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Hong Kong
SFC's powers beefed up

Following from a Memorandum of Understanding between the Securities and Futures Commission (HK) (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEx), the SFC has taken over the following functions previously exercised by HKEx:

  • prudential and conduct regulation of market participants;
  • licensing of market participants;
  • enforcing compliance by participants with statutory and financial resources requirements; and
  • investigating breaches of the laws relating to securities and futures market.

This leaves the HKEx with the task of regulating the management of business risk, market surveillance and enforcement of trading and clearing rules.

(Source: Joint Press Release by SFC and HKEx, 20/02/2001.)

Code of conduct revised

A new Code of Conduct for Persons Registered with the SFC  came into effect on 1 April 2001. It applies to dealers, investment advisers, securities margin financiers, and representatives of the 3 groups. Matters covered by the Code include:

  • the duties owed by a registered person to their clients;
  • internal management standards; and
  • the handling of conflicts of interest.

(Source: SFC, 21/02/2001.)

Automated trading HK style

The SFC has sought public comment on its Consultation Paper on Draft Guidelines for the Regulation of Automated Trading Services (ATS). The guidelines will be released once the legislation regulating the use of of ATS,  the Securities and Futures Bill is enacted. The Bill sets out the principles guiding the regulation of ATS. They include:

  • reducing systemic risk in securities and futures industry;
  • ensuring the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry; and
  • ensuring investor protection for persons using the system.

(Source: SFC, 22/03/2001)

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Malaysia
Road map for the future - Malaysia's capital markets masterplan

The Securities Commission of Malaysia (SC) recently unveiled its Capital Markets Masterplan for the Malaysian capital market. It sets out a blueprint of how to achieve the objective of making the Malaysian capital markets internationally competitive. Some of the proposals include:

  • a consolidation of all existing exchanges into 1 single exchange by 2002;
  • the demutualisation and listing of the stock exchange by 2003;
  • the establishment of an integrated clearing and settlement system;
  • a move towards a disclosure based framework for the offer and issue of equity securities by June 2001;
  • making the SC the sole approving authority for fund-raising;
  • permitting the establishment of derivative funds;
  • liberalisation of stock-broking commissions and gradual removal of restrictions on foreign ownership of stock-broking firms;
  • deregulation on the types of services that can be offered by stock-broking companies; and
  • measures to encourage the use of electronic trading.

(Source: SC, 22/02/01. )

Securitisation in Malaysia

The SC of Malaysia has released its inaugural Guidelines on the Offering of Asset-Backed Debt Securities. The Guidelines apply only to private debt securities and do not include debt securities capable of being converted into equity.  They set out the requirements that must be met in a securitisation of asset-backed debt securities:

  • assets that may be securitised must generate cash flow and the originator must have a valid and enforceable interest in the assets and cashflow prior to any securitisation transaction;
  • the originator must effectively transfer its rights and obligations in the assets to a special purpose vehicle (SPV) such that the asset is beyond the reach of the originator and its creditors in the event of a receivership or bankruptcy;
  • the SPV should not carry on any other business activity other than holding the assets, issuing asset-backed debt securities and ensuring appropriate management of cash flows. In order to obtain any stamp duty and capital gains exemption, the SPV must reside in Malaysia; and
  • the preparation of an information memorandum to be made available to investors. The information memorandum should disclose the risk factors in investing, detailed description of the structure of the securitisation transaction, all significant agreements concerning the structure and detailed explanation on the flow of funds.

(Source: SC, 10/04/01.

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Singapore
Singapore's big bang - regulatory overhaul

In a move designed to meet the challenges of globalisation, the Monetary Authority of Singapore (MAS) has released for comment 2 draft legislation designed to overhaul the regulation of the securities and futures industry in Singapore. (Eds: see also the following item on the regulation of financial advisers).

The new legislation to be called the Securities and Futures Act (SFA) will, among others:

  • introduce a single licensing framework for securities and futures intermediaries to conduct securities dealing, futures trading, custodial services for securities and securities margin financing. Financial institutions and insurance companies are exempted from the requirement to obtain a license under the SFA but will be required to comply with the other requirements in the SFA;
  • introduce an authorisation regime for overseas stock and future exchanges offering products in Singapore. This means that such exchanges will be accessible directly by investors;
  • migrate all provisions dealing with fund-raising, disclosure and take-overs from the Companies Act to the SFA;
  • change the non-statutory status of continuous disclosure requirements and substantial shareholding notification by listed companies to a legal obligation under the SFA;
  • create an exception to the laws of insolvency for all transactions that are cleared and settled through approved clearing institutions; and
  • empower MAS to authorise foreign collective investment schemes to be offered directly to the public instead of through a feeder fund structure.

For more, see the Consultation Document.

One stopshop - financial advisers regime consolidated

This is the second set of reforms planned for the securities and futures industry in Singapore. The proposed Financial Advisers Act (FAA) will consolidate the current regulatory regime governing the provision of financial advisory services in respect of securities, futures and life insurance products into an omnibus legislation.

The FAA will replace the different licensing requirements currently imposed on a financial adviser for the provision of financial advice with a single licence for the conduct of their activity. Banks, merchant banks, securities firms, fund management companies, finance companies, and insurance companies and brokers will be exempted from the licensing requirements of the FAA. However such institutions will still have to comply with the other provisions of the FAA.

Fro more, see the Consultation Document.

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New Zealand
NZSE to be made a company?

According to the Securities Commission of New Zealand, a private member's bill to convert the NZSE into a company was introduced to the NZ Parliament in February. The Bill sets out the procedure for members of the NZSE to convert the NZSE from a statutory body corporate into a company under the Companies Act 1993. (Eds: Don't forget to read the next instalment of ITM for the next interesting development concerning the bill)

(Source: SEC NZ, The Bulletin, April 2001. For more, see The Bulletin)

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USA
Integration of offerings doctrine overturned: Rule 155

A company offering securities in the US is often faced with the conundrum of what to do when market conditions change drastically so much so that it is no longer attractive to offer its securities to the public or in the form that was originally contemplated.

The Securities and Exchange Commission (SEC) has recently adopted Rule 155 which makes it easier for companies wishing to switch from a public to private offering and vice versa with the aim of reducing the capital raising costs of small business. Under the new rule, an issuer in a private offering that has not sold any securities may abandon the offering and begin a public offering (registered offering) provided certain requirements are met. Conversely, an issuer under a registered offering may withdraw the registration statement before any securities are sold and commence a private offering.

Rule 155 overturns the longstanding doctrine against integration of private and public offerings and represents a significant development for securities offerings in the US, particularly in light of recent volatility in US markets. (Eds: Under the concept of integration of offerings, separate offerings may be construed as one integrated offering. This means that an exempt offering may not qualify for an exemption once they are integrated thereby violating the registration requirements under the Securities Act 1933)

(Source: SEC, 31/01/2001. For more, see a copy of the Rule)

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International
Securities settlement systems framework

The Task Force on Securities Settlement Systems created jointly by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions recently released a consultative report on the design, operation and oversight of securities settlement systems. This is the first report of its kind to be undertaken by the public sector. The Report makes 18 recommendations designed to cover settlement systems for all types of securities issued in both industrialised and developing countries and also includes cross border trades. Some of the recommendations are that:

  • securities settlement systems should have a clear and transparent legal basis and subject to regulation and oversight with clear delineation of the responsibilities of the securities regulator and the central bank;
  • operational risk in clearing and settlement processes should be minimised through the development of appropriate systems, controls and procedures; and
  • securities held by custodians for third parties should be protected against the claims of the custodian's creditors.