Legal News & Analysis – Asia Pacific – Singapore – Capital Markets

Introduction

The Monetary Authority of Singapore (“MAS”) has issued a consultation paper on 11 February 2015 proposing further amendments to the Securities and Futures Act (Cap. 289) (“SFA”). The amendments will complete the legislative reforms needed to implement the new regulatory regime for OTC derivatives, first announced on 13 February 2012, as well as enhance the existing regulatory regime for Singapore’s capital markets.

Proposed Amendments In Relation To OTC Derivatives

In the latest round of consultation, MAS is proposing to:

• adopt principles-based, simplified definitions for the terms “derivative contract”, “securities”, and “capital markets products”;
• introduce a new definition of “securities-based derivative contract” and “organised market” to provide greater clarity and flexibility for regulation;
• extend the existing markets regulation regime by requiring market operators of OTC derivatives to be regulated either as Approved Exchanges (“AEs”) or as Recognised Market Operators (“RMOs”);
• extend the licensing regime for capital markets intermediaries to entities that deal in OTC derivatives by means of introducing a new category of regulated activity called “dealing in capital markets products”;
• extend the scope of the prospectus requirements to cash-settled derivative contracts where securities are the underlying reference;
• amend the SFA to clarify that all specified derivative contracts booked in Singapore are subject to reporting obligations notwithstanding that such contracts are traded overseas;
• introduce a new provision within Part VIA of the SFA to lift banking confidentiality and permit financial institutions to report customers’ information for the purposes of meeting trade reporting obligations;
• put in place, via a new Part VIC of the SFA, a new legislative framework for implementing a trading mandate for OTC derivatives (if required);
• exempt from having to hold a CMS licence, those persons who deal in futures contracts without taking on any position, margin or account and who deal only with institutional and corporate accredited investors;
• amend the definition of “fund management” to expand the regulatory ambit for fund management activity to all capital markets products and all managers of collective investment schemes (“CIS”); and
• transfer regulatory oversight of commodity derivatives under the Commodity Trading Act (“CTA”) to the SFA

Proposed Amendments To Strengthen Singapore’s Securities Market

• To strengthen the effectiveness of the enforcement regime in deterring market misconduct and bolster investor protection, MAS proposes to:
• formalise the current practice of notifying MAS whenever a regulated entity operates or acquires any new business, regardless of the type of business;
• clarify that there is no requirement of material price impact under section 199 of the SFA prohibiting false and misleading statements before a contravention can be established;
• introduce a definition for “persons who commonly invest in securities” for the purposes of interpreting insider trading provisions of the SFA, as well as guidelines to provide MAS’ policy intent and guidance as to its interpretation;
• revise the civil penalty ceiling for market misconduct to the greater of either SGD 2m or 3 times the amount of benefit obtained, so as to increase deterrence;
• strengthen the effectiveness of the enforcement regime by conferring priority on civil penalty claims under the SFA over private debts that accrue subsequently;
• introduce a new Part VIIA in the SFA setting out requirements on short selling disclosures so as to enhance the transparency of short selling activities; and
• widen the range of factors which MAS may take into account when recognising a foreign CIS for offer to the public to ensure that retail investors are provided with sufficient protection.

Consultation Period

The consultation period ends on 24 March 2015.

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