Hansard, 1986-03-31

Under the provisions of clause 2(d) of Article 46 of the Constitution of the Republic of Singapore, the following Members have been granted permission to be or to remain absent from sittings of Parliament (or any Committee of Parliament to which they have been appointed) for the periods stated:- Mr Lim Boon Heng (Kebun Baru) - from 30th March to 10th April, 1986. Mr J.B. Jeyaretnam (Anson) - on 31st March, 1986. Mr Ng Kah Ting (Punggol) - on 31st March, 1986. Mr Tang Guan Seng (Khe Bong), Parliamentary Secretary to the Minister for Education - from 3rd to 12th April, 1986. Dr Lee Boon Yang (Jalan Besar), Minister of State, Ministry of Trade and Industry and Ministry of Home Affairs - from 9th to 26th April, 1986. Mr S. Chandra Das (Chong Boon) - from 5th to 10th April and from 19th to 22nd April, 1986. YEOH GHIM SENG Speaker Parliament of Singapore

The following Bills were assented to by the President of the Republic of Singapore on the dates stated: 29th March, 1986 (i) Supply Bill; and (ii) Supplementary Supply Bill. YEOH GHIM SENG Speaker Parliament of Singapore

asked the Minister for National Development for the year 1985, (a) what was the percentage of shopkeepers who gave up their shop premises; and (b) how many shopkeepers applied to re-tender for shop premises after having occupied a shop for less than a year.

Mr Speaker, Sir, for the year 1985, the percentage of shopkeepers who gave up their shop premises was 3.69%. The number of shopkeepers who applied to re-tender for shop premises after having occupied the premises for less than a year was seven.

asked the Minister for Finance whether he will reconsider the policy of terminating the medical benefits extended to the wife of a pensioner after he is deceased.

Mr Speaker, Sir, medical benefits are extended to a pensioner and his family because there is a continuing relationship between the pensioner and the Government as his former employer by virtue of the pension payable to him. When the pensioner dies, his pension stops and the medical benefit is also withdrawn. There is no continuing relationship between the Government and a non-pensionable officer on full CPF after his retirement and he is therefore not granted medical benefits after his retirement. If the medical benefits for a pensionable officer is improved by the extension of medical benefits to his wife after his demise, this will open the door to claims for medical benefits to be extended to the non-pensionable officer after his retirement. It may also lead to claims from the wife of a pensioner for the pension to be continued to be paid to her after the pensioner's demise. The Ministry of Finance is therefore unable to extend medical benefits to the wife of a pensioner after he is deceased.

asked the Minister for Health (a) whether free Hepatitis B injections, which are being given to serving National Servicemen, can be extended to reservists; and (b) whether members of the Central Provident Fund can use their Medisave accounts to pay for Hepatitis B injections.

Mr Speaker, Sir, I will answer on behalf of my Minister. The Ministry of Health does not intend to extend Hepatitis B immunization to National Service reservists. This is because the risk of exposure to infection is negligible due to the short duration of their in-camp training. Medisave Accounts can only be used for hospitalization expenses, not for outpatient expenses. Hepatitis B vaccinations, which are administered on an outpatient basis, do not qualify for Medisave withdrawals.

asked the Acting Minister for Labour whether the Central Provident Fund Board will consider allowing those CPF members who have been unemployed for a year or so to draw an allowance from their CPF savings to help meet their subsistence needs.

Mr Speaker, Sir, for the vast majority of unemployed Singaporeans jobs are still available if they are prepared to make the necessary adjustments, painful as it may be. Most of them have retrenchment benefits, personal savings or family support and are apparently still able to meet their subsistence needs. I have explained to Members last week how difficult it has been to persuade many Singaporean job seekers to accept available jobs other than those they want. In a market economy, it is speedy adjustment that can take us out of a recession and unemployment. The economic environment has changed and some jobs that were available in the past are no longer around. It is better for the unemployed to realize this early and make the necessary adjustments, instead of waiting for the jobs that they would like to come around. Any form of unemployment benefits, whether as direct subsidies from the Government or withdrawals from CPF, will delay and impede this vital process of readjustment. The intention is good and we are all sympathetic towards those who have been thrown out of work by the recession. However, the end result would be worse for our society, weakening the work ethics of Singaporeans and their willingness to adjust to changing economic circumstances. In Europe a new phenomenon called voluntary unemployment has become an unpleasant fact of life. We cannot afford such luxury. It is like giving opium to a person who is in pain, only to turn him into a drug addict. CPF funds will be released for unemployment relief only if there is a severe world depression in which there is widespread and prolonged unemployment, and it becomes impossible for the unemployed to find jobs.

Mr Speaker, Sir, would the Minister consider allowing CPF members, particularly those who have failed in their businesses and who are currently unemployed, to at least draw their interest income from CPF in order to continue a simple living?

Mr Speaker, Sir, as I have said in my reply, we are all sympathetic to the plight of these people, some of whom have gone into business and lost money. The problem is that it is difficult for us to make exceptions tothe rule. Once we start giving unemployment benefits or allowing people to withdraw CPF, whether it is the principal or the interest, the effect will be the same. If cases like this were to approach my Ministry, we will do our best to try and help them find jobs. For example, last Saturday's Straits Times, if Members were aware, in section 2, there were altogether eight pages of advertisements for managerial, supervisory and technical staff. So jobs are still available. Of course, for management positions companies will want to choose the best man for the job and not just any man. So some people may still have difficulties but they will have to make adjustments. As for those who may face unemployment for some time, the situation is also not static. It does not mean that those who are unemployed will stay unemployed. If they try harder and make adjustments, they will find jobs and in turn there will be other people who resign or retire or drop out of the labour market for some reason or other and become unemployed. So we are not really talking of a static situation but of a moving situation.

2.28 pm

"to amend the Companies Act (Chapter 185 of the Revised Edition)", presented by the Minister for Finance (Dr Hu Tsu Tau); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

Order for Second Reading read.

Mr Speaker, Sir, I beg to move, "That the Bill be read a Second time." Before I proceed to describe the contents of the Bill, let me first brief Members on the nature of futures trading and the reasons why futures legislation is necessary. In futures trading, a person enters into a futures contract which is a commitment to buy or to sell, at an agreed price, a standard quality of a particular commodity or financial instrument for delivery at a future date. Futures contracts enable a person to predetermine the price he has to pay or will receive for a commodity which he is liable to purchase or sell at a later date. This permits him to protect himself against potential price fluctuations. In addition to this hedging function, futures contracts perform another economic function, that of price dissemination. As trading in futures contracts is carried out in a centralized location, this leads to a wider dissemination of price information, which results in more efficient markets. Futures trading in commodities, for example, wheat and corn, has a long history. It was said that the basic principles in futures trading, that is, trade now and settle later, was evident as early as 2000 BC. In recent years, trading in futures contracts based on financial instruments have become very popular. The free float of currencies in the foreign exchange markets have led to greater volatility in exchange rates. Consequently, currency futures became an important instrument to hedge against movements in exchange rates for importers, exporters, bankers and other institutions. The popularity of financial futures as an instrument for managing risks in the financial market increased further when the Federal Reserve Board of the United States embarked in October, 1979, on a new monetary policy of targetting money supply growth rather than interest rates, resulting in US Dollar interest rates fluctuating widely. Trading volumes in interest rate futures contracts soared, as banks, other financial institutions and corporate treasurers sought to hedge their interest rate exposures. Today, financial futures have assumed a prominent position in the financial markets of the world. With the opening of the Singapore International Monetary Exchange (SIMEX) in September, 1984, Singapore became the first country in Asia to have a financial futures exchange. Although SIMEX was organized as a self-regulatory body, it became clear in our review of the countries with major futures markets and our discussion with foreign regulatory agencies that there should still be some basic form of legislation to provide the framework for an orderly market and an appropriate environment whereby self-regulation can work. Without such a legislation, the economic functions of the futures market might be hindered through attempts to manipulate the prices of futures contracts. In addition, users of the futures market could be exploited by unscrupulous operators. Some Members may still remember that in the early 1980s the presence of gold futures firms which operated as "bucket shops" led to the investigation in 1982 of 24 gold futures trading companies for possible malpractices. Examination of the accounts of these companies showed that they had access to more than $14 million in customer funds. Some of these companies were found to have misappropriated customer funds. Others had operated their customer accounts to the detriment of the customers by over-trading in order to generate commission for themselves. 21 of these companies were subsequently wound up by the courts and a director of one of these firms was sentenced to imprisonment for criminal breach of trust. Further action could not be taken against the directors of the other firms, despite the findings of gross malpractices as our existing laws made prosecution difficult. In the absence of any legislation regulating futures trading, there would be no strong deterrent to prevent other companies from being set up to repeat the activities of the early 1980's. It is against this background that the Futures Trading Bill is proposed to ensure that our futures market is operated properly and that public interest is preserved. Furthermore, the Bill will provide investors, especially international investors, with the confidence that our futures market is operated fairly. In this context, most Members will be aware that to benefit from the US experience in futures markets, SIMEX has established a link with the Chicago Mercantile Exchange. As a result of this arrangement, participation from US investors in SIMEX has been relatively heavy. There was a general understanding between the Commodity Futures Trading Commission, the US regulatory authority for futures trading and MAS that we would introduce legislation in due course. At present, the scope of the Bill is limited to the regulation of trading in gold and financial futures contracts. Trading in futures contracts based on commodities not listed on SIMEX, such as coffee, red beans, etc, is not regulated under this Bill. It is not considered as yet appropriate for the MAS to regulate these other activities since they do not involve the financial sector. Broking firms that offer facilities solely in commodities futures are thus not subject to the regulations of this Bill and members of the public who trade with them will have to accept the risks involved in dealing with these firms. Investors who wish to trade in commodities are advised to place their orders through members of SIMEX as their activities in commodities markets are also closely monitored by the Exchange. I would like to stress at this juncture the need for investors to understand fully the risks involved in their investments and to be discriminating in their choice of the parties with whom they deal with. Firstly, the Bill does not indemnify investors against loss as a result of price risks to which they knowingly expose themselves. Secondly, although legislation can be enacted to deter fraud and other malpractices, it cannot totally prevent the occurrence of such events. The investor is thus obliged to protect his own interests. With the foregoing in mind, I will now deal with the main provisions in the Bill. The Bill may be broadly divided into six segments: a) The approving of the establishment of futures exchanges; b) The licensing of futures brokers; c) Accounts and audits; d) The conduct of business; e) Prohibitions of fraudulent practices; and f) Specific powers of the MAS to regulate the market. I will now elaborate on each of these segments. Approving of the establishment of futures exchanges Futures exchanges play a key role in the system of self-regulation, as they exercise wide control over the activities of their members. Therefore, to ensure that the exchanges carry out their self-regulatory role properly, the Bill would empower the MAS (a) to approve the establishment of an exchange and a clearing house and to revoke such approval given; (b) to amend the business rules of an exchange to ensure that the interests of the investing public are protected; and (c) to review the disciplinary action taken by the exchange against its members to ensure that the exchange would take appropriate disciplinary action against members who flout its rules to the detriment of the public. In the Bill, SIMEX is not required to apply for approval as the MAS has overseen its development, including the review of all its rules and regulations, the screening of its members and having representatives on its board of directors. Licensing of futures brokers The next segment deals with the licensing of futures brokers and other agents. Futures brokers engage in the business of buying and selling futures contracts on behalf of customers. They collect good faith money, known as margin, from their customers. These brokers may also be given discretion by customers to trade on their behalf. Therefore, in the performance of their functions, these brokers can have access to substantial amounts of customers' funds and the disposal of these funds. The licensing provisions will regulate the entry and participation of futures brokers and other institutions acting as agents in the futures market and ensure that they carry out their business properly. Futures brokers which are already members of SIMEX are unlikely to encounter any problems in obtaining licences from the MAS as these companies have already been reviewed by the MAS prior to their admission as members of SIMEX. Accounts and Audits The Bill also requires that these agents maintain adequate and proper accounts. In addition, external auditors are given an enlarged role to provide for further checks in the self-regulatory system. The conduct of business In the futures industry, the segregation of customers' funds plays a key role in the protection of their interests. The Bill provides that the funds placed by customers with their brokers for margin requirements must be separately accounted for and not be comingled with those of the brokers. This is to prevent brokers from making use of their clients' funds for any other pur- pose than for the benefit of the clients themselves. Prohibitions of fraudulent practices Certain unethical or fraudulent trading practices, such as trading against the client without first informing him (commonly known as bucketing) and the manipulation of prices of futures contracts are prohibited so as to preserve the integrity of the market and ensure that the interests of investors are not compromised. Specific powers of the MAS to regulate the market Finally, the Bill confers upon the MAS certain emergency powers. There may be occasions in which the market may be manipulated to the detriment of the general public. Under such circumstances, the MAS would be able to take rapid action to remedy the situation using its emergency powers. Other provisions provide the MAS with the necessary powers to conduct an effective surveillance of the market, including (a) conducting routine inspections of futures exchanges and brokers; (b) conducting investgations to determine whether any person has violated the Act; (c) calling for information from market participants; and (d) issuing regulations in the course of the discharge of its functions. Finally, I should like to caution potential participants in the futures markets. Futures markets are, by nature, highly volatile and though offering potential for substantial gains also present real dangers for substantial losses. The Futures Trading Bill, while it aims to protect the interests of the investing public, cannot guarantee to investors that they will make profits or not suffer losses from participating in the market. The Bill only sets out the ground rules to ensure fair play and an orderly market. I would therefore strongly advise potential participants in the futures markets to fully understand the nature of futures markets and the risks involved before venturing into these markets. They will then appreciate that risk and futures trading are inseparable. Sir, I beg to move. Question proposed. 2.53 pm

Mr Speaker, Sir, hon. Members will surely welcome this Bill as another step to safeguard the integrity of our financial system. As a small developing country, we have to build up confidence in our financial system if investors are going to put their money in Singapore and also if our own people are going to keep their profits and their savings in Singapore. The regulations set out in this Bill are many and varied. I have one question in regard to the regulations and, that is, whether or not we have overdone it. For example, the licence is given only for one year at a time. Is it sufficient to induce people to set up the houses which are necessary to do the trading, especially if some fixed investments are required? On page 17, under clause 20, sub- clause (2) paragraph (a), the Authority can revoke a licence for a number of reasons but I take objection to sub-paragraphs (v) and (vi) and this also applies to sub-clause (2) (b), sub-paragraphs (vi) and (vii). They are analogous. One applies to a person and the other to a corporation. Clause 20 (2)(a)(v) says: 'if the Authority has reason to believe that the licensed person has not performed his duties efficiently, honestly or fairly;' It depends on interpretation, surely, what one means by "efficiently" or "fairly". "Honestly", I think, one can understand but this could lead to arbitrary exercise of powers by the MAS. Similarly sub-paragraph (vi) says that the licence can be revoked: 'if the licensed person contravenes or fails to comply with any condition or restriction applicable in respect of the licence;' I would have thought that if such a person had been convicted of an offence under the Act, then that should be grounds for revocation of a licence. But, as it appears, no conviction is necessary. All that is required is the judgment of an officer of the MAS. Then in clause 23, there is provision for appeal to the Minister in case a licence is not granted or renewed or where a licence is revoked or suspended. There is no provision for appeal to a court. Normally, Ministers tend to listen to the civil servants who work under them. To safeguard the interests of those who set up futures trading houses, it might be desirable to have ultimate recourse to a court of appeal in addition to appealing to the Minister. Another point has to do with whether the penalties which are specified in the Act are sufficient to deter wrongdoing. There are many penalties prescribed, most of them very small. But I would like to draw attention to page 39, clause 56, where a fine not exceeding $100,000 or imprisonment not exceeding seven years or both can be placed upon persons who violate offences under Part VII which include false trading, bucketing, dissemination of false information and the like. Sir, we are talking in terms of contracts which may be worth millions of dollars. So the fine of $100,000 appears to be rather small in relation to what unscrupulous operators can get away with. Finally, Sir, the warning by the Minister on the dangers of engaging in the futures market by novices ought to be driven home. With the proliferation of financial instruments in Singapore, investment opportunities, particularly opportunities for speculation, not only in the futures market but also in stocks and shares and other markets as well, we should really have educational efforts to inform people about the merits and demerits of different types of investments and the dangers of speculation. What I am afraid of, Sir, is that with the availability of such a wide-range of instruments for speculation, a lot of time, energy and resources might be diverted from productive endeavours towards speculative endeavours to the detriment of Singapore's economy. With the exception of these qualifications, Sir, I support the Bill.

Mr Speaker, Sir, I thank the Member for Whampoa for his comments on the Bill. I would take his points one by one. As to whether we have overdone it, as he suggests, I would like to point out that, in fact, the contents and details of the Bill have been discussed extensively with the members of SIMEX themselves. They are familiar with the provisions and have no severe objections to the regulations. Secondly, the Bill has been modelled on the United States' Commodities Trading Act so that we can follow as closely as possible within our laws trading practices as conducted in the United States because of the linkage between SIMEX and the Chicago Mercantile Exchange. We have to be able to assure American investors that the laws we apply here for futures trading are similar to the laws in which they are familiar with. So it is against this background that I am fairly confident that we have not overdone the provisions. In any case, the players in this market are generally professionals, people who I think are well aware of the risks involved and I take the point that the public at large should be cautioned again and again that this is not a casino they should indulge themselves in. Fortunately, the complexities of the market are such that I doubt very much that many non-professionals would indulge in it. However, given time this might change. So this point of educating the public will be kept in mind. On the issue of appeal on the revocation of licences, this is a problem which has been levelled against the Government's other Bills in the past where it is considered rather unfortunate that there is no appeal past the Minister. The reason for this is, of course, that if we allow complete appeal on all licences to be taken to the courts, we would probably have to increase our courts many more times than there are now. I also believe that in the issue of a licence for a particular trading activity, it is not a constitutional right for anyone to have appeal to the courts. It is a privilege which the Government grants at its pleasure in order to ensure that the proper people are engaged in these activities. As to the point about whether the penalties are adequate, these are set by the Attorney-General's Chambers, and the Attorney-General is satisfied that the provisions are sufficiently severe to deter anyone, except the most adventurous. Seven years in jail, I think, is not a minor sentence by any means. In any case the object of this Bill is to try and prevent the problems arising before they actually occur, and in this connection the provisions are quite strict. As you can see, in fact, some are over-strict in certain areas. Our objective is really to try and prevent a problem arising to the scale and size which requires life sentence, for example.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Hu Tsu Tau]. Bill considered in Committee; reported without amendment; read a Third time and passed.

Order for Second Reading read. 3.04 pm

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." Members will have noted from the Long Title of the Bill and the Explanatory Statement that this Bill amends and consolidates the law with respect to the securities industry and repeals the Securities Industry Act, 1973 (No. 17 of 1973) and section 158 of the Companies Act on insider trading (Chapter 185 of the Revised Edition). The Securities Industry Act, 1973, came about as a result of the Government's decision to bring regulation of the securities market in Singapore under a statutory framework. While the Government believed that some regulation was necessary, it wished to have in place a regulatory system which would promote private sector initiative and offer maximum flexibility for market participants to react to competitive pressures, especially since our market was then at its initial stages of development. The Government also believed that too tight a regulation might drive away business to other competing markets. The framework of the 1973 Act was thus founded on the premise that self- regulation by the Stock Exchange of Singapore (SES) represented the most desirable approach to regulation of the industry following closely the self-regulatory system then in force in the United Kingdom. The Government believed that the Exchange was in a position to exercise close and effective control over the securities industry. It was also encouraged to believe that the Committee of the Exchange would be exercising this control with rigour and so did not consider statutory powers over the Exchange as being necessary. This point was emphasized by the then Finance Minister, the late Mr Hon Sui Sen, in his second reading speech, where he said that the Act "acknowledges the principle of self-regulation of the Exchange by the Committee and is not intended to interfere with the day-to-day control by the Committee of normal share trading on the Exchange, nor with the traditional form of control that the Committee exercises over members of the Exchange". Since the passage of the Securities Industry Act of 1973, the Exchange has jealously guarded the autonomy conferred upon it. The SES does not provide Government with statistical returns as it is not required to do so under the Act. Nor does Government have powers of surveillance or access to SES members' books. The Securities Industry Act of 1973 was introduced after the bear market of 1973. Subsequent to that time, the stock market consolidated and picked up. When the stock market was doing well and share prices were on the uptrend, the ability of the Exchange to self-regulate was hardly ever tested. Recently, however, the market suffered a severe bear turn and cracks began to appear in this system of self-regulation. When the MAS took over the administration of the Securities Industry Act in late 1984, it considered that due to changed conditions the existing system of self-regulation was not satisfactory. A new Securities Industry Bill was drafted and circulated to members of the SES for comments. The new Bill would provide the MAS with powers it considered necessary to discharge its supervisory role effectively, powers which were not available in the Securities Industry Act of 1973. The draft Bill was objected to strongly by members of the Stock Exchange on grounds that the new provisions would destroy the concept of self-regulation and drive business away from the SES and from Singapore. As a result, the Bill was deferred for further consultation with the SES. It is MAS's practice to allow ample opportunity for all those who are affected by proposed legislative changes to have their views heard and objections considered. As things turned out, events were overtaken by the failure of the Pan-Electric Group, which led to a crisis of confidence in the SES and the subsequent failure of a number of brokerage houses. These developments brought to light the inherent weaknesses of a self-regulatory system without adequate regulatory oversight, operating in an increasingly complex, fast growing and highly competitive market. With the benefits of hindsight, it is clear that in the scramble for business, brokers have indulged in margin financing and credit extension practices which went well beyond normal limits of prudence. The result is risk exposure in excess of capital resources, leading to insolvency when the markets turn. The Securities Industry Bill, 1986, is intended to rectify the weaknesses in the existing system of regulation and to provide the framework for the development of a sound and stable securities market. If the securities industry is to grow into a significant component of Singapore's financial sector, it must not only operate fairly and prudently to maintain investor confidence, it must also keep pace with developments in the major world securities markets. This means that major reforms in the way the SES is organized and the way it conducts its business will become necessary, in the face of the accelerating pace of the internationalization of major markets in the world. With the aid of powerful new electronic devices, stocks can now be traded across borders as easily as they can be traded within a country, meaning that only countries with the most efficient and cost effective stock markets will stand to benefit. This trend towards internationalization of securities trading and increasing participation by financial conglomerates insecurities business compels us now to take greater cognizance of external factors and the competitive pressures they exert on us. The traditional style of conducting business with low capital has to give way to greater infusion of financial resources from institutions with the necessary capital. To meet the challenges ahead, policies suitable for an international environment have to be pursued and participants in the industry have to upgrade their operations and become more efficient and professional in the conduct of their business. The Bill, with provisions to raise standards of business practice and set minimum financial requirements, will facilitate the achievement of these goals. Before I delve into the substance of the Bill, let me outline its framework. In drafting the Bill, we have studied the relevant securities legislations of the United States and Australia. The regulatory philosophy underlying the legislation in these countries is one of regulation of the industry by practitioners but subject to appropriate government control. In these two countries, the stock exchanges regulate themselves. However, they are subject to oversight by the supervisory authorities, whose principal functions are to ensure that the stock exchanges carry out their self-regulatory responsibilities diligently and that the market is generally operated prudently and in the public interest. It is recognized that self-regulation by practitioners, although desirable, must be supplemented by a series of checks and controls by a statutory body that is clear of self-interest. The Bill is drafted with these principles in mind. It is not the intention of the Government to take over the day-to-day regulation of the industry from the SES. Rather, the Bill seeks to provide the mechanism to enable the Government to ensure that the Exchange henceforth exercises proper regulation of the market. In the Bill, the MAS would be conferred with certain reserve powers over the Exchange and the MAS will not hesitate to step in should the Exchange fail in its self-regulatory responsibilities. The Explanatory Statement describes in sufficient detail what this Bill seeks to achieve and I need not deal with the provisions in any detail. However, I think it would be useful if I highlight the main provisions of this legislation. These provisions may best be dealt with under three headings:-

Mr Speaker, Sir, I rise in support of the Bill moved by the Minister. Sir, this Bill seeks to control the securities industry and to give the Monetary Authority of Singapore (MAS) wide-ranging powers to administer the new Act. The Stock Exchange, as we all know, is a place where prices of shares of publicly listed companies can be manipulated by those who are greedy to the detriment of many small investors. And I therefore welcome this move which will serve to regulate the activities of the Stock Exchange and those who are involved in it. In the light of the recent crisis on the Stock Exchange and the failure of companies like Pan-Electric, this Bill is most welcome. And much as I am tempted to say that this appears to be a case of bolting the stables after the horses have run off, I think it is also better late than never. Sir, the Minister has told us that this Bill was originally circulated to stockbrokers and because of heavy criticism and adverse comments from stockbrokers, the Bill was not proceeded with and not presented to the House. I find this rather disturbing. I would not expect the stockbrokers at any rate to respond favourably to a Bill which seeks to regulate or to curtail their activities. But I feel that we should not have allowed this to happen in view of our overall efforts to promote Singapore as a financial centre. What all that boils down to is that if there had been no Pan-Electric, there might not have been this Bill before the House today. We have also been told by the Minister in a recent sitting that the MAS, in fact, knew about the existence of forward contracts. And yet the MAS or the Ministry of Finance did not do anything about it. They did not see what some of the greedy operators were doing and they also failed to see that many of the stockbroking firms were in fact borrowing many times beyond what their capital base permitted. It therefore could only mean that the MAS for so long failed to see the implications of what was going on in the Stock Exchange, although many of the goings-on were already happening for a long time. This brings me, Sir, to my next point, ie, the Bill which we are about to pass and become an Act will be as good only as the people who are administering it. We have in the MAS officials who are more familiar with the banking industry. Or at least they think they know about the banking industry. I say this because the MAS has tremendous powers under the Banking Act to administer the banking industry. But what has caused unhappiness in banking circles is not so much the Act itself but it is the way the Act has been interpreted and the powers exercised by officials of the MAS. What it means, Sir, is that when an Act like this is administered, it must be done with circumspection. And it can only be done with care and caution only if the people administering the Act are experienced people. It is my opinion that stockbroking and banking are as different from one another as black is different from white. Sir, in order to ensure the success of the implementation of this Act and in order to ensure that there is close rapport between the stockbroking community and the MAS, experienced persons from the securities industry must be engaged to implement this Act. I am sure the MAS could look into the question of employing retired brokers, senior members of the stockbroking industry, to help in this. Sir, may I now move on to a few other comments. There is a need for us to encourage more competition amongst the stockbroking community. But the main stumbling block towards this is that the whole industry is a closed shop. In other words, if you want to become a stockbroker, you have to pay a rather high fee in order to gain admission to the Stock Exchange. There are, of course, merits to this. But, at the same time, remisiers and dealers who act on behalf of the stockbroking firms in their dealings are also required to pay excessive transfer fees when they decide to move from one firm to another. For instance, if a remisier who works in firm A wants to join firm B, he will have to pay a few thousand dollars. And when he moves from firm B to firm C, the transfer fee is double what he paid previously. This, of course, prevents remisiers and dealers from hopping from firm to firm. But the adverse effect of this is that the remisiers are stuck with the firms they work for and the firms in turn see no necessity to take steps to keep the remisiers knowing that they would not run away. Now, what are these steps to keep remisiers? I believe remisiers could do with a lot of back-up services like research from the firms. Such research, of course, can then be passed on to their clients. In other words, Sir, we could see the presence of a more professional service from the firms and their remisiers. But what do we have today? We have remisiers who are merely acting as commission agents, buying and selling for their clients. Most of the investing public know that remisiers' or dealers' knowledge is limited to telling their clients to buy stocks when the prices are going up and to sell when the prices are going down. Quite often such information is always a bit too late for clients to act upon. So, I believe, Sir, if this can be looked into, the market can further develop with more intensive competition. Sir, another question about remisiers. Remisiers are required to place deposits with the broking firms they work with. Recently it was reported that some stockbroking firms have gone bust and their remisiers could not claim back the deposits which have been left with their firms. Sir, perhaps provision should now be made for the remisiers' deposits to be placed on trust so that in case the firms go bust they still have the money. Sir, I have two other questions to ask the Minister. Sir, in order to inject more professionalism into the industry, recently the Big Four banks were allowed to participate and become brokers. Sir, my question is, why are the Big Four banks allowed to send out letters to members of the public to solicit business. I understand that the Stock Exchange does not permit brokers to advertise their services. So I would like to know why the new brokers are allowed to solicit business by writing to members of the public or has a new set of rules been set for these new entrants. Lastly, Sir, I feel that this Bill is of great importance not just to the stockbroking community, but to the investing public as well. It also will help us in our efforts to promote ourselves as a centre of financial standing. In view of the significance of this Bill, Sir, I think that the Bill should be referred to a Select Committee. The Minister has already just said that a lot of members of the stockbroking community would be prepared to give their comments and that MAS will always be prepared to hear the views of those affected by its own laws and regulations. I therefore feel that it is only appropriate that this Bill be referred to a Select Committee.

Mr Speaker, Sir, I would like to support my colleague when he calls for the Bill to be referred to a Select Committee. I support this recommendation because although the Minister mentioned that the MAS had consulted the Stock Exchange members, I feel that stockbrokers at this stage are not able to think very clearly. They are under great pressure, financial and otherwise, some of them are going out of business altogether. And when you are under pressure you can accept anything. So I think in fairness and for the good of the orderly development of the financial institutions in Singapore, we should not be in a hurry to enact a Bill like this without proper consultation. The objections which I lodge against the Futures Trading Bill are also applicable to this Bill, namely, that the MAS has got such sweeping powers that any of its officers can virtually revoke any licence or cancel any licence on the grounds that the firm in question is not operating efficiently or justly or fairly, whatever. Furthermore, whereas this particular Bill, the Securities Industry Bill, allows for appeal to the High Court, the Futures Trading Bill does not allow any such recourse. So the two Bills seem to have been drafted by different people altogether. The point which the Minister made earlier in reply to my drawing his attention to the lack of recourse to the High Court for futures trading seems to be besides the point, because he is allowing such recourse in the Securities Industry Bill. One example of the lack of consultation is the asymmetry in the treatment of the MAS itself and offences by the trading community. Clause 110, for example, protects the MAS from any prosecution arising out of neglect or default in the performance of its duties provided such neglect or default is done in good faith. I do not know what that means. Whereas the clause following 110, ie, clause 111, says that where a body corporate is guilty of an offence under the Act, then any of its officers, director, employee, and so on, directly or indirectly is a party to the offence, is also deemed to be guilty of that offfence. You can see the asymmetry there. Everybody else is guilty but where an MAS officer is negligent provided he demonstrates good faith, he is protected from any prosecution. I do not think that is desirable. And if we are going to project ourselves as a financial centre of integrity and invite investors from the advanced countries, then we ought to have laws which are fair to everybody concerned. The requirement that every contract note written by a stockbroker should have sufficient information. This is on pages 45 and 46. I think it is a good one but there is one omission which I would like to draw the attention of the Minister to, and that is the time of the transaction is not required to be specified on the contract note. I think this is important because there have been examples of cases of abuse. Suppose somebody calls on the phone to his stock- broker. He buys a stock early in the morning or when the Stock Exchange opens in the morning and the note is not executed until later in the afternoon, by which time if the price of the stock had gone up the broker could claim the transaction to be his personal transaction and benefit thereby. If the price is the same or had even gone down, he would then write it as belonging to the client in question. I have heard of fund managers who do this as a matter of routine in collaboration with the stockbrokers that any purchases made on behalf of the manager's clients can be ascribed to the fund manager himself if it is favourable enough. So I would urge that a provision be made for the time of transaction to be written into the contract so as to prevent any such abuses in future. Then, Sir, the Minister mentioned the integration of our securities market with markets elsehwere. I would like to draw particular attention to the integration between our market and the Kuala Lumpur Stock Exchange. We have drawn up this very elaborate Bill. But the question is, hasthere been consultation with the authorities in Malaysia? And how is this going to work in relation to the Kuala Lumpur Stock Exchange? The Pan-El crisis came about because of manipulation across the causeway. What is there to prevent future manipulation in future? If the regulations governing the KLSE are less onerous than ours, then a lot of malpractices could be instigated or could be initiated across the causeway, again to our detriment. Is it time to separate the two stock exchanges? It is a question which the Minister might well have to consider. The other thing which I would like to draw attention to is the nature of our stock market here in Singapore. Anybody who has made a comparison between our market and the markets in the advanced countries would notice the very high price earnings ratio here. Is it due to the fact that we do not have a capital gains tax and therefore people are going more for capital gains, or the prospects of capital gains rather than investing for returns by way of dividends? Is it because of the more speculative nature of our market? Or is it because of the thinness of the market that we have. These are questions that we need to address if we want to protect our investors from manipulation in the future.

Mr Speaker, Sir, I welcome the introduction of this Bill. After the events which rocked the stock market in the last few months, hon. Members and everyone who is concerned with the orderly development of our Securities Industry must welcome this Bill. Sir, I do not know to what extent the substantive provisions of this Bill differs from the draft amendments circulated by the Minister for Finance to the stockbroking community in June 1985, but I must assume that this Bill is a more encompassing and tougher law in the light of subsequent events. As the reaction to the draft amendments circulated earlier evoked a strong reaction from the stock broking community, the reaction to this Bill would have been much stronger if not for the events relating to Pan-El. I sympathize with the Minister for Finance. Had he tried to impose the government's will on the stock market, it will have evoked a strong negative response even from those whom the law is meant to protect, namely, the investors. Nevertheless, Sir, this Bill is necessaary and it is good to look at its passage in perspective. Similar changes have been made in several countries to laws governing the securities industry in the last few years, as mentioned by the Minister. The most recent example is the United Kingdom which, in December 1985, introduced the Financial Services Bill. This Financial Services Bill was introduced amidst a number of scandals ranging from the collapse of Johnson Matthey Bankers to multi-million dollars fraud and swindle at Lloyds, the world's largest insurance company. Well, as Members can see, even well established markets like the city in the United Kingdom needs adaptation and occasional reform. However, Sir, no matter how complete and encompassing our Bill is, it depends to a large extent on the actions of those who are involved in the securities industry. As financial deals become more complex, a healthy development of the industry must depend more on the integrity and sincerity of its key players and less on government control and regulations. Let me now turn to insider trading and market rigging. Sir, I hope that the wider provisions of Part IX of the Bill will inhibit those wrongful practices which goes to destroy the market. Market rigging and insider trading saps the confidence of investors, who in turn blame the government for not taking action. However, insider trading and market rigging practices are very difficult to prove. Hence we can only hope that those who choose to rig the market must understand the severity of the offence. Therefore the deterrence must be very stiff. In this, I am disappointed with section 104 on penalties for market rigging and insider trading. Presently, similar offence under the 1973 Act carries a maximum penalty of a fine of up to $30,000 or five years' imprisonment or both fine and imprisonment. However, clause 104 of the new Bill stipulates a fine of up to $50,000 or a maximum jail term of seven years, but not both a fine or jail sentence. It is inadequate even if the maximum fine and jail sentence are imposed as the gains of market rigging operations now run into tens of millions of dollars. As a comparison, the Bill which we have just discussed, the Futures Trading Bill, the penalty for market manipulation is a fine of up to $100,000 or an imprisonment term of seven years or both. The Minister has also mentioned that for futures trading, the main players are professionals. For the stock market, it involves many men-in-the-street, their hard-earned money and most have very little experience. Therefore, I think clause 104 must be revised. Although the law has been improved, I am apprehensive that we may not have sufficient numbers of officials who have the knowledge and capability to spot any misdemeanours until it is too late. I think this point has been well brought up by the Member for Alexandra. In an interview in June last year, in discussing the lack of success of the Securities and Exchange Commission (SES) in New York on insider trading, the Minister for Finance was quoted as saying: 'Certainly, we have no intention of going the SEC route. We don't have the manpower resources to mount an effort like that.' Even if we are going to do it differently, I must ask the Minister if he is satisfied that he has the manpower resources to make the provisions of insider trading and market rigging effective. Sir, the clause about the offering of advice or recommendations is welcomed as it now places the responsibility squarely on those who offer advice. I have two comments on this. Clause 50 mentions about advice offered through circulars or other similar written communications. I am uncertain if this takes into account the new technologies, such as information offered through computers. They are not written information but information which is of a transient nature and is read from a monitor. You switch off the computer, the information disappears. Clause 50, I think, should have been more explicit on the various modes of communication to prevent any misunderstanding or it is a loophole in the law. Sir, my other reservation relates to advice offered by those who operate out- side Singapore, in particular, stockbrokers who are based in Kuala Lumpur. This again relates to advice offered by stockbrokers and investment advisers. As there are a number of common listings of several companies on both the Kuala Lumpur and the Singapore exchanges, it is conceivable that our law may be at variance with that in Malaysia on this particular issue. Is our law still enforceable if a breach takes place in Kuala Lumpur? A Kuala Lumpur broker offers advice on companies listed on the Kuala Lumpur Stock Exchange which does not contravene the Malaysian law but contravenes our law. Is it enforceable? I have already stated my reasons for a separation of our market and make it independent and I am pleased that it has the support of the Member for Whampoa. Generally, I see difficulties of enforcement in cases where the breach is from across the Causeway. As long as we have different standards of practice, such as disclosure standards, procedures, listing requirements and code of conduct, I think the Bill will be found lacking in some areas. Overall, Sir, it is an improvement over the 1973 Act in that the present Bill puts a greater burden of care on dealers and investment advisers in their relationship with their clients.

Resolved, That the proceedings on the item under discussion and the remaining item on the Order Paper be exempted at this day's sitting from the provisions of Standing Order No. 1. - [Prof. S. Jayakumar].

Debate resumed. 3.50 pm

Mr Speaker, Sir, I rise in support of the Bill in the name of the Hon. Minister for Finance. However, I also support the move to refer this Bill to a Select Committee; not that the brokers or the securities industry participants are against this Bill or have questions against this Bill but more that this Bill actually affects many more people other than the stockbroking industry. It affects all those who may at some time or other purchase securities, whether for their own investment or on behalf of their parents or friends. It also affects those who may not be involved in the securities market but simply may be officers or financial controllers in companies where their securities may be listed in the stock market. Hence, I think the effect will be on a large proportion of our population and, as such, I do support the move to refer this Bill to a Select Committee. Sir, our present situation, I reckon, will be quite similar to that of the US during the late 20s and early 30s. As such, Sir, if you will bear with me, I would like to recollect briefly that part of the Great Depression years which is relevant to the business this afternoon. The Wall Street crash, as everybody knows, occurred in 1929. However, during the period of several years before that crash, the prices of stocks and shares on the New York Stock Exchange were rising so very rapidly that they bore little resemblance or relation to the earning power or the underlying value of the corporations which issued these securities. What was not very well known then was that during this period there was very little control over the activities of the stock market. Speculation and manipulation by all and sundry, including banks, investment houses and other financial institutions, were rampant. The Wall Street crash did not cause the Great Depression of 1930 although it precipitated the depression. In other words, Sir, the depression occurred because the US then had economic structural difficulties, high prices, over-capacity and other economic ills. The Wall Street crash was simply the first visible sign that things were wrong. However, Sir, during that emotionally charged period it was the easiest thing in the world to point accusing fingers at Wall Street and the bankers as the cause of the depression. What followed then was perhaps inevitable - a series of legislation protecting investors, curbing the financial institutions and other measures were passed. The major ones were the Glass-Steagall Act of 1933 and the "Truth in Securities" Act of 1933, the Banking Act of 1935. The Securities and Exchange Commission was established in 1934 and the purpose was to police the stock market. For those of you who are interested, the New York Stock Exchange also objected very much to the formation of the SEC. However, the objections stopped when a former Chairman of the New York Stock Exchange was jailed for larceny. Sir, I regret taking a little while to go briefly into this little part of American financial history. However I think our present situation parallels quite closely to the situation then. What is more interesting perhaps is that the US financial and securities market did prosper since then but it was not because of the Acts. From the end of the depression years to the mid-70s, Sir, USA was the economic power-house of the world. Hence, despite the restrictive nature of the laws, US banks and financial institutions were able to prosper. I say "restrictive" because the signs were in the early 70s which continued on to the 80s that when the rest of the world caught up, the US found that its laws did allow their banks and other financial institutions to compete effectively with financial institutions from other countries in the world. Hence, we have the great Act, what they call "de-regulation", which mainly, Sir, is to remove the restrictive laws that were enacted during the aftermath of the great Wall Street crash. Sir, I thus urge the Minister for Finance that we do not fall into the same mistake. Given the stock market difficulties and the Pan-Electric fiasco right now, it is very easy to over-react. The USA had and have the economic strength to overcome the handicaps imposed on their financial market. Unfortunately, Sir, we do not have. The financial market today moves rapidly, more so because of instantaneous communication. They must be given the flexibility and the liberty in order for them to react to changing conditions. The Bill, as is presently drafted, is a good one. Overall, the powers of the Authority are more clearly defined thus making it easier for interpretation. The clarification of the Bill over the 1973 Act makes policing of the stock market easier. However, the Bill is definitely a more restrictive Bill. This in itself may not be a bad thing because what is needed right now most urgently is perhaps the restoration of confidence. If confidence could be restored by tighter controls, so much the better for the Bill. The Bill, however, gives almost complete power to the Monetary Authority of Singapore. Besides many sections giving various types of powers, a wide interpretation of clause 118 gives MAS the power to enact any regulation by administrative means. Penalties provided under such administrative regulations even carry jail sentences. In fact, if one looks at this clause, the rest of the 117 clauses are unnecessary. Clause 118 alone will be sufficient. May I ask whether this is necessary? What I wish to impress upon the Minister is that the future of the securities industry lies not in the legislation before us. Instead, Sir, it lies in the hands of MAS who will implement the legislation. The MAS could rule the industry with an iron fist in a velvet glove or it could rule with an iron hammer in its iron fist. How the industry will prosper depends which method it will take. It could supervise by reducing the uncertainty in the market, ie, reducing uncertainty due to regulations to a minimum or it could supervise by creating much uncertainty by telling practitioners to do something but .....; or not to do something but ..... Sir, I now come to certain parts of the Bill which I hope the Minister will clarify. Clause 5 and clause 10 of the Bill empower the MAS to seek and to obtain information from, I would say, practically anybody connected with the securities industry. But if we look at clause 5, sub-clause 12, (page 17) and clause 10, sub-clause 7, (page 21) it says that if a person making a statement to MAS claims, before making that statement, that "the statement might tend to incriminate him, evidence of that statement is not admissible in evidence against him in criminal proceedings other than proceedings under this section." Therefore, it implies that any person making a statement to the MAS must know the existence or know his rights under this Act. This means that if he tells the MAS officer that, "This statement may incriminate me", then that statement is not admissible in a court of law for criminal proceedings. Whereas if he forgets to tell, then the statement becomes admissible in court. Sir, I think such a law is not fair to persons who may have no knowledge of their rights under the law, and therefore I propose that either such statements are totally inadmissible in criminal proceedings, with or without prior claim; or prior to making a statement it must be the obligation of the MAS to inform the person of his or her right under these two sections. I would now like to come to clause 39 on page 41 on the appeal to the Minister or the High Court regarding licences. In this I wish to add that I support the Member for Whampoa because, Sir, if you look at clause 39, you will see that it is appeal to the High Court for revocation of licence and appeal to the Minister for non-renewal of licence. It, therefore, must imply that a revocation of licence is more serious than a non-renewal of licence. Yet, Sir, a licence is only issued for a year and thus effective revocation can come about through time, which means that officials in the MAS can simply wait for the passage of time and not revoke the licence but just wait for the passage of time so that the licence may not be renewed. In this case, appeal to the High Court becomes meaningless. Sir, since this revocation as well as non-renewal of licence concerns existing practitioners, ie, means people who are already in the business, could not non-renewal appeal be also heard by the High Court instead of by the Minister where his decision is final? Finally, Sir, I would like to come to Part IX, starting from page 74, and this deals with false trading, market rigging, share manipulations, insider trading, and etc. If we look at clause 105 in this Part, here it deals with the right of an aggrieved party to seek compensation from a person convicted of an offence under this Part. Sir, this is a good move as often aggrieved parties have nowhere to turn to. However, I question the need to limit a potential action to two years after the date of completion of a transaction. Does this mean that an aggrieved party could not wait until the guilty party is convicted as by then two years may have passed? Worse, he may not even know that he is an aggrieved party, except or until the authority brings a charge against a guilty party. By then, we may not know, more than two years may also have passed. I would like to propose that this be amended to two years after conviction instead of two years after the date of completion of a transaction. 4.04 pm

Mr Speaker, Sir, it has been mentioned by Members of the House that there are provisions to appeal to the High Court, that is, in respect of not obeying rules and regulations and also in regard to the revocation or granting of licence to a dealer. But there is no provision, Sir, in respect of approval by the Minister on an applicant as a stock exchange member. It would appear that the Minister's decision is final and there is also no provision in the Act whereby the Minister needs to give reasons for his not approving their application as a stock exchange. So perhaps the Minister could consider putting a provision whereby reasons at least should be given, otherwise members of the public will again point an accusing finger at the high-handed manner of the Government. This Bill was presented to members of the Stock Exchange and they have protested, as we have been informed, the stringent rules against them. Perhaps the Minister could point out to this House what in particular are the sections which they have objected to so vehemently. Now apparently they are against self-regulation. On the one hand we have the principle that the SES should be self-regulated, but on the other hand I think it is an important principle also to protect the interests of investors, in particular small investors. It is true we cannot stop speculation in the Stock Exchange and it has also been said that more professionals indulge in trading in the stock exchange but this may not be true. Look at Hong Kong. What has happened there? Trading in the stock exchange has become so widespread that it has become part of the culture there, not only professionals indulge in it, workers and even down to the very housemaids are also involved in trading at the stock exchange. We hope that Singapore one day will not take the footsteps of Hong Kong and we see the whole population glued to the stock market prices. I think that is bad for work ethics. If we really want to progress, I think we should not indulge in speculative activities, but rather in good, strong, productive activities. I think I am not exaggerating that because I think the Member for Whampoa has already pointed out that our stock market is not a place for investments but in fact it is a place for gambling. It is like a casino. I hope steps can be taken to make our stock market a place not for gambling but a place more for investments, especially on long-term investments, rather than putting your money hoping to get a quick return the next day. I would welcome any check by the MAS on the stockbrokers or people engaged in the stock market who would flout the law. I think the MAS has to be vigilant and to be on guard because greed will always be there. And we have seen in Singapore, and even in other parts of the world, I think people will always try to evade or circumvent the law because of greed and at the stock market we are not talking of small amounts but sometimes, as we have seen in the Pan-Electric debacle, millions of dollars are involved. Mr Speaker, Sir, I think, on balance, between self-regulation and the interests of the investors, I would urge the Minister to make the MAS a watchdog for the interests of especially small investors. Much obliged.

Mr Speaker, Sir, whilst I rise to support the Securities Industry Bill, I would also support the call made by hon. Members for Whampoa, Alexandra and Jalan Kayu that this Bill be referred to a Select Committee. Sir, I sympathize with the Hon. Minister for Finance that time is not on his side as a result of the Pan-Electric debacle, I think it is important that a number of other quar- ters need to be consulted before this House passes this as law. I would seriously urge the Minister for Finance to consider referring this Bill to a Select Committee. Sir, next I want to turn to the call I made during the debate on the Budget Statement. That is the opening up of the stock market. Sir, allowing the four banks to take up seats in the Stock Exchange, is a welcome move. But what has really happened is that no new business or no new activity has been created. In fact, they have taken up the businesses which were done by stockbroking firms. Some of the stockbroling firms will be in receivership shortly. I suggested to the Minister that it is opportune to open up or invite international stockbrokers into the Stock Exchange of Singapore. This can be limited to two or three large firms. The Minister in his reply suggested that some of them could take up equity participation up to 49%, giving the local stockbrokers 51%. Sir, if you really want our Stock Exchange to have an international status, I think it is important to have international stockbrokers having total or 100%-owned seats on the Exchange. This not only will give us the added image of an international Stock Exchange but I believe, Sir, it will also add on and bring in additional professionalism which is presently lacking.

Mr Speaker, Sir, I will deal firstly with the several requests for referring the Bill to a Select Committee. Although I understand the wish expressed by Members, in my view, it is unnecessary. We need the Bill very urgently because of the impending release of CPF monies for use to purchase shares. The reason why I suggest that it is not really necessary is that, if anything, the Bill is probably over-protective of the investor rather than of the stockbroker. So any objections which might arise would probably be from the practitioners or stockbroking community because certain regulations may be seen to be restrictive on their activities. But as far as the investor is concerned, I am convinced that the protection afforded by the new Bill would be more than adequate. The Bill, as I mentioned earlier, was drafted on the basis of legislation as prac- tised in Australia and the United States. We have tried to extract the most relevant provisions and those which are most applicable to our markets, with adequate safeguards to ensure that the market is not strangled because of over-regulation. For this reason, I would strongly recommend that the Bill be approved as it stands. However, I recognize that in its application, the MAS could be seen to be too restrictive and this could result in a "ham-handed" application of rules which might inhibit the development of a securities market. If certain features of the Bill turn out in practice to be overly restrictive, I would be quite happy to introduce amendments. I would prefer the Bill to be approved as it stands, even though it may be over-restrictive in controlling the practitioners. As it is in the interest of investor. If particular provisions turn out to be over-restrictive, I would be quite prepared to consider amendments. And indeed we cannot really anticipate problems until we have working experience. One could argue and discuss at length in Select Committee and end up with no more than what we have now. On the one hand we could ask for introduction of more stringent regulations, which I do not think anybody really wants. In looking at the provisions of the Bill. Sir, at most, one could probably end up asking for softening of some of the regulations. Against the background of what has already happened, I think that it would be inadvisable. It is better in any case to approve the Bill as it stands and, if problems arise in specific areas, we could consider appropriate amendments. Turning now to the other questions raised by Members. The Member for Whampoa has said that a one year licence is restrictive. Finance companies were also subject to annual licensing and thiw was also the case in many areas of the Banking Act. Licence renewal is routine for companies which do not have any problems. So I do not believe that it is unnecessarily restrictive in application. I would like to point out that appeal to the High Court is provided for revocation of licences but not for the non-renewal of licences, although I take the point of the Member for Jalan Kayu that the passage of time would cause this to happen. I would like to point out again that the issuance of licence is not a right. Under the Banking Act, the issuance of banking licence is reviewed periodically and the Minister has full discretion to say "No" if he considers it in the public interest to do so. And the same situation would apply in the case of the securities industry. I can assure Members that it is not the intention of the Minister to be arbitrary in such decisions because it would serve no purpose. And the main reason for introducing the licensing provision is to give investors full protection. The Member for Whampoa has also said that the penalties appear small relative to the millions of dollars which might be involved. I have the opinion of the Attorney-General's Chambers that the penalties are adequate for the size of crimes envisaged. In any case, where a stock manipulator engages in malpractices, often these infringe on areas involving criminal breach of trust in which case the penalties are far more severe under the existing laws. The Member for Alexandra has commented that he was disturbed by the fact that objections from stockbrokers was allowed to delay the introduction of the Bill. I think another Member also suggested this. I did mention earlier that it is MAS's practice to allow full discussion with all parties involved when proposed changes in legislation are considered. The normal procedure is to circulate draft legislation to affected parties for their comments. This is in lieu of Select Committee procedure because it is more practical to do this before the Bill is finalized rather than introduce in Select Committee after the Bill is presented. Usually this process of consultation takes many months. We had similar experiences when we introduced Bills involving the Banking Act, the Finance Companies Act and other Acts which were reviewed by the MAS. The procedure could take anywhere between three and six months so that all parties concerned are able to study the Bills in depth and to raise objections. If the MAS considers that objections are valid, amendments will be introduced. Stock- brokers, even though some have turned out to be imprudent, like bankers or finance company people, have every right to protest against regulations which they believe would affect their livelihood. While we are on this subject, I will discuss the question raised by the Member for Potong Pasir on what were the objections raised by the stockbrokers when the draft Bill was introduced. The main objections related to the need to make disclosures to the MAS, for right of the MAS to appoint members to the Stock Exchange Committee, the right of MAS to amend the rules of the Stock Exchange and power of the MAS to issue directives. All these were seen to undermine the concept of self-regulation and would take away the autonomy of the Exchange to make its own rules, a right which was jealously guarded. One point which they raised which is still valid is that if we introduced more restrictive legislation, not in parallel with the legislation in Kuala Lumpur, a lot of their business would be lost across the Causeway. The Member for Alexandra also expressed concern that the MAS may not have sufficient experienced officers to administer the Act. The intention is to set up a new unit within MAS, specifically to administer the Act and, staffed with people experienced in the securities industry. It is well recognized that banking is a distinctly different business from the securities industry. In this connection, I would like to correct the impression of the Member for Alexandra that the MAS has been high-handed in administering the Banking Act. We do not believe so, although some bankers would like to say so. Where regulations are not observed or flouted, I think the MAS has no choice except to take action. And we hope that the same procedure would apply in the application of the Securities Industry Act in view of our experiences. I have often heard that we have been high-handed in some areas. But in the normal course of business, I meet many senior foreign bankers who pass through Singapore and pay me courtesy visits. And I can honestly say that I have yet to meet a really senior banker who has made these allegations. Most of them were in fact quite pleased that MAS is so strict because they feel more comfortable operating in this environment. You may or may not believe me but this is the truth. On the question as to why the Big Four banks which have started stockbroking affiliates are allowed to solicit business by letters, I am not aware of this but I will look into it. The Member for Whampoa wants a Select Committee to consider the Bill. I think it is unnecessary and I would prefer to see it working as quickly as possible. If necessary, amenements will be made. The Member also said that the terms may be too tough and that there is no appeal to the courts. I have said earlier that there is appeal to the courts for the revocation of licences. On the issue of the possible of manipulation of contract notes, the intention is to have all contract notes time-stamped to eliminate manipulation. On the problem of common regulations in Singapore and Kuala Lumpur, this is indeed a problem. But in our discussions with the Exchange on the other side, we understand that they are in the process of introducing amendments to their existing laws. They have asked for a copy of our proposed legislation. Hopefully, with time, we would end up with similar legislation which would be the ideal solution rather than a separation of the Exchanges, which is bound to depress business on both sides. However, this is something which I think we will have to work at. On the question as to why Singapore shares command such high price earning multiples, is it because there is no capital gains tax? I think the primary reason is that, like Japan, this region is seen as a very high growth area. Where you have national growth rates of around 10% per year, you would expect that industries would also grow at such rates. The prospect of capital gain overrides dividend yield considerations. A similar situation exists in Japan where high price earning multiples are also common place. In fact, for the more glamorous companies and key ratios in the region of 20 or 30 are not uncommon. In the case of Singapore, despite the depressed state of our market, average price earning multiples are now still in the region of 16 or 17, against a booming New York Stock Exchange where stock multiples have risen from around 5 or 6 to around 14 or 15. So we are converging. This suggests that despite the present depressed state of the market, the confidence of investors in the Singapore market still appears remarkably high. The Member for Radin Mas has asked whether the provisions are comprehensive. I think they are because they are based on what we think are the best features of the Australian and US laws, without some of the more restrictive aspects. He has also said that the penalties for insider trading seem to be less tough than under previous legislation. The Attorney-General does not think so and he is the one who prescribes the penalties. Seven years for insider trading, I think it is quite a stiff sentence. And $50,000 fine, of course, is an option which the judge can use. Mention was also made on whether there would be enough officers to administer the law. I can confirm that specialist officers will be recruited for this purpose. The question was raised on whether the information supplied by electronic means on computer terminals could be caught under the section dealing with the disseminating of information. Information of this sort is not caught under the new laws because such information is of a general nature. I have covered the point about relations with Kuala Lumpur. If the rules are not similar in Kuala Lumpur, then we could have possible loopholes. The best advice one could give is that investors in Singapore should use Singapore investment advisers. The Member for Potong Pasir has said that there is no provision for appeal beyond the Minister in the licensing of stockbrokers. The answer is that there is no God-given right for anyone to have a licence, just as we do not issue licences as of right to banks. And the Minister retains the right to say yes or no depending on circumstances. The Member for Jalan Kayu has a very long list of questions, some of which I have already covered. I was not quite clear about the story of the 1929 crash but it was interesting. I take the point that the revocation of licences would in fact automatically come about if licences were not renewed. But I have said that this is not the intention. Revocation is seen as a much more serious matter because it can take place any time during the year and it would only be invoked for exceptional offences. Routine renewal of licences is quite a different matter. On the question as to why there is a limitation of two years on claims by clients for compensation, I would like to point out that claims for compensation are a civil matter as no criminal offence is involved. The Member for Chong Boon has also asked for a Select Committee. I would not go through this again. He wants to know why the SES has not opened its doors to 100% foreign-owned stockbrokers. The answer to that is that we will eventually allow this. But for the moment, because of the relative weakness of our stockbroking companies in Singapore, it is not opportune to open the door fully to foreign stockbroking companies because they are much more powerful and experienced. And if we let them in at this stage without restriction, they will swamp our stock exchange members. I think we should give our stockbrokers some time to rebuild their strength but eventually they will have to meet competition.

Mr Speaker, Sir, the Minister has not answered this part of my question. Would the Minister make provisions to protect the interest of the remisiers? In other words, can the deposits which the remisiers are required to place with their firms be put on a trust account?

Mr Speaker, Sir, this is an issue which is currently under discussion to see how remisiers' interests can be better protected than they are at present.

On the penalties, the point I made earlier was that in the 1973 Act it was both a jail term and a fine. In the Futures Trading Bill, it is also a jail term or a fine or both. In other words, you have both. In the present case, clause 104 of the present Bill does not allow for both a fine and imprisonment. In a case where the offence might be a border-line case between a civil case and a criminal case, the court will be given the flexibility of making it a registrable offence and at the same time impose a fine. In this instance you can't because the court does not have the flexibility. It is only a jail term or a fine. So I think that point has been overlooked by the Attorney-General.

Mr Speaker, Sir, I am not a lawyer or a judge. So I have to take the advice from the Attorney-General who considers that the sentence is adequate for the purpose.

Mr Speaker, Sir, regarding clauses 5 and 10, where a person makes a statement, and before making the statement he does not disclose that the statement may tend to incriminate him, then by virtue of the subsections, it appears that the statement can be used against him in court. So here it depends on the person. If he knows his rights under these two subsections, he can make the statement that the statement that he is going to make may incriminate him. If he does not know and without making that prior statement, then the statement can be admissible in a court of law in criminal proceedings against him. I think here, Sir, it is not fair on the person because it requires the person to be knowledgeable in law, or knowledgeable of his rights. I therefore think that it might be a good point for the authority to make it as a part of the procedures that they should inform anybody making a statement of their rights under these two subsections. Could the Minister please clarify?

Mr Speaker, Sir, I think the Member for Jalan Kayu has a point and we will ensure that the authority does ensure that this happens.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Hu Tsu Tau]. Bill considered in Committee; reported without amendment; read a Third time and passed.

Order for Second Reading read. 4.35 pm

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The purpose of this Bill is to provide the enabling legislation for the following policies which have already been announced and discussed in this House: (a) the use of CPF savings for investment in shares, loan stocks and gold; (b) the use of CPF savings for investment in non-residential properties; (c) the use of existing balances in the Special Account for the payment of housing loans by those CPF members who face a shortfall in their instalment payments as a result of the cut in the CPF contribution rate; and (d) the transfer of balances in the Medisave Account, which are in excess of the required amount, to the Ordinary Account. Sir, the details of the amendments are in the explanatory statement. I shall highlight the key provisions of this Bill. Investment in Securities and Precious Metals Sir, on 31st October last year I announced in this House the setting up of a scheme to allow CPF members to invest a portion of their Ordinary Account savings in shares, loan stocks, unit trusts and gold. This scheme will give CPF members the flexibility to manage their own CPF savings once they have saved a minimum reserve for old age and contingencies. Clause 7 of the Bill amends section 45 (1) of the principal Act to empower the Minister to provide for the withdrawals of CPF savings for the purpose of making such investments. Investment in Non-Residential Properties At present CPF members are allowed to use their CPF savings to invest in residential properties but not non-residential properties. In line with the policy to enable CPF members to manage their own CPF savings, the Government has decided last year to allow CPF savings to be invested in non-residential properties, e.g. office space, shops, factories and warehouses. Clause 7 of the Bill amends section 45 (1) of the Act to allow members to withdraw CPF savings for the purchase of immovable properties, including non-residential properties. Use of CPF Special Account Balances for Payment of Housing Loans With the rate of employers' CPF contribution reduced by 15 percentage points to 10% with effect from 1st April 1986, some members may face a shortfall in their CPF savings to service their housing loans. The Government has decided that as a relief measure, those who are still short of funds after making use of all available balances in their Ordinary Accounts to service their housing loans, can use the balance in their Special Accounts. Clause 4 introduces a new section 12B into the Act to empower the CPF Board to allow members to do so. Transfer of Excess Balances from Medisave Accounts to Ordinary Accounts The Ministry of Health has decided that CPF members need to retain only $15,000 in their Medisave Accounts for hospitalization expenses. When the amount is reached, the excess will be transferred to the Ordinary Accounts. The new section 11A (6) in clause 3 will empower the Board to make such transfers in future. Sir, as the CPF contribution rate will be lowered from 1st April 1986, clauses 3 (b), (c) and 4 relating to the use of the Special Account balances for housing and the transfer of excess Medisave balances will come into effect on 1st April 1986, after the House has approved this Bill. The other clauses relating to the investment of CPF savings in shares, unit trusts, gold and non-residential properties will come into effect on 1st May 1986, after the necessary regulations for the operation of this scheme are gazetted. I would also like to announce that the amount of CPF savings that members can withdraw for investment in shares, loan stocks and unit trusts will be increased from 10% to 20% of their "Investable CPF Savings". The "Investable CPF Savings" is the balance in the Ordinary and Special Account in excess of the minimum reserve of $30,000. CPF amounts invested in a home will be included in the calculation of the "Investable CPF Savings". The liberalization of the investment limit is to allow CPF members greater scope in managing their CPF savings. Gold investment will for the moment still be subject to the sub-limit of 5% of the "Investable Savings". This 5% can be used for either shares or gold. The Government's intention is to raise these investment limits and widen the investment avenues progressively to allow CPF members maximum discretion in investing their CPF funds, subject to minimum essential safeguards. CPF members must, of course, exercise care and judgment in deciding how to invest their CPF savings and be conscious of the opportunities available as well as the risks involved. The potential for higher returns is associated with a higher degree of risk. A member may make gains or incur losses depending on his investment decisions and the timing of those decisions. The investment schemes are optional. If a member prefers not to take any risk, he can choose to leave his entire CPF savings with the CPF Board where the funds are guaranteed by the Government. The CPF interest rate is not only pegged to bank rates, but also tax-exempt. Those members who prefer to invest their CPF savings in expectation of higher returns will have the flexibility to do so. If a member makes the right investment decision, he will gain. If not, he will lose. He will have to live with the results of his own investment decisions. Sir, I beg to move. Question proposed.

Mr Speaker, Sir, despite my appeal to the Minister, he is apparently trying to make CPF money more easily withdrawn. From 10% now he is increasing it to 20% for investing in shares. In the debate on the estimates for his Ministry last week, I requested the Minister for Labour to be cautious in making hasty moves to allow more liberal use of CPF savings. My main grounds are that, firstly, the level of CPF savings may not always remain at a high level in future as the percentage of contributions is now being varied according to the economy. The second point is that the CPF is now paying a risk-free and tax-free market rate of return. With such a good return, the Government need not be in a hurry to appease those who are more speculative. I welcome the amendments, however, on the use of CPF for properties other than residential properties. I advocated then that members should be able to invest more money in properties as it makes good philosophical sense. As an office shop or a small factory is indispensable in almost all businesses, this move will enable those with a low capital to start their business once an office is being paid for. I think it will also help smaller companies to restructure their capital, particularly if they are facing cash flow problems. By using CPF a small business will save on rental expenses by owning a shop, an office or a small factory. However, I hope that the non-residential property scheme will be flexible so that it may be more effective. In an oral reply last week, the Minister has mentioned that plans for non-residential property purchased with CPF will only be announced in May. I know the Minister will ask me to be patient and wait until next month for the full details. Nevertheless, I am requesting the Minister to provide the public with some rough details now as this will help those who are looking forward to this scheme to do some advance planning. I hope the Minister will oblige.

Mr Speaker, Sir, I do not support this amendment Bill and I would like the Minister to explain to the House what is the rationale of this amendment Bill by releasing CPF money for shares, gold and for non-residential property. These investments may fluctuate, as we have seen. If the time should come when a person retires and all these investments are at their lowest, what will happen then? It is true that the investor will have to take his chance in investing. But if the main purpose of CPF is to secure a worker in his old age or to give him security, then I think this piece of legislation is certainly not in line with the original purpose. I would also like to know how much money is going to be released in the share and property markets. Does the Minister hope that this money released will in fact boost up these markets which are now in the doldrums? Would it not be better, in fact, if the intention were to give a stimulus to the property and share markets by releasing part of the employee's CPF which I have advocated? I think it is important that CPF money, which is originally meant to give workers a security in their old age, will not create the false hope of big returns in the future which may not come. The property market is now so bad that the two years envisaged to revive the economy will not bring the demand for the property market and in fact it is so gloomy that there is speculation that the property market will not reach its giddy heights of 1981. So why should the hard-earned money of the workers be given to such investments? Many Members in this House have urged the Government to use part of the CPF money for the educational needs of their children which I support. Education for the children of workers is a form of investment and that is certainly a better form of investment than shares and gold and property.

Mr Speaker, Sir, I rise in support of the Bill. The Bill seeks to change CPF policy on four issues: (1) limit the maximum amount of Medisave balance; (2) allow members to use their Special Account to repay housing loans; (3) permit the purchase of non-residential properties with CPF moneys; and (4) permit investment in precious metals and securities. Sir, the first three issues have been well covered in previous debates and I do not wish to touch on them. However, on the fourth issue, ie, the permission for members to invest a portion of their funds in precious metals and securities, I would say that, first and foremost, this is very much an elective type of option which means that members who do not think they want to risk their money in either the stock market or investment in precious metals, then these members need not use their funds for such purposes. In that case, they can still leave their funds in the CPF and earn a Government-guaranteed return which in the long run might be better for them. However, Sir, we must realize that there are members who feel that they are very much better investors than the CPF and they think they can get better returns than what the CPF can give them. For such members, giving them the flexibililty and liberty to invest their funds in the stock market or in precious metals is not amiss with the objective of giving more flexibility to the people of Singapore. These members who wish to avail themselves of this scheme normally would have some knowledge of the market as well as knowledge of the risk that is inherent in such investment. Perhaps the CPF should take one step further, that is, to give them a warning similar to the one against cigarette smoking where it says "Smoking is hazardous to your health." We can say, "Investment in precious metals and stock market carries great risks which you may not want to undertake." If they are forewarned of such risks, then those who are on the borderline cases, ie, those members who may not really have the intention of making such investments, may be forestalled or prevented from making such risky investments. In such cases, then, I do not think the CPF would really put members' funds at risk or their old-age savings at risk through such a scheme. Now, Sir, if I may, I would like to come down to the specific amendments. If one looks at clause 6 it assumes that the total proceeds from the sale of investment in precious metals and securities must be paid into the fund. This means that gains from such investment cannot be prematurely withdrawn. Does it therefore not also mean that losses need not be made good by the member? I will give you an example. If somebody takes $10 to buy a share and subsequently the person sells the share at $12. Then according to clause 6, the whole sum of $12 must go back into the fund. However, if he sells at $8 instead of $12 then, again, according to clause 6, the whole sum of $8 must go into the fund. From clause 6, it appears that he cannot take out the $2 that he made had he sold the share at $12. Does this therefore not imply that he need not make good the loss of $2 had he sold the share at $8? If this be the case, would the Minister therefore not consider applying this principle to those who have purchased residential properties under the current Approved Residential Properties Scheme (ARPS). Currently, there are owners of properties under the ARPS scheme who would like to sell off their investment to cut losses but they cannot do so as the values of houses have fallen below what they purchased for. Thus, if they sell off these properties under the present regulations they are liable to CPF to make good losses or make good the funds they have withdrawn, including the imputed interest. If this principle were to be applied to those withdrawals under the ARPS scheme, perhaps it will help some members to make rational decisions based on the fact that they want to take their losses now instead of later. However, without such a principle being applied and where they are liable to the CPF to make good the shortfall their decision today is more influenced by their inability to make good the shortfall. Sir, may I now turn to clause 7 (c) which permits the reimbursement of fees, charges or incidental expenses from CPF. I feel that this should not be permitted. Instead, members should be asked to pay for those items for two reasons. One, these are expenditure items and do not add value to the underlying investment. Two, since members can claim reimbursements for such items, it may encourage them to trade instead of invest. By trading, Sir, I mean buying and/or selling on a frequent basis thereby incurring large expenditure. Of course, they could do so now. They could do so even if they have to pay for the incidental expenses themselves but then it incurs an expenditure out of their own pockets immediately. If clause 7 (c) goes on as it is, they will be encouraged to do so because then they would not have to incur any additional expenses. Of course, Sir, they do so because they hope to make money on the price movements which, unfortunately, for this type of investment, are rather frequent. However, history has shown that such practices usually end up in more losses for the so-called investors rather than gains. Hence the payment of incidental expenses out of their own pocket would discourage such a practice from developing.

Mr Speaker, Sir, I believe members of the public will welcome this Bill as it enables them to invest their CPF funds more flexibly contrary to what the Member for Potong Pasir has said and, to reiterate the point made by the Member for Jalan Kayu, there is nothing in this Bill that forces any CPF member to invest any of their funds in gold or securities or non-residential property. Sir, the point made by the Member for Potong Pasir is completely wrong. I would like to seek clarification on a number of issues from the Minister. One is that in the event that dividends or interest are payable on the securities, are these to be enjoyed by the CPF members or are they to be credited to their CPF account? Another question I have is with regard to the purchase of precious metals. Why has he limited the purchase to only gold? What about silver and platinum and any of the precious metals that may be on the market? I welcome the provision for the purchase of non-residential properties because I believe this will benefit particularly those CPF members who own HDB flats. As the present regulation stands, such members cannot buy a second property, whether it be HDB or private residential property, so that if they wish to make such purchases on the private market they will have to leave their HDB flats whereas this provision in this Bill which allows them to buy non-residential properties allows them to continue staying in their HDB flats and yet make an investment that may prove to be worthwhile over the long term. So I would like to support this Bill.

Mr Speaker, Sir, I would like to thank Members who have spoken in support of the Bill. As some Members have pointed out, and I have said so in my speech as well, the intention of the scheme is to give members greater flexibility in managing their old-age savings. It is entirely up to the member himself. If he is happy with the interest rate paid by the CPF Board, he should leave his money with the CPF Board and we will only be too happy. The intention of this Bill, Sir, is not to stimulate the stock market or the property sector. The fact is that there are people who want to take advantage of the markets whether it is stocks and shares, gold or properties. Some of them may feel that this is a good time to do so. If the Government is seen to be too restrictive, we may appear to be depriving them of an opportunity for making gains. But, of course, they must realize that in any investment, there are risks involved. If a member wants to have a no-risk or risk-free investment, then he must be content with a low rate of return. He can put it with the CPF Board and get an interest rate which is comparable to what the banks are paying, and it is also tax-exempt. So it is a very good deal for the majority of CPF members who may not have the expertise or the stomach for other kinds of investments. The Member for Radin Mas has asked why we have increased the percentage limit from 10% to 20%. I think on several occasions he has voiced caution on this matter. On the part of the CPF Board too, we are very cautious. We do not want to rush into the scheme. We want to monitor the scheme and see how it works. At the same time, we do not want to be too restrictive. After I announced this scheme in October last year we monitored the effect on the market. The impression was that many CPF members, who wanted to invest, felt that the amounts which they could invest were too little. On the other hand, there are a lot of members who are cautious and who may not go into the market. So our concern is really to do this gradually so that we do not inflate the share prices which will be at the expense of CPF members. But at the same time where we feel it is safe, we should gradually move the limit upwards, giving greater flexibility to those who feel they can invest better on their own to try their luck. That is why we have now raised the limit from 10% to 20%. The Member for Radin Mas has also asked for some details on the non-residential properties scheme. I am happy to report to him that details are now ready, and I will ask the Clerk to distribute the papers (Cols. 1489 - 1490) showing the main essence of the scheme. [Copies of tables distributed to hon. Members.] In addition, there will be another table showing how much money can be invested under the scheme for shares and gold. This shows the number of members in the different categories of CPF balances and how much they can invest. papers - FEATURES OF THE NON-RESIDENTIAL PROPERTIES SCHEME, ANALYSIS OF MEMBERS WITH INVESTIBLE FUNDS (AS AT END OF FEB 86) (Cols. 1489 - 1490) Perhaps I can just spend a few minutes to take Members through the features of the non-residential properties scheme. Firstly, as I have mentioned, the properties can include office space, factories, shops and warehouses but they must be located in Singapore. We are also excluding undeveloped land because that tends to be very speculative and does not provide an income. In the case of leasehold properties, the leasehold period remaining at the time of purchase must be at least 75 years. The amount of CPF savings that can be used for non-residential properties will be limited to a maximum of 70% of the valuation of the property or the purchase price, whichever is lower. In the case of residential properties, the limit is 80%. Members may purchase more than one non-residential property at a time. They may also purchase more than one non-residential property. CPF members who are not relatives or family members may jointly purchase a property. This is a new idea. Basically, the scheme is to allow people to invest in properties and if they feel they want to go in together,jointly, and they can work together in this joint venture, it is acceptable to us. There will be a time bar of one year on the use of the funds. If a member invests a certain sum in the property and then sells it, he will have to wait one year before he can use the same sum plus the accrued interest gained. Previously the time bar was three years. We have relaxed this to one year now. The other table, as I said, shows the substantial amounts which are now available to members to invest in shares and gold. Altogether about 347,000 members can take part in the scheme. These are people who have more than $30,000 in their CPF accounts, including amounts withdrawn for housing. The members are placed in different groups ranging from those who have below $1,000 to those who have more than $40,000 to invest. The total sum which may be released under the scheme is roughly $2.4 billion. This is roughly double the amount that was announced on the previous occasion. Other details of the scheme will be spelt out in the regulations and the CPF Board will provide more details to members of the public, if necessary. All these steps will be implemented within April so that the scheme can start operation from the 1st May. Turning now to the Member for Jalan Kayu, he has suggested that we put a warning on the application form. I think there is no need for this. Members are already aware. One possibility is maybe we should put at the bottom of the form, "Members invest at their own risk." This is an idea which we will look into. The other point he made concerns the proceeds from the sale of properties, non-residential properties and residential properties. In the case of shares, as he has noted correctly, both capital gains and losses will be for the CPF account. Now, in the case of residential properties, regula- tions have already been effected to say that if the member sells the property, he will have to return to CPF the capital sum withdrawn from the CPF, plus the imputed CPF interest, or the sale proceeds if that is less than the first amount. So it is an either/or situation - either the sum plus interest or the sale proceeds, whichever is less. So I think his point has been answered, and in fact it has already been implemented. Why do we allow members to charge fees and other charges for share transactions to the CPF account? I take his point that this may give rise to some lack of prudence on the part of members who think that CPF money is not their own. Actually it is their own money and so they should be careful in managing the money. But the logic behind this is that since you want the member to return both the capital gains and the losses to the CPF account, the cost of making the transaction must of course, be taken into account. It is part of the cost of investment. This is the same thing as in the case of properties where we allow the cost of the transaction, whether it is conveyancing fee or other charges, to be charged to the CPF account. So I think it is fair for us to allow the fees and charges to be paid out of the CPF fund. But I take his point and we will monitor the situation to see whether this, in fact, causes more people to take more speculative investments and buy and sell their shares too frequently. In our scheme we are going to act with the banks. Members will have to open accounts with certain approved banks and when they apply to buy the shares, the money will be transferred to the bank to buy on their behalf; and subsequently when they trade on this account, there will be no need to involve the CPF Board. This is to simplify the administration of the scheme; otherwise it will be almost impossible for the CPF Board to deal with so many members of the public. The CPF Board will be issuing some guidelines to banks to discourage speculative trading. Members will not be allowed to trade on margins. Trading will have to be on a ready basis and scrips will have to be delivered within a certain time. There will be certain precautions made to discourage speculation. However, we do not want to make it so inflexible that when a person feels that it is better for him to sell, for example, when the market turns against him we do not want to restrict his investment decision. But at the same time we do not want him to make use of the balance and trade on margin, engaging in very speculative trading. Coming now to the points made by the Member for Whampoa. He wanted to know whether dividends will be retained by the member. The answer is no. All the dividends, net of corporate tax withheld, must be returned to the account. The idea is not for him to withdraw CPF prematurely, whether it is the interest or the earnings or the capital sum. The idea is for him to manage the savings to try and enhance the value of his savings. But you may want to note one point, and that is, we only require him to return dividends net of tax withheld, which is normally at the corporate tax rate. At present that is 40%; next year it will be 33%. Now a member, if his tax margin is below 33%, can claim some tax rebates back from the Income Tax Department. We have looked at this point and finally we decided that it is not practical for us to chase after all these amounts. So there could be a certain amount of leakage there but this could be tolerated. The Member for Whampoa also asked why we only allow investment in gold and not silver or platinum. The reason is that gold is normally regarded as a store of value. It is used by countries as a form of national reserve and the market is almost perfect. It is almost impossible for any member to corner the market. The risk involved when we invest in gold is purely market risk - either the market goes up or it goes down, of course depending on what the Russians do or the South Africans do, and so on, or the oil sheiks for that matter. The investment in shares, however, is slightly different. You not only have market risk but also management risk and other kinds of risks. Sometimes Government policies may move against you, for example lifting of duties. But in the case of gold, it is purely market risk. But gold does not give you any income. There are no dividends, purely capital gains. In the case of silver, however, it is normally regarded as a commodity, a high priced commodity. It is not quite in the same class as gold. The prices of silver are very speculative, even more volatile than gold. And I think Members will recall that some years back, the Hunt Brothers were able to corner the market and manipulate prices. It is much more difficult, I think almost impossible, to do the same thing with gold. In the case of platinum, we have to look into it. Firstly, I think it is of a wrong colour for most people. But basically platinum in some cases is also an industrial product. The value, I think, is better than, say, silver. But we have to look into it. The Member for Whampoa made a good point and that is the non-residential properties scheme is good for HDB home owners. The Government is not able to allow HDB home owners to also own a private residential property because of land constraints in Singapore. If you are able to afford to own a private residential property and you, in fact, own such a residential property, then you should move out of the HDB flat and allow somebody else to buy that flat. But this does not apply in the case of non-residential property. So HDB home owners may want to take advantage of the non-residential properties scheme. They can invest in non-residential property and still keep their HDB flats. Turning now to the points made by the Member for Potong Pasir who felt obliged to say something, I suppose, on this subject. His first point about rationale has already been explained several times and there is no need for me to repeat. I think Members have already answered him. It is purely an optional scheme. Nobody is telling anybody to invest. We are not trying to stimulate the market. I have said so before and I say it again now. If members want to put their money with the CPF Board, I will be most happy. He mentioned this point about why we do not cut the employee's CPF. That has already been answered fully. All I need to say is that the Government did a study of the CPF contributions, relative to the ability of CPF members to service housing loans. The assessment is that about 15% is the maximum extent you can go before you make it difficult for large numbers of people to service housing loans. If you can cut 15% off the CPF rate, the question then is: do you place it on the employer's side or the employee's side? Our economic problem at the moment is high cost, wages have gone up faster than productivity. So the Government decided it is better to put the full 15% on to the employer's portion. The other reason is, which was explained before, that if you cut employee's CPF, a lot of the money will probably leak out to foreign imports, purchases of videos or cars or holidays. Of all the goods and services consumed in Singapore, about two-thirds are imported. So the stimulatory effect, while it is there, will not be as large as you would imagine. To my surprise, the Member for Potong Pasir has now decided to talk about CPF for education. He has kept silent all this while when the Member for Jalan Kayu and others were passionately asking for the scheme to be introduced. Now that the other Members have realized the logic and the sense of what the CPF committee is trying to do, ie, to reduce therates so that people can have more savings and decide what they want to do with their own savings, he now comes out and tries to champion this issue. As I have explained before, there is really no need, in the case of tertiary education in Singapore, the NUS, Polytechnic and so on, to touch the parents' CPF savings because the fees are so highly subsidized. In the case of the NUS, the fees are only about $1,200 per year and most people can afford that. Even if they cannot afford, education is so important that the Government must make it possible for everybody who can qualify to get a place. No one will be barred because of financial circumstances. So for local education, there is no need to touch the CPF. In the case of overseas education, the sums involved are of the order of $100,000. That will make a big hole in the CPF savings of members. It is quite different from investment in properties, shares or deposits with the CPF. What we do is to calculate the amounts needed at old age, with the idea of allowing the member to try and get a better return through his own investment. The amounts are still left with the CPF in the member's account. In the case of overseas education, if it is $100,000, it may well be half or more than half of the member's CPF account which is transferred to another member. I think most Members would know that inclusive of fees and cost of living - in fact, many countries are now using education as a form of export earnings and so fees are going up all the time - it is difficult to go overseas for education for anything less than $50,000 for the whole course. In many places, it would be $100,000, say, the US, Britain and maybe Australia. Sir, I think I have answered all the points.

Sir, a point of clarification on this table of investible funds. If you look at the note at the bottom, you will see that it virtually excludes the use of the special account balance. So only the ordinary account may be used. That is quite a restriction.

Mr Speaker, Sir, it is correct that the special account has been excluded. The CPF committee is looking at this problem of what would be the functions of the special account. In the past, it was meant for insurance, for minimum old-age requirements and so on. Until a decision is made on the special account, we will not touch it. That is the idea behind all this.

Mr Speaker, Sir, the Minister has mentioned that dividends will have to go back to the CPF account. What about the rentals of properties? Rentals are much bigger amounts than dividends and they are collected on a monthly basis. Over the years, it can accumulate to sizable amounts.

Mr Speaker, Sir, rentals from residential properties can be kept by the CPF member. The only requirement is that when they sell, they must put back the CPF sum withdrawn plus the accrued CPF interest. It is a fact that we have always treated properties differently from other investments. And there are good reasons to do so. This preference in favour of properties will continue. Properties are not so saleable. For many years now, the scheme for HDB properties has been very liberal. In fact, the Member can use CPF not only for the full purchase price but also the interest involved in servicing the HDB loan. So I think it is fair in our situation and in view of our policy to encourage home ownership to allow people to keep their capital gains and also rentals. This is a special feature of the scheme.

Mr Speaker, Sir, may I seek a point of clarification from the Hon. Minister? He has mentioned that in the case of sale of properties, the funds to be returned to the CPF would be the sum withdrawn including imputed interest or the sale price, whichever is lower. May I ask, in the case where the sale price is lower than the sum withdrawn plus the imputed interest, would the member still be personally liable to CPF for the shortfall? What I am asking is, has he fulfilled his complete liability to the CPF or would the CPF at some future point in time ask him to refund the shortfall?

The answer is no. There will be no further liabilities. These are spelt out in the regulations already gazetted, ie, either the capital plus the interest or the sale proceeds, whichever is less.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Mr Lee Yock Suan]. Bill considered in Committee; reported without amendment; read a Third time and passed.

Resolved, "That Parliament do now adjourn to a date to be fixed." - [Prof. S. Jayakumar] Adjourned accordingly at Twenty-three minutes past Five o'clock pm to a date to be fixed. papers - FEATURES OF THE NON-RESIDENTIAL PROPERTIES SCHEME, ANALYSIS OF MEMBERS WITH INVESTIBLE FUNDS (AS AT END OF FEB 86) (Cols. 1489 - 1490)