Annual Report 2001/2002

Developing The Disclosure-based Regime for Singapore's Capital Markets

Over the last few years, mas has shifted from a merit-based approach in regulating the capital markets, where the regulator judged the suitability of securities being made available to the public, to a market-driven, disclosure-based regime of supervision. The objective is to allow market participants greater choice and freedom to take calculated risks so as to promote a more vibrant market.

To improve the standard of disclosure, the Companies (Amendment) Act 2000 introduced a “reasonable investor” test, which requires any issuer making a public offer to include in the prospectus all material information that an investor would reasonably require in order to make an informed decision on the securities being offered. Further, to enhance accountability for prospectus disclosure, the new law holds an underwriter (in addition to the issuer and its directors) liable for misleading or inadequate prospectus information and provides for an issuer to publish a supplementary or replacement prospectus if a registered prospectus was found to contain false or misleading information or to have omitted material details.

Efforts to develop a disclosure-based regulatory regime continued apace in 2002. Under the SFA, all prospectuses lodged with MAS, which takes over from the Registry of Companies and Businesses as the prospectus registration authority in July 2002, are subject to a two-week exposure period. Besides conducting a regulatory review of the lodged prospectuses, MAS will publish them on its website for public comment. To supplement the general disclosure tests, new prospectus disclosure checklists, based on standards adopted by the International Organisation of Securities Commissions, were introduced. The SFA also empowers MAS to issue a stop order to prevent further issuance or sale of shares on the basis of a prospectus that is found to be defective after it has been registered.

Besides raising the standard of dis-closure in the primary market, the SFA has introduced provisions to enhance disclosure in the secondary market. Continuous disclosure of material information by listed companies, hitherto an SGX listing rule, will be given statutory backing under the SFA. Previously, substantial shareholders in a listed company were required under the Companies Act to notify the company of their shareholdings and changes thereto within two days of their trades. In turn, SGX requires the company to disclose such notifications to SGX. The SFA shortens this two-stage reporting process and makes disclosure to SGX a legal obligation by requiring substantial shareholders of listed companies to notify SGX of their trades directly.

A disclosure-based regime demands an effective market enforcement regime. The SFA has introduced provisions to enhance market enforcement. Laws on insider trading have been redefined to capture a wider pool of persons who seek to take advantage of inside information. The civil penalty regime, which allows MAS to bring an action in Court against a defendant, now covers all forms of abusive market behaviour. Civil penalty action will be facilitated by enhanced investigative powers for MAS’ enforcement officers.

MAS will work closely with the Attorney-General’s Chambers and the Commercial Affairs Department to seek effective enforcement of the laws. On its part, MAS continues to build up its enforcement capabilities to undertake investigation and civil penalty action. To support its enforcement activities, MAS has acquired a market surveillance system to enhance its capability in detecting irregular trading activities.

[The Financial Sector] [Regulatory Initiatives] [Legislative Changes] [Financial Advisers Act] [Risk-Based Regulation] [Supervisory Initiatives] [Depositor Protection] [Corporate Governance and Disclosure] [Developing The Disclosure Regime] [Prudential Guidelines for Financial Institutions] [Improved Conduct Practices]

[Regulatory Initiatives] [Developmental Initiatives] [Market Infrastructure]

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