This month, MAS proposed guidelines for financial companies to use plain English in IPO prospectuses. A retail IPO investor shares his thoughts.
Words by Mr IPO
Frankly it’s about time IPO prospectuses are written in plain English! There is another interesting article in The Straits Times about writing in plain English.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
MAS said in its consultation paper that “you should always draft prospectus with the retail audience in mind as they are the audience with the greatest need for information”.
Given that I have diligently read hundreds of prospectuses since July 2007, I think my views should be heard since I am the retail user they are targeting.
If you think about it, what I am essentially doing at my blog is to read through the prospectus, sift through the pages to look for material information, and then summarise them in an easy to understand format. Of course, more importantly, I will tell you whether the IPO is chilli hot and the possible fair value range.
Let me share with you why the IPO prospectuses are so difficult to read and can cure people with acute insomnia.
Prospectuses are written by lawyers.
In my line of work, I have worked with many lawyers. Lawyers are trained and paid to “cover all angles of risks”.
In order to prevent their clients from being sued by investors in future for non-disclosure, all risks (no matter how immaterial) will be listed as a potential risk in the prospectus. As such, half the time, the risk factors in the prospectus are purely “CYA” (Editor’s Note: It means Cover Your Ass) stuff written in convoluted legalistic jargons.
Proposed changes are definitely great news for investors!
The proposed changes include:
- write in plain English without jargon
- present information in a clear, concise and logical manner
- avoid legal and financial jargons
- write in active rather than passive voice
- use short sentences
- write in personal pronouns
- avoid multiple negatives
- use tables, charts and graphs
- use bullet points, examples and descriptive headings
- keep prospectus as short as possible and remove redundant information
Examples of Proposed Changes
I have gone through the detailed consultation paper. It is definitely a huge step forward in the right direction. You should support it too!
Public may submit their feedback to MAS by March 13 to PartXIIISFA_SFR_amendments@mas.gov.sg.
However, the bigger problem which MAS should quickly address is the IPO famine in Singapore.
While it is good that retail investors can start reading prospectus written in plain English, what is the point if there are no meaningful IPOs to begin with? Isn’t it time that MAS and SGX do something about this?
This article has been republished with permission from Mr IPO.