MARKETS/RECOGNISED TRADING SYSTEM PROVIDERS (PART II)
Q: What regulatory requirements will MAS seek to impose on operators of Alternative Trading Systems?
A: Alternative Trading Systems (ATS) can operate very differently in terms of access, target investor group, and product and service range. No single set of rules is appropriate for the entire spectrum of ATS business models. The particular characteristics of a facility should determine how it is to be regulated, and our regulatory framework will be sufficiently flexible to take that into account.
The areas with which we would have regulatory concerns include, but are not limited to, whether the ATS operator:
(a) is able to maintain a fair and orderly market;
(b) has mechanisms to detect violations of securities laws and market rules, and procedures to enforce them; and
(c) employs technological systems which are reliable and secure.
Q: If MAS intends to admit Electronic Communications Network (ECNs) as Recognised Trading System Providers, will that fragment the liquidity of our capital market?
A: A ReTS provider is required to be authorised before it may establish a market in Singapore. As the securities regulator, MAS needs to satisfy itself that such a market is in the interest of the public. Among other things, we would consider whether such a market would lead to more efficient price discovery of or deepen liquidity in a financial instrument. We may also impose restrictions on a market to prevent fragmentation of liquidity and inefficiencies in price discovery.
SUPERVISION OF SGX
Q: Will the SF Bill change, in any way, MAS' supervision of SGX, especially in light of its status as a demutualized, for-profit exchange?
A: Most of the provisions that deal with SGX's position as a demutualized exchange and its position as a company listed on its own exchange are already in the Exchanges (Demutualization and Merger) Act. The relevant provisions have been migrated to the SFA. MAS believes that there is no incongruence between the regulatory function of SGX and its profit motives. It is in the longer-term commercial interest of SGX for it to enforce a sound regulatory framework.
The SF Bill makes it more explicit that SGX, as a securities exchange, need to satisfy certain regulatory conditions on a continuous basis. The present legislation (the Securities Industry Act and the Futures Trading Act) only refers to certain requirements that an exchange has to satisfy upon approval. Section 11 of the SF Bill makes it clear that a securities or futures exchange have to continue to satisfy these conditions even after approval is granted.
The SF Bill also enhances the market enforcement of our securities and futures market. We have extended the civil enforcement regime (administered by MAS) to all forms of market misconduct. We have revised our approach towards insider trading to deal with the core evil of the offence, and introduced greater discipline for persons in fiduciary positions. The Bill gives legal teeth to the continuous disclosure obligations of listed corporations. These will enhance MAS' position as the statutory regulator.
Q: SGX, being a for-profit entity and a company listed on its own exchange, could face a conflict of interest. What is the demarcation of reulatory roles between MAS and SGX?
A: SGX became the first demutualised, integrated securities and derivatives exchange in Asia-Pacific when it was inaugurated on 1 December 1999. Subsequently, on 23 November 2000, SGX was listed on the SGX Main Board. With the demutualisation and self-listing of the SGX, a new set of potential conflicts arise, i.e. whether the greater drive for commercial success will reduce SGX's commitment and resources deployed to fulfill its regulatory responsibilities.
MAS takes the view that the interests of the SGX are more aligned than divergent with public interest as represented by the users of the exchange. A fair, transparent and efficiently-regulated market is indispensible to the sustained business success of the SGX. Nonetheless, to mitigate any potential conflicts arising from the self-listing of SGX, MAS assumed the role of the listing authority for the SGX's own listing, conducts surveillance of trading in SGX's shares and has the power to issue directives to SGX to resolve any conflicts of interest arising from its self-listing.
A demutualised and listed exchange requires an enhanced role for the statutory regulator. MAS has defined more clearly its regulatory relationship with SGX. As the statutory regulator, MAS will administer the corpus of statutory laws regulating the capital markets. It will also have oversight over SGX's regulatory functions to assure that SGX is performing its regulatory functions competently and responsibly, and that there are no gaps in the overall regulatory framework. This is done by inspection of SGX, regulatory oversight of SGX's listing and business rules and the conduct of market surveillance. SGX will retain the frontline responsibility of regulating the securities and futures markets and its market participants and ensuring compliance with its rules. SGX has also appointed a Conflicts Committee to deal with issues of potential conflicts of interest, with MAS as the approving authority for the composition of the Committee.
These issues have largely been addressed in the Exchanges (Demutualization and Merger) Act 1999 when SGX was demutualized. The relevant parts of this Act have been migrated to the SF Bill.
CAPITAL MARKETS SERVICES LICENCE AND REPRESENTATIVES LICENCE (PART IV)
Q: How does the licensing framework under the Bill differ from that under the current legislation?
A: The current framework categorises capital markets intermediaries into securities dealers and investment advisers under the Securities Industry Act, and futures brokers, futures trading advisers and futures pool operators under the Futures Trading Act. Hence, a market participant wishing to offer a full range of capital markets products would have to hold 5 licences, possibly with different expiry dates. To rectify this cumbersome procedure, the Bill will introduce a single modular licensing framework under which market intermediaries need only to hold a single licence to conduct one or more regulated activities. They could subsequently apply to take on additional activities, or change their business activities without having to hold a separate licence. This would largely be an administrative process, provided the intermediaries meet the requisite financial requirements and admission criteria.
Q: What are the activities that would be subject to licensing under the Bill?
A: A person who carries on a business in any regulated activity would need to hold a licence, known as capital markets services licence, for that regulated activity. Such regulated activity includes the following:
- dealing in securities;
- trading in futures contracts;
- leveraged foreign exchange trading;
- advising on corporate finance;
- fund management;
- securities financing;
- providing custodial services for securities.
A capital markets services licence would only be issued to a company. Individuals who are employed by the company to engage in the regulated activity would be required to hold a representative's licence.
DISCLOSURE-BASED REGIME
Q: Do we have conditions necessary for a disclosure-based regime?
A: MAS began moving towards a disclosure-based regime in 1998. We cannot afford to retain the prescriptive regime, where the regulator decides what is good for investors, and at the same time hope to have a vibrant, innovative capital markets services industry. We are making good progress in the transition to a disclosure-based regime, and the SF Bill completes the final piece of the legislative framework in particular, the continuing disclosure obligations of listed companies, the improved prospectus regime, and the enhanced market enforcement regime.
To complement the legislative framework, the Corporate Governance Committee, in April this year, recommended a Code of Corporate Governance which sets out the recommended practices for listed corporations, and which requires the disclosure of corporate governance practices. The Disclosure and Accounting Standards Committee has also made several recommendations to improve corporate disclosures.
We have also seen a growing trend of shareholder activism, another component that is required for a disclosure-based regime. The growing participation of institutional investors should also contribute to this process.
Finally, MAS is taking a closer look at investor education (see below)
INVESTOR EDUCATION
Q: What is MAS' stand on investor education? Can it give an assurance that it is doing enough for investor education.
A: Investor education is a collective effort by all players in the securities industry. Local players have been doing their bit in recent years. For example, the Singapore Exchange organises public talks and exhibitions on share investments and trading regularly. The Investment Management Association of Singapore has contributed articles to the press on investment in various financial products. The Securities Investors Association of Singapore has taken its investor education programme to neighbourhood community centres.
MAS supports and encourages initiatives by IMAS, SIAS and SGX in investor education. MAS will be open to helping out with co-funding from the Financial Sector Development Fund for specific projects. In addition, MAS intends to play a coordinating role, identifying gaps and filling them as necessary. On its part, MAS will put general investor education materials on its website.
MAS recognises that investor education becomes more important with a shift towards a disclosure-based regime. This is because companies no longer require MAS' approval for the launch of new investment products or schemes, provided that basic requirements are met and all relevant information are disclosed to investors. The public will be reminded time and again that the primary responsibility for making investment decisions lies with themselves, and over time, they will learn to be able to look out for their own interests.
FUND-RAISING PROVISIONS/PROSPECTUSES (PART XIII)
Q: Will the new corporate finance provisions make fundraising prohibitively expensive for SMEs?
A: The new capital raising provisions in the Bill applies only to offers of securities to the public. In contrast, small and medium sized enterprises are more likely to raise private equity from venture capital firms, business angels as well as family and friends. A private sector-led Committee on Company Legislation and Regulatory Framework is currently studying ways to make such fundraising easier and less costly for SMEs.
It should be noted that IPO fees in Singapore are significantly lower than in most other developed markets. In the US, for instance, the underwriting fees alone would amount to around 7% of the funds raised.
To keep fundraising costs down, the Bill provides for certain exemptions from the prospectus requirements. For example, where securities are being offered to institutional or sophisticated investors, the company would not be required to prepare a prospectus.
Q: What are the tangible benefits of the new corporate finance provisions for companies and their shareholders?
A: The move towards a disclosure-based regulatory regime will help raise the standard of corporate disclosure. Apart from helping our investors make informed investment decisions, this would instill market confidence and attract more foreign investors to Singapore. This would translate to better valuations for our companies and greater market liquidity for investors in those companies. Further, the new approach would also allow more innovative products to be introduced in our market, subject to proper disclosure. All these would help create a more vibrant capital market in Singapore.
Q: How do we address the risk of investors applying for shares on the basis of the prospectus that is being exposed for public scrutiny and comment?
A: Every prospectus that is lodged with MAS will be put on the MAS website for public scrutiny and comment. There will be prominent disclosure on the web page that the lodged prospectus has not been registered by MAS, and that investors should not apply for shares on the basis of the lodged prospectus. Once MAS registers the prospectus, the web page will be updated with a copy of the registered prospectus and the warning statement will be removed.
As a further safeguard, no application forms can be attached to lodged prospectuses put on the website for public exposure, nor can there be provision of facilities that will enable the public to apply for shares before the prospectus is registered. The Bill makes it an offence for an issuer to accept applications for shares before its prospectus is registered by MAS.
Q: What does MAS' review of prospectuses entail?
A: MAS will review lodged prospectuses for compliance with the statutory disclosure requirements. Where a lodged prospectus is found to be deficient, MAS will indicate to the issuer in general terms where and how the prospectus does not comply with the law. This differs from the current practice where SGX vets prospectuses with a view to determining if they contain inaccuracies in information or factual errors. Issuers and their advisers have to bear sole responsibility for ensuring accurate and adequate disclosure in prospectuses.
MAS' review will focus on offers that may pose high risks to investors. These may include offers by companies with no profit record, those involving novel issues or where the promoter's probity is doubtful.
Q: What is SGX's role in the new prospectus registration regime?
A: SGX will continue to approve applications by companies to list their shares on the exchange. To avoid duplication between its listing rules and the law, SGX has proposed to require all listing applicants to comply with the statutory prospectus requirements; the listing rules will no longer prescribe prospectus disclosure requirements. Also, SGX will no longer vet draft prospectuses under the new regime.
In terms of listing procedure, a company will submit its listing application to SGX. Based on the submission, SGX will indicate to the company whether in principle it is eligible for listing on SGX.
Concurrently, the company can lodge its prospectus with MAS for registration and commence book-building to gauge market interest in the issue. Once MAS registers the prospectus, the company can launch its public offer. Upon the close of the offer, shares in the company will be allotted to successful applicants, following which trading on SGX will commence.
The previous arrangement where draft prospectuses are pre-vetted may have led some investors to believe mistakenly that prospectuses that pass muster with the authorities would already contain all the information that would be required to be disclosed. The new prospectus registration regime clarifies that the authorities are not in a position to give such assurance. Rather, the responsibility for ensuring adequate and accurate disclosure lies with the professionals (eg. underwriters and auditors) who have an interest and a duty to conduct proper due diligence on the company which is offering its securities.
Q: With the proposed regime whereby the public can comment on prospectuses lodged, will this lead to MAS being inundated with comments, some of which may be baseless or even malicious?
A: MAS will review carefully comments received on their merit. To minimise the possibility of anonymous comments, we will require the fields for names and contact details to be entered before comments can be submitted online. It is also an offence for any person to give false or misleading information to MAS. This will deter vexatious comments.
Public exposure of prospectuses has been practised in Australia for some time now without any major problems. MAS is of the view that the benefits of giving the public an opportunity to examine and comment on a prospectus lodged and drawing on market expertise in deciding whether to register the prospectus outweigh the disadvantages of irresponsible comments received.
Q: As MAS will only be reviewing prospectuses for compliance with legal requirements on prospectus disclosure and the public may not point out deficiencies in a prospectus during the exposure period, there may be instances where a prospectus that has already been registered is deficient. How can MAS minimise such deficient prospectuses and how will MAS deal with them?
A: As we move away from the system of deciding on both the investment and disclosure merits of proposed securities offers, MAS will not be vetting prospectuses to determine if they contain any inaccurate information or factual errors. Issuers and their advisers must bear the responsibility for ensuring adequate and accurate disclosures, and will be subject to civil and criminal liabilities for false or misleading statements in or omissions from a prospectus.
The law provides for an issuer who discovers a material misleading statement in or an omission of information from a registered prospectus to lodge a supplementary or replacement document to correct the deficiency. He may do so at any time before the close of an offer without attracting any liability. Investors who have applied for shares on the basis of the deficient prospectus may have their application monies refunded at the option of the issuer or the applicants.
Further, MAS will have the power to serve a stop order to prevent offers under a deficient prospectus where no supplementary or replacement document to rectify the deficiency is issued. Investors will be protected in that the SFA will require issuers to return monies received for the subscription or purchase of securities under the deficient prospectus.
Q: Will the stop order cause uncertainty for issuers and underwriters as well as the investing public, given that a public offer can be halted at any time after registration of the prospectus?
A: This was raised during the public consultation exercise. In response to feedback received, the SFA has provided that a stop order will not be served after the securities, to which the prospectus relates, have been listed on a securities exchange and trading in them has commenced. A stop order will also not be served unless a registered prospectus is deficient in a material way.
More importantly, MAS will give the person who lodged the prospectus an opportunity to be heard before serving a stop order. When an interim stop order is served, the issuer is not required to return the monies received from investors until after a hearing and MAS has decided to convert the interim stop order to a final stop order.
Q: How will the SFA apply to offers made through ATMs and other platforms, such as mobile phones?
A: Under the SFA, the provision of any facility to the public that enables a person to subscribe for or purchase shares will be deemed as making an offer to the public. Offers through ATMs or mobile phones fall within the regulatory ambit, and are subject to the same legal requirements as offers made through the conventional channels. It is recognised that it would be impractical for offers made through ATMs and mobile phones to make available prospectuses to prospective investors right there and then. We will allow such offers by requiring in the Regulations that prospective investors be alerted to the availability of the prospectus and they be advised to read the prospectus before proceeding to apply for shares or bonds through the ATMs or mobile phones.
Q: Will the introduction of a minimum 14-day waiting period, and a 28-day limit before prospectus registration cause uncertainty to issuers and underwriters and delay in securities offers?
A: In practice, we do not expect any delay in most of the cases. This is because issuers are allowed to conduct roadshows and start bookbuilding after lodging preliminary prospectuses with MAS. When they are ready to launch formal offers, MAS will have completed the necessary compliance review to decide on registration of the prospectuses lodged.
Q: Why are issuers allowed to distribute preliminary prospectuses to and conduct roadshows only for sophisticated and institutional investors, and not for the general public?
A: Institutional and sophisticated investors are in a better position than the general public to deal with prospectuses with incomplete information, and to give indications of interest in a proposed offer during the roadshows based on such incomplete information.
Q: What is the "reasonable man test" for prospectus disclosure?
A: The Companies Act amendments last year introduced a "reasonable man test" for prospectus disclosure. Essentially, this means that an issuer must disclose in its prospectus all the information that a reasonable investor would reasonably need to make an informed investment decision.
This general disclosure test will be retained in the SFA, and supplemented by an updated prospectus checklist in the regulations. The detailed checklist will guide companies and practitioners as to what information must be disclosed, but does not substitute for the general disclosure test. To comply with the law, a prospectus must satisfy both the "reasonable man test" and the prospectus checklist. The UK and Hong Kong have similar practices.
COLLECTIVE INVESTMENT SCHEMES (PART XIII DIV 2)
Q: What is the rationale for allowing the direct sale of foreign funds to the Singapore public and how will investors be protected?
A: Currently, foreign funds do not meet the requirements of the Companies Act; thus they cannot be offered directly to the public in Singapore. A foreign fund may only be offered through a feeder fund, which is a Singapore-based fund with a Singapore manager and trustee, to invest in the foreign fund. A feeder fund structure results in additional costs, estimated at 1% of the value of the fund annually. Allowing the direct offer of foreign funds will lead to foreign fund managers offering more funds in Singapore, thereby giving more investment choice to Singapore investors.
To ensure that foreign funds sold directly in Singapore meet high standards, MAS will only approve foreign funds from jurisdictions which regulate funds as rigorously as in Singapore. To subject the offeror of a foreign scheme to the jurisdiction of Singapore courts and to facilitate legal recourse for local investors, the offeror would have to be registered as a foreign company in Singapore.
Q: What is the scope of "collective investment schemes" that will be regulated under the SFA. Will time-sharing schemes and ostrich investment schemes be regulated?
A: In essence, the SFA defines a collective investment scheme as an arrangement where money from investors is pooled together with a view to deriving profits or income from the scheme. The scheme may invest in all kinds of assets, be they financial, real estate, precious metals, commodity, plantations, or even ostriches or vineyards.
Whether or not exotic schemes such as ostrich investment schemes fall within the scope of that definition depends on the structure of each scheme. Where money invested in the scheme and profits or income from it are pooled, the scheme would be subject to our approval process as well as prospectus requirements. Where the scheme is structured as a company, it would be subject to the same prospectus requirements as those for shares and debentures. If ostrich eggs are sold directly and separately to individuals, such sales would not be subject to any regulation. Investors buying into such schemes would have to beware of the absence of regulatory safeguards.
Schemes whose object is not to generate profit or income but to consume eg time-sharing schemes and memberships in golf or country clubs, would not fall within the regulatory scope of the Act.
Q: Will closed-end funds, such as venture capital funds and private equity funds, be regulated under the SFA?
A: Shares of closed-end funds or investment companies which are to be offered to the public will be subject to the same prospectus requirements in the SFA as those of shares and debentures of non-investment companies. Private offers of shares in closed-end venture capital companies will not be regulated, as is the case for all offers pertaining to private companies.
Q: What is the difference in treatment of collective investment schemes offered to institutional and sophisticated investors?
A: Funds which are offered to financial institutions are exempted from approval procedures and the requirement to register a prospectus, as such institutions are able to evaluate offers of collective investment schemes on their own and are in a position to demand information from the offeror.
Funds which are offered to sophisticated investors will be subject to less stringent approval criteria than those for retail schemes. For instance, the former are not subject to prudential investment guidelines and need only be offered with an simple information memorandum, in lieu of a full prospectus.
Q: There have been complaints from public that unit trust managers are charging unreasonably high fees, despite recent poor performance. What is MAS doing about it?
A: We do not regulate the amount of fees charged by fund managers to unit trusts. The fees should be determined by free market forces. We require details of fees to be fully disclosed in the prospectus of each fund, so that an investor can decide whether to invest in that fund taking into account relevant factors including the fee it charges.
Q: There have been complaints from public that unit trust managers are taking an unreasonably long period to pay investors who have redeemed their units, sometimes even as long as 3-4 weeks. What is MAS doing about it?
A: We have studied the issue and will soon require unit trust managers to pay out proceeds from the redemption of units within 7 business days, in line with international practice.
CONTINUING DISCLOSURE REQUIREMENTS BY LISTED COMPANIES (SECTION 203)
Q: In introducing the continuous disclosure regime, why is information required to be disclosed and exceptions to this requirement not prescribed but left to the exchange's rulebook? How would MAS ensure that the securities exchange will not over- or under-prescribe?
A: The list of exceptions to the continuous disclosure requirement is difficult to formulate in legislation. Therefore, MAS has decided to leave them to the rules of the securities exchange, as is the case in Australia.
MAS has control over information required to be disclosed and exceptions in the exchange's rulebook because all new rules and amendments to the rules of the securities exchange require MAS' approval.
Q: Is fair disclosure a feature of the new statutory requirement for continuous disclosure of material information by listed corporations?
A: The SF Bill requires listed companies to disclose information required by the rules of the Exchange on a continuous basis. The Exchange has a system in place to ensure prompt and wide dissemination of such information to the public.
Listed companies issue public announcements via MASNET, a financial network connecting listed companies, SGX, banks and financial institutions as well as news agencies. Such announcements will be uploaded simultaneously onto SGX's website, which is fully accessible to the public at no charge. These arrangements ensure that the public and all market participants have equal and immediate access to material information disclosed by listed companies.
INSIDER TRADING - PART XII DIVISION 3
Q: What prompted the review of insider trading laws? Is it because of low prosecution rates?
A: The review of insider trading was one which was done as part of MAS' review of our regulatory regime. It arose because MAS identified certain difficulties with the present person-connected approach in Section 103 of the Securities Industry Act. We are moving to a new jurisprudential approach because we feel that it addresses the core evil of insider trading.
Q: The term 'information' is very widely drafted and includes matters of supposition and other matters that are still insufficiently definite to warrant an announcement, matters relating to the intentions, or the likely intentions, of a person, matters relating to negotiations or proposals with respect to commercial dealings. Will all these make it too onerous for a director to trade?
A: The definition of 'information' is already found in judicial interpretations in Australia and the US of the term 'information'. Section 214 codifies this and makes it clear that information should not be defined narrowly. This is similar to the approach in Australia. In the US, the term 'information' has been judicially defined to include any plans, proposals, profit estimates and mere recommendations by credible persons in that corporation. The overriding concern must be to ensure that there is no information asymmetry in the capital markets. To introduce any notion of 'specific or precise' requirement of information could unduly narrow the application of the legislation and create artificial distinctions between what does and what does not constitute information.
Directors are not prohibited from trading. At the point of trading, they should satisfy themselves that they do not have in possession any information which is undisclosed and price-sensitive. In a case where matters are still in a state of flux, they have to ask themselves whether the state of affairs are such that if they are disclosed to the public, the market would react on such information. If the state of affairs are such that the market would treat it as price-sensitive information, the directors should not trade, as they would have an information advantage. In any event, directors may trade once full disclosure of material information is made.
Q: With the removal of the requirement of 'intent to use' price-sensitive information in Section 220, will insider trading be made into a strict liability offence?
A: No, insider trading will not be a strict liability offence. For connected persons (e.g. directors) it has to be proven, under Section 218 that they knew or ought reasonably to know that the information is not generally available, and that it was material information. The connected persons are presumed to know that the information is material and undisclosed, but this is a rebuttable presumption.
For non-connected persons, Section 219 requires that there be proof of actual knowledge that the information is not generally available and that it is material information. Unlike the case for connected persons, the requirement of knowledge is actual, and not constructive knowledge (ought reasonably to know). There is also no presumption of knowledge.
Q: Will the insider trading provisions apply to the grant of share options by companies to employees/directors and the exercise of such share options?
A: Section 231 provides for a defence of 'parity of information'. In essence, where a person trades whilst in possession of undisclosed price-sensitive information, it is a defence if he makes known to the counterparty, that information. Where a company grants a share option, or where an employee or director exercises that option, the transaction is one between the company and the director/employee. In such a case, the parity of information defence would apply as both parties would be privy to the information. There is no issue of information asymmetry.
Q: Will the new insider trading provisions have any impact on SGX-ST's Best Practices Guide on Dealing in Securities, which, inter alia provides that a listed issuer and its officers should not deal in the listed issuer's securities during the period commencing one month before the announcement of the company's annual or half-year results?
A: The new insider trading provisions redefines the offence of insider trading. It does not affect the Code, which is essentially the Exchange's guide to instil greater discipline on directors in connection with the announcement of a corporation's results. It is important to note that the Guide does not afford a defence to insider trading, which is prescribed by law.
Q: What will happen to the list of statutory exceptions for insider trading in SI Regulations?
A: These will be provided for in the SF Regulations, with suitable modifications to take into account the new approach to insider trading.
Q: Will innocent persons be unwittingly caught by the insider trading provisions?
A: There is no fear that innocent persons would unwittingly be caught. For connected persons (e.g. directors) it has to be proven, under Section 218 that they knew or ought reasonably to know that the information is not generally available, and that it was material information. The connected persons are presumed to know that the information is material and undisclosed, but this is a rebuttable presumption.
For non-connected persons, Section 219 requires that there be proof of actual knowledge that the information is not generally available and that it is material information. Unlike the case for connected persons, the requirement of knowledge is actual, and not constructive knowledge (ought reasonably to know).
The requirement of proof of knowledge will ensure that innocent persons are not caught.
CIVIL PROSECUTION - PART XII DIVISION 4
Q: How will MAS and the criminal authorities decide whether or not a particular set of facts will give rise to civil enforcement processes under the SF Bill or to the criminal enforcement processes under the Criminal Procedure Code?
A: MAS and CAD are working out internal guidelines on this issue. Broadly speaking, that will very much depend on the nature and severity of the offence (whether it warrants criminal sanctions), whether it is in the public interest to have a criminal prosecution, and the nature of the evidence (whether it is likely to satisfy the higher burden of proof in criminal proceedings).
SETTLEMENT OF CASES BY MAS AND EFFECT ON CIVIL CLAIMS
Q: What if the Authority decides to settle the contravention with the contravening person? Section 232(5) provides that nothing in section 232 shall prevent the Authority from entering into an agreement with any person to pay, with or without admission of liability, a civil penalty. And, section 236(1) implies that if a consent order is made by the Authority against the contravening person, with or without admission of contravention, the court will not be involved and therefore claimants will not be invited to file their claims. Under the settlement agreement with the Authority, the civil penalty, if any, imposed by section 232 will be payable to the Authority. How about the individual claimants? Do they have to commence proceedings separately against the offender? This may be not be easy as they will be disadvantaged by the difficulty of gathering evidence and by a lack of resources.
A: When the Securities Industry (Amendment) Act 2000 introduced civil penalty and civil remedies for insider trading, the intent was that the civil remedies would be filed as an independent course of action by investors who had traded contemporaneously with the defendant. The same approach is replicated in Section 234 of the Bill.
Where a civil fine action is initiated by MAS, or where a criminal prosecution is commenced against the defendant, the civil proceedings is stayed. Where the defendant is eventually convicted in a criminal proceeding, or found liable to pay a civil penalty in a civil action initiated by MAS, section 236 allows such contemporaneous investors to ride on the coattail of such criminal proceedings or civil fine action. This is because it would be waste of resources for a Court to rehear the entire action for the civil action based on the same set of facts.
Section 234 and Section 236 of the Bill must therefore be seen in that context. The civil remedies have always been intended to constitute an independent action.
Out of court settlements are not unusual. This is the practice of securities regulators in other financial centres. Any discretion to enter into a settlement will be exercised judiciously, having regard to all the facts and circumstances of the case, and the seriousness of the transgression. MAS must also obtain the consent of the Attorney-General. In exercising its discretion, MAS will take into account the impact of that settlement on civil claims, but that factor in itself cannot determine whether or not an out of court settlement is entered.
Civil compensation is not barred by an out of court settlement with the Authority under Section 232(5) of the Bill. Even where there is an out of court settlement, the claimants of civil compensation are not worse off than plaintiffs in other types of civil claims. Nor are they worse off than claimants in situations in which neither criminal nor civil penalty proceedings are commenced. Under the Rules of Court which will be promulgated under the SF Bill, claimants will have available to them discovery and interrogatories.
Q: Should MAS set out the types of cases which it should not settle bilaterally but should, if there is sufficient evidence, bring the proceedings into open court. The guidelines on whether the case can be settled by agreement need not be based on the type of offence, but could be based on criteria, such as, the number of claimants or the amount involved.
A: We do not think that it is desirable, nor is it practicable to set guidelines as to the types of cases that the Authority should not settle. There are many variables that determine whether or not a case should be settled. The potential number of claimants/amounts involved cannot be used to determine whether or not a case should be settled. The civil claim regime is meant to operate independently.
Q: Where MAS enters into an agreement for civil penalty to be paid, would it disclose to any bona fide claimant the grounds for its decision, the results of its investigation and the evidence collated so as to assist the potential claimant in deciding whether to pursue the case separately against the contravening person?
A: Where there is a settlement, MAS may, where it is appropriate, disclose the fact of the settlement and a brief description of the transgression. However, it would not be in the public interest for MAS to disclose its investigative methods, the results of its investigations and the source of its information. As a parallel, criminal authorities do not disclose the evidence that they uncover in the course of investigations to facilitate civil claims.
EXTRA-TERRITORIAL JURISDICTION CLAUSE - PART XV, SECTION 339
Q: Section 339 introduces, for the first time in Singapore, a clause that confers extra-territorial jurisdiction on acts outside Singapore which has 'substantial and reasonably foreseeable effect' in Singapore. Why do we need such a clause?
A: National boundaries are increasingly becoming less relevant for capital markets transactions. There is a need for MAS to extend a regulatory reach on acts outside Singapore which have substantial effects on the capital markets in Singapore. For instance, an Internet-based portal that targets Singaporeans would pose a regulatory concern to MAS.
This approach is consistent with the practices of major financial centres (eg Australia, UK and US).
MAS will issue policy statements/regulations to prescribe how this clause may be applied in certain situations.
Q: How do we enforce the extra-territorial jurisdiction clause in practical terms - given that players are overseas?
A: The extra-territorial jurisdiction clauses in Section 339 of the Bill would make it clear that acts outside Singapore which target Singapore investors would be subject to our regulatory reach. It is important to note that without such a clause, we may not have a legal reach against operators of such businesses.
Having created that legal reach, Part X of the SF Bill relates to provisions relating to assistance to foreign regulatory authorities. Apart from this, MAS has also entered into several Memoranda of Understanding with regulators from major financial centres. These MOUs and mutual assistance provisions facilitate the procuring of assistance from overseas regulators and would facilitate enforcement processes.
APPEAL PROCESSES - PART XIV
Q: Why are appeals heard by the Minister, which is still part of the Executive? Should appeals not be heard by the Courts?
A: The SF Bill rationalizes the appeal framework under the Securities Industry Act and the Futures Trading Act. There, most of the appeals are heard by the Minister, except for the issue of revocation of a dealer's licence under the Securities Industry Act, where the appeal is heard by the High Court.
The SF Bill rationalizes the appeal processes by having all appeals heard by the Minister. We have improved the appeal processes by having an independent advisory panel to advise the Minister. We envisage that the Panel would be constituted by industry participants and legal practitioners.
In any event, any aggrieved person may still apply for judicial review to the High Court.
TRANSITIONAL PROVISIONS
Q: Will the SF Bill provide for transitional provisions?
A: The transitional provisions will be provided for in Regulations, which will be promulgated before the SF Bill comes into force.
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