In January 2017, Parliament passed the Securities and Futures (Amendment) Act 2017 which sought to make changes to the Securities and Futures Act (SFA) administered by the Monetary Authority of Singapore (MAS). To date, it has not come into effect. It has however been gazetted. Key changes are as follows.
Minister Ong Ye Kung’s speech outlines the thinking behind the amendments.
Over the Counter (OTC) Derivatives
Operators of organised trading facilities for OTC derivatives products will have to be authorised by MAS, and must comply with requirements aimed at maintaining fair, orderly and transparent markets. Commodity derivatives market operators and intermediaries, which are currently regulated under the Commodity Trading Act administered by IE Singapore, will be regulated under the SFA.
Protecting Retail Investors
The Bill provides MAS greater flexibility and powers to bring non-conventional investment products within MAS’ regulatory perimeters.
MAS intends to prescribe as debentures, buy-back arrangements involving gold, silver and platinum. Of late, there have been reports of scams involving such schemes. In substance, such schemes are similar to collateralised borrowing arrangements. Once classified as a debenture, offers of products with such buy-back arrangements will have to be made with a prospectus under the “offer for securities” regime. This will provide retail investors better access to information on risks, and make more informed investment decisions.
The Bill also widens the definition of collective investment schemes (CIS), which must be authorised or recognised by MAS for public offers made to retail investors. Presently, for a scheme to be regarded as a CIS, both profits and contributions from investors must be pooled. However, some investment schemes circumvent this by sell investors sub-divided interests such as in parcels of undeveloped land, plantation plots. Such schemes have typically been called land-banking, plantation schemes. The amended CIS definition will not require investors’ contributions and profits to be pooled for a scheme to be regarded as a CIS. A scheme can be caught as CIS as long as the scheme property is managed as a whole.
However, the amendment will not capture schemes which are predominantly for the consumption of, rather than investment in, property, or where property is managed for the benefit of investors on an individual basis.
Refining the classification of non-retail investors
The Bill tightens the calculation of net personal assets for purposes of determining whether a person is an accredited investor or not. The net equity of an individual’s primary residence can only contribute up to $1 million of the $2 million threshold.
The Bill also introduces another avenue for individuals to qualify as accredited investors if they have more than $1 million of financial assets, net of any related liabilities. Thus, individuals whose wealth is concentrated in their primary residence, with few other liquid assets to invest, will be treated as retail investors.
MAS also intends to introduce in subsidiary legislation an opt-in regime for the accredited investor class. Even if an investor qualifies as an accredited investor, he cannot automatically be treated as such. Intermediaries will have to inform the investor of the trade-offs involved and get his opt-in to be treated as an accredited investor.
The Bill also amends the institutional investor definition to cover a wider range of entities. This includes financial institutions that are regulated by a foreign regulator, foreign central governments and sovereign wealth funds.
New regulatory framework for financial benchmarks
Under the Bill, MAS will be able to designate key financial benchmarks. Once designated, MAS will regulate those who administer these benchmarks as well as those who submit the information required to compute these benchmarks. MAS intends to designate the Singapore Interbank Offered Rate (SIBOR) and the Swap Offer Rate (SOR).
The Bill also introduces criminal sanctions and civil penalties to deter manipulation of financial benchmarks, and will cover manipulative acts that occur in Singapore, or are committed in relation to financial benchmarks administered in Singapore even if the acts are perpetrated overseas.
Tthe Bill introduces disclosure requirements on the level of short-sell orders and short positions in securities listed on an approved exchange in Singapore. The Bill requires market participants to specifically indicate short-sell orders. Those who hold outstanding short positions above a prescribed threshold will be required to report those positions to MAS. Aggregated short-sell orders and short positions will be made available to the public.
Strengthen enforcement regime against market misconduct
The Bill clarifies that the Section 199 of the SFA, which prohibits disclosures of statements that are false or misleading in a material aspect and are likely to have an effect on the market price of the securities prohibition, applies regardless of the price effect.
The Bill also introduces a statutory definition of “persons who commonly invest”. This term will be used as the reference point in insider trading cases for assessing whether a particular information is generally available and is likely to have a material price impact by influencing the behaviour of common investors.
The Court will be able to take into account the reality that there can be different classes of “persons who commonly invest”, each with a different level of knowledge and expertise. MAS will issue guidelines on the interpretation of the statutory definition.
The Bill will standardise the maximum penalty that can be awarded in all civil penalty cases to the greater of (i) $2 million, or (ii) 3 times the amount of benefits gained or losses avoided. This ensures that the quantum will be commensurate with the gravity of the misconduct, and is not unduly limited by the value of the benefit gained or loss avoided by the offender.
The Bill also confers priority on MAS’ civil penalty claims over private unsecured claims that accrue subsequent to the contravention of the SFA. Such priority will strengthen MAS’ ability to resist attempts by third party creditors to divert funds frozen by MAS under the civil penalty regime, towards satisfaction of the contravening person’s private debts.
MAS Public Consultations and Draft Regulations
MAS has conducted public consultations on the implementation of the amendment Act and released draft regulations on some of the matters addressed in the Act.