The Securities and Futures (Amendment) Bill 2003
Second Reading Speech by Mr Lim Hng Kiang, Minister, Prime Minister's Office & Second Minister for Finance and Deputy Chairman, Monetary Authority of Singapore
Mr Speaker Sir, I beg to move, "That the Bill be now read a second time".
2 The Securities and Futures Act (SFA) was passed in October 2001. In October 2002, the Company Legislation and Regulatory Framework Committee (CLRF Committee) completed its comprehensive review of the company law and regulatory framework in Singapore and suggested measures to modernise our regulatory framework and make Singapore more globally competitive.
3 The SFA will be amended in two phases. The current Bill implements 12 of the CLRF Committee's recommendations aimed at reducing the cost of raising capital in Singapore, by rationalizing and simplifying the requirements in the SFA for offers of investments. We are also taking this opportunity in amending the SFA to incorporate some technical amendments to the SFA in light of industry developments and feedback on implementation over the last two years.
4 The second phase of amendments, targeted for the second half of 2004, will implement the remaining recommendations of the CLRF Committee, and introduce changes to the regulatory framework for the securities and futures industry requiring more substantive policy review.
5 The Monetary Authority of Singapore (MAS) invited feedback from the industry and the public on the draft Bill in April 2003. MAS has posted its detailed responses to the comments received during this consultation on its website.
6 Mr Speaker Sir, I will now go through the main amendments in the Bill, beginning with those implementing the CLRF Committee's recommendations.
Facilitating Capital Raising
7 Our regulatory framework for capital raising has to balance the needs of issuer companies with those of investors. This is achieved by imposing requirements on the conduct of public offers, such as requiring offers to be accompanied by a prospectus. The Bill rationalises the provisions for public offers of investments. The thrust of the amendments is to make it easier and less expensive for companies to raise funds without compromising investor protection.
Exemption from Prospectus Requirements
8 The SFA already exempts several classes of offers from prospectus requirements. These exemptions cater to offers where it would not be prejudicial to the public interest to dispense with a prospectus, such as when the offer is not available to the general public or where the information in a prospectus is available from other sources. Clause 76 exempts three further types of offers of investments from the prospectus requirements.
9 First, there will be a new exemption for offers made in connection with a takeover of a foreign-incorporated company, if the offer complies with the relevant requirements of the country where the company was incorporated. This extends the current exemption for offers that comply with the Singapore Code on Takeovers and Mergers to foreign companies subject to other comparable regulations, and allows Singapore shareholders of such companies to participate in these takeover offers.
10 Second, issues of units of securities (including covered warrants) to be listed on a securities exchange will be exempted, if the underlying securities are already listed. Information on listed companies should already be readily available to investors, given their obligations to disclose material information on a continuous basis. Further, as the listing rules of the Exchange require that the terms and conditions of such listed units be disclosed, there is no need to require a fresh prospectus for the offer of such units.
11 Third, the exemption for offers by a corporation pursuant to an employee investment scheme, which is currently restricted to current employees, will be extended. The amendment will allow all bona fide employees, former employees and their close relatives to participate in such schemes. There are no strong reasons to restrict the scope of such employee investment schemes to current employees. The changes will give companies greater flexibility in responding to market conditions and in structuring their incentive and compensation packages.
Resale of Securities Exempt from Prospectus Requirements
12 Under the SFA, offers made only to sophisticated or institutional investors are exempted from the prospectus requirements. To prevent the circumvention of our prospectus requirements, any resale of securities purchased pursuant to such exemptions to persons who are not sophisticated or institutional investors will be regarded as a public offer requiring a prospectus.
13 This restriction does not apply for the resale of listed shares and debentures if the transactions take place 6 months or more after the initial acquisition of the securities. However, the resale of unlisted shares and debentures requires a prospectus whether or not 6 months have elapsed. This is restrictive and does not accord with the practice in other major international financial centres.
14 Clause 78 aligns the practice for listed and unlisted shares and debentures. Resale of shares and debentures (whether listed or unlisted) acquired under the institutional or sophisticated investor exemptions will not be deemed a public offer if 6 months have elapsed since the initial purchase. Unlisted shares and debentures may be resold to persons other than institutional or sophisticated investors after the 6-month period without a prospectus, as long as the sale does not amount to a public offer.
15 For collective investment schemes, the CLRF Committee recommended allowing the secondary trading of schemes purchased under the institutional and sophisticated investor exemptions. Clauses 91, 92 and 93 remove the requirement that units in such schemes be non-transferable and allow subsequent sales among institutional and sophisticated investors.
Replacing Certain Offer Documents with an Information Statement
16 When a listed company makes a renounceable rights issue, Clause 68 replaces the current requirement for the company to issue an abridged prospectus with that of an offer information statement. The offer information statement will be a shorter and more relevant document in these circumstances. As mentioned earlier, information on such listed issuers would be publicly available, as they already comply with continuous disclosure obligations. Likewise, clause 79 provides that a listed company may offer additional issues of shares using an offer information statement.
Repeal of Reporting Requirements
17 Several provisions in the SFA have been repealed to further streamline the fund-raising process. Clause 77 removes the need to lodge, with MAS, an information memorandum used for offers to sophisticated investors. Clause 80 dispenses with the need to lodge a notice to invoke exemptions from the prospectus requirements, and repeals the requirement for Singapore-incorporated issuers to maintain a register of securities issued under an exemption from the prospectus requirements.
18 There is no countervailing public interest to be served in requiring MAS to be a depository of exempted offering documents, such as information memoranda and notices invoking exemptions. Such requirements only add to administrative and regulatory costs. The CLRF Committee also found no reason why Singapore-incorporated issuers should maintain a register of exempted issues, when foreign incorporated issuers are not subject to this requirement.
Repeal of Requirements on Trustees for Debentures
19 The SFA currently requires issuer companies to appoint trustees and to include certain prescribed covenants in the trust deed for public offerings of debentures. These requirements are not stipulated for share offers even though the risks associated with debentures are generally lower than those for shares. Clause 72 repeals these provisions and removes the current differential treatment between share and debenture offers. The differential treatment also does not accord with prevailing practices in the international bond market and can increase the costs for debenture issuers.
20 Sir, let me now highlight some of the other amendments that address industry feedback and market developments.
Regulation of Clearing Facilities for OTC Derivatives
21 Clause 2 amends the long title and expands the scope of the SFA to include clearing facilities for Over-The-Counter ("OTC") derivatives. MAS' oversight of clearing facilities under the SFA is currently restricted to facilities that clear securities and futures contracts that are traded on exchanges or other organised trading platforms. This has worked well in the past, when clearing facilities were largely limited to clearing for exchange-traded instruments. Trades in the OTC market were negotiated and settled bilaterally, usually between financial institutions.
22 However, with the increasing use of standardised OTC contracts, clearing facilities for these contracts have emerged. These facilities pose risks similar to those of facilities that clear exchange-traded instruments. It would be prudent for MAS to have the power to regulate such clearing facilities operating in Singapore or targeting Singaporean investors where they pose risks to MAS' regulatory objectives.
Temporary Licensing Regime
23 As part of MAS' ongoing review of its licensing regime, and in response to feedback from the industry, MAS will be introducing a temporary licensing regime for individuals. Clause 36 allows MAS to issue temporary licences to individuals residing outside Singapore who plan to engage in regulated activities in Singapore, on behalf of a locally licensed entity, on a short-term basis. The application process will be simplified and processing time will be shortened. This will give financial institutions flexibility in deploying specialist expertise on a short-term basis.
Flexibility of Administration
24 Sir, the Bill will seek to give MAS greater flexibility in carrying out its duties. For example, Clause 45 will empower MAS to issue rules on the training and qualifications of representatives through written directions rather than subsidiary legislation. MAS may change these requirements without needing to go through the process of promulgating subsidiary legislation, and any changes can come into effect immediately.
25 Clause 100 will empower MAS to appoint its senior officers to grant or revoke specified regulatory exemptions on a case-by-case basis. Such exemptions need not be published in the Government Gazette - MAS need only notify the exempted entity in writing. This will shorten MAS' response time to applications for such exemptions. For example, time-sensitive requests for exemptions from prospectus rules are not uncommon. The result is that MAS will be able to be more responsive to the needs of a rapidly-changing marketplace.
Reduction in Regulatory and Compliance Costs
26 The Bill also seeks to reduce regulatory and compliance costs, where these do not afford commensurate protection to investors. Clause 49 will remove the requirement for licence holders to sign circulars and other written communication sent by them, and to shorten the retention period for such materials from 7 to 6 years. This is in line with the record keeping requirements in other parts of the SFA, and consistent with the statutory period of limitations for contractual actions under the Limitation Act (Cap. 163).
27 Other changes aimed at cutting regulatory and compliance costs will be made to the subsidiary legislation promulgated by MAS, as part of MAS' ongoing review to ensure that its rules remain relevant and business-friendly.
Opportunity to be Heard
28 Sir, MAS has been vested under the SFA with administrative powers, including powers to revoke or suspend licences of corporations and their representatives, approve markets and clearing facilities, and issue stop orders on offers of investment. Such powers will be exercised judiciously by MAS to pursue its statutory objectives. In line with rules of natural justice, the SFA provides for opportunities to be heard to parties who are aggrieved by MAS' administrative decisions. The Bill extends the opportunity to be heard to a wider range of MAS' decisions that could potentially affect an applicant's interests adversely.
29 The SFA currently provides a list of exceptions to the opportunity to be heard. The intent behind these exceptions was to dispense with the opportunity to be heard where the original decision was based on objective facts and it would be improbable for MAS to reverse its decision as a result of new information introduced at a hearing. An example would be when the aggrieved party (or a related entity) was insolvent or near insolvency. The Bill further narrows the list of exceptions to the opportunity to be heard to cases when the aggrieved party (and not any of its related entities) is already insolvent, or has been convicted of an offence involving fraud or dishonesty. These exceptions constitute a small and unambiguous subset of the circumstances under which MAS would want to exercise its administrative powers in protecting the interests of the investing public.
30 Parties who are denied an opportunity to be heard will still have the right to appeal to the Minister.
31 Sir, the capital markets are constantly evolving and the regulatory framework must keep pace to remain responsive and relevant. But, we must be mindful that the SFA is a relatively new piece of legislation that both MAS and the industry are still growing into. Thus, only minor changes have been introduced in this round of amendments and other more substantive policy reforms have been deferred to the second half of 2004.
32 The Bill gives us a chance to improve and clarify aspects of the SFA. Many of these amendments, especially those to implement the Company Legislation and Regulatory Framework Committee's recommendations, will help reduce business costs in Singapore. MAS will continue to engage in discussions with industry practitioners and to take more of their suggestions on board for the second phase of amendments in 2004.
33 Sir, I beg to move.