not create an unduly oppressive regime'.
'Unlike share trades, share pledging can be a drastic change overnight as far as shareholding control is concerned.' But some industry players are wary of more regulation, particularly if it appears to impinge on privacy issues and hinders the legitimate and common practice of executive directors and chief executives obtaining personal loans.
'Effectively, that could border on going into personal issues,' said Mr Raymond Tong, partner at Wong Partnership, who is 'not in favour of changing the rules' as there is sufficient regulation in place.
'A lot of them raise funding for their own personal investment, for buying property, funding their children's education,' he said.
PrimePartners Corporate Finance managing director Mark Liew said it is not always practical for disclosures to be thrown immediately into the public domain.
The public can 'draw wrong conclusions' from such information, said Mr Yeoh Oon Jin, partner at PricewaterhouseCoopers.
'The pledging of shares itself generally is inconsequential because as long as it is a private arrangement and nothing else is dependent on the pledging of the shares, there is no impact on the company or on the share price.'
Disclosing such information can be detrimental to the company and its share price, say experts.
'That information can be used by syndicates and hedge funds to force the stock down,' said Mr Tong.
Stamford Law director Ng Joo Khin favours a 'measured approach' instead of going to 'the other extreme to just simply legislate everyone to disclose everything, because it doesn't add value'.
'Rather than making it compulsory to disclose their pledged shares from day one, perhaps there could be some guidance as to what will constitute something that is material enough,' said Mr Ng.
If the director is aware of a condition that could affect the share price, then current rules do require the person to disclose. 'Then of course under the general law of disclosure they will have to disclose in any case,' said Mr Ng.
A Singapore Exchange spokesman said: 'The Exchange reviews its rules regularly to maintain relevance to industry's needs for development. We have raised this matter with industry professionals, and public feedback will be sought if proposed changes are to be made.'
