crisis case

EXECUTIVE SUMMARY

This paper examines and evaluates MAS’ three main policies

during the Pan-Electric Industries Limited (Pan-El) crisis – closure of the

Stock Exchange of Singapore (SES), setting up of the lifeboat fund, and MAS’

communication strategy. This exercise is carried out in the context of the

regulatory regime at the time of the crisis, using a crisis management

framework that focuses on two criteria – effectiveness and cost. At the end of

the paper, the reader should have a better idea of the facts surrounding the

Pan-El crisis and the lessons that could be learnt from such an experience as

they apply to future crisis prevention and crisis management.

2 Before the Pan-El crisis, the stockbroking community, along with

the companies listed on the SES, was essentially unregulated. While some

might point to the membership and listing requirements set out by the SES as

examples of regulation, the fact is that the SES had no enforcement powers

to make sure either stockbroking firms or listed companies conformed to its

rules. There was no continuous off-site supervision and no prudential limits

were set for stockbroking firms. Under such circumstances, great reliance

was naturally placed on voluntary disclosure by the parties involved.

3 In stark contrast to this lenient atmosphere, the regulatory regime

immediately after the Pan-El crisis swung in the opposite direction. Forward

trading was completely banned (trading could only take place on an

immediate delivery basis), a not unexpected action given that it was such

contracts which had caused the Pan-El failure to spread throughout the entire

stockbroking industry in the first place. Various other prudential requirements

were also set up, including capital requirements, gearing limits, exposure

limits, margin requirements and maintenance of a reserve fund.

4 Slightly less than a year after the Pan-El crisis first erupted,

legislation finally went into effect that provided a long-term framework for

regulation of the stockbroking industry. In fact, the Securities Industry Act

(SIA) had been in the pipeline for some time, but had been blocked by the

industry prior to 1986; it was the Pan-El crisis which served as catalyst for the

passage of this bill.

PAN-ELECTRIC CRISIS CASE STUDY JUNE 2004

MONETARY AUTHORITY OF SINGAPORE ii