Mr Speaker Sir, I will
now go through the main amendments in the Bill. I will start
with changes to our rules on capital-raising.
Capital Raising Rules
Abolition of "Public Offer" (in relation to
Offers of Investments)
Sir, the SFA currently imposes rules on the conduct of
"offers to the public", by requiring public offers be
accompanied by prospectuses. These rules aim to ensure that
investors are provided with all material information needed to
make informed investment decisions. However, as noted by the
CLRFC, the phrase "offer to the public" is not defined in
legislation. This can cause practical difficulties for issuers
when structuring private and other exempted offerings.
As recommended by the CLRFC, the Bill removes
the concept of "offer to the public" from the SFA. Instead, a
prospectus will be required for all offers of investments unless
they are specifically exempted. As a basic principle, such
exemptions should only be given in limited circumstances where
the cost of issuing a prospectus is not justified by the
benefits of greater disclosure and investor protection. Our
current regime already exempts offers that are not made
available to retail investors, or where other safeguards exist
to minimise the risk to the public interest. For example, where
the information found in a prospectus may already be publicly
available, as is the case for listed companies.
Sir, the CLRFC recommended two new "safe
harbours" which would allow private placements and small offers
to be made without a prospectus. These safe harbours provide
legal certainty in the case of capital raising by small and
medium enterprises (SMEs) and helps them do so efficiently,
without unnecessary regulatory costs. These safe harbours are
similar to those available in jurisdictions like the UK, Hong
Kong and Australia.
Private Placement Exemption (Clause 72, new
Private placements are defined as offers made to 50 or fewer
investors within any 12-month period. The CLRFC had recommended
a limit of 20 investors. However, MAS received public feedback
that this is too low, as not all persons offered the securities
may accept the offer. We have decided to raise this figure to
50, which is also consistent with the practice in UK and Hong
Kong. Given this limited reach, there will be no dollar cap on
the amount that can be raised in each private placement.
Small Offer Exemption (Clause 72, new Section
Small offers raising up to $5 million within any 12-month period
are also exempted from prospectus requirements. Apart from the
$5 million limit, a small offer can be made only to investors
with an existing relationship with the offeror, or who have
previously expressed an interest in the offer. In addition,
there will be resale restrictions on securities purchased by a
connected investor so as to ensure that offers made under the
small offers exemption are not open to the public at large.
Offers made under the private placement and
small offers exemptions, if they are closely related offers,
must be aggregated. This will prevent issuers from breaking up
a single large offer into smaller ones which would individually
satisfy the exemptions, so as to circumvent the rules. MAS will
prescribe regulations to set out the factors determining which
offers are deemed as closely related.
Debenture Issuance Programme
Clause 54 extends the validity period for base prospectuses for
a debenture issuance programme from six months to 24 months.
This addresses industry feedback that a six month period is too
short when debentures are being continuously issued. Clause 46
will also allow the base prospectus to be updated in the absence
of a current offer without triggering refund provisions.
Offer Information Statement
Currently, listed issuers are allowed to provide an offer
information statement (OIS) instead of a full prospectus if they
are offering securities which are similar to those already
listed. Clause 77 extends the use of an OIS to all offers of
securities by a listed entity. Listed issuers are already
subject to requirements under the SFA to disclose all material
information on a continuous basis. Investors would therefore
have publicly available information to evaluate fresh offerings
by the issuer.
Currently, an OIS is required for a renounceable
rights issue only when the issuer is both listed and
incorporated in Singapore. Under the new provision, an OIS will
also be required for renounceable rights issues by foreign
corporations which have a primary listing in Singapore. This
recognises that the pool of Singapore shareholders for such
issuers is likely to be significant.
Prospectus Liability for Issue Managers
Sir, in a disclosure-based regime, the onus for accurate and
meaningful disclosures is placed on the offeror and their
professional advisers. This is achieved by imposing liability
on those responsible for preparing the prospectus. Currently,
the offeror and its directors, as well as the underwriter, face
criminal and civil liability for any material deficiencies in
the prospectus, such as false and misleading statements or
omissions of material information. Clauses 57 and 58 extend
this prospectus liability to issue managers. This recognizes
the important role that issue managers play in bringing a
company to list on SGX and in the preparation of the prospectus.
Change in Criminal Liability
At the same time, Clause 57 also refines the existing criminal
liability for persons other than the offeror and its directors.
Currently, third-party intermediaries (such as underwriters)
must demonstrate that they have conducted the necessary due
diligence as a defence against any criminal charges for material
deficiencies in a prospectus. Clause 57 removes this burden of
proof on the part of intermediaries. Instead, the onus will be
on the prosecution to demonstrate that an intermediary has acted
recklessly or intentionally. This is intended to address
concerns by the industry that they may be subject to criminal
liability as a result of an inadvertent oversight, or because of
deficient disclosures made by the offeror (or its directors).
However, the civil liability provisions in the
SFA will continue to apply the due diligence test. Investors
will still be able to institute civil action in Court against
intermediaries to compensate them for losses sustained as a
result of material deficiencies in the prospectus, where
underwriters and issue managers are unable to show that they
have conducted the necessary due diligence. This way, the
change in criminal liability will not compromise the ability of
investors to seek recourse.
Pre-Deal Research Reports
Sir, Clause 55 will lift the current prohibition on issuing
pre-deal research reports for international offers. Pre-deal
research reports refer to reports that profile an issuer before
an offer is made. Such reports are typically prepared by the
intermediaries involved in the offer, such as the underwriter or
issue manager, to stimulate interest in the offer. Previously,
pre-deal research was prohibited because such reports are not
subject to the same regulatory safeguards as prospectuses.
There was concern that retail investors may rely on such reports
instead of the registered prospectus.
MAS recognises that this prohibition may have
placed Singapore investors, particularly our institutional
investors, at a disadvantage compared to foreign investors when
subscribing to international offers. If an offer is made
concurrently in a foreign jurisdiction that allows such reports,
MAS will allow pre-deal research reports to be distributed to
institutional investors in Singapore. To reduce the risk of
information in the pre-deal research reports reaching the retail
public, we will put in place safeguards. Among them, the
reports must not be circulated to persons who are not
institutional investors, especially the media. Issuers must
also observe a two-week "quiet period" before a prospectus is
Repeal of Exemption for Financial Advisers
Mr Speaker Sir, let me move on to other changes in rules
relating to the conduct of intermediaries, besides the changes
to the capital raising framework that I have just mentioned
which concern them. The SFA currently exempts financial
advisers licensed under the Financial Advisers Act from
licensing under the SFA, in their conduct of SFA-regulated
activities which are incidental to their financial advisory
services. Clause 16 removes this generalised exemption. It was
not our intention to allow financial advisers to conduct SFA-regulated
activities, such as the full scope of fund management
activities. In its place, MAS will make explicit in Regulations
the specific types of exemptions financial advisers require
under the SFA to conduct their financial advisory business.
Unsecured Credit Facilities to Employees
Clause 20 lifts the current prohibition against licensees
under the SFA granting unsecured credit facilities to their
directors, officers, employees or representatives for trading
purposes. This prohibition has posed practical difficulties to
licencees such as stockbrokers. For example, staff who trade
through their principals need to settle their securities
transactions upfront, rather than in accordance with market
rules. They do so to avoid situations where credit is
inadvertently extended to them if settlement is delayed. The
risk arising from allowing unsecured credit facilities is
however minimal, as unsecured loans to directors, officers and
employees are already capped at one years emoluments.
False Statements to MAS
Clause 12 will make it an offence for applicants for a licence
under the SFA to submit any false statements to MAS without
reasonable excuse. Currently, it is only an offence if the
false statements are made knowingly and wilfully. The Bill
clarifies that false statements can be used as a reason for
rejecting an application. For MAS to perform its regulatory
role well, applicants should bear responsibility for ensuring
that their submissions to MAS are accurate and truthful.
Mr Speaker Sir, I will now discuss the refinements to our
regulatory framework concerning clearing facilities and
markets. Entities engaging in clearing or settlement services
are vital components in the infrastructure of the entire
financial sector. Such clearing facilities currently require
approval from MAS before commencing operations. However, the
term "clearing or settlement" is not explicitly defined in the
current SFA. Clause 106 introduces a definition for "clearing
or settlement" which covers any of the activities comprising
post-trade matching and confirmation, clearance and settlement.
This gives greater clarity to the industry, and takes into
account the broad-ranging nature of clearing and settlement
activities. This is also consistent with recent practices in
other developed markets where an entity may specialise in a
specific aspect of clearing or settlement, but would still be
subject to regulation.
However, MAS anticipates that such a
comprehensive definition could potentially become too inclusive
over time and dilute our approach of regulating and supervising
an activity in line with the risks that it poses. To pre-empt
such problems, the new Part III inserted by Clause 4 also
introduces a new designation approach for clearing facilities.
Clearing facilities will have to notify MAS 60 business days
before commencing their operations. MAS will only designate and
regulate clearing and settlement systems which are systemically
important, so as to focus our regulatory resources where the
risks are more significant.
Markets (Clause 4, new Part II)
The Bill likewise improves the provisions relating to
markets. These changes will clarify MAS' intention to classify
markets as approved exchanges or recognised markets depending on
their systemic importance. The more systemically important ones
will be regulated as approved exchanges. Recognised markets
will typically be smaller-scale trading platforms or organised
exchanges which are already regulated in other reputable
jurisdictions. Recognised market operators will be subject to a
more limited set of mandatory regulatory provisions, though MAS
still retains the flexibility to tailor conditions to each
specific recognised market.
Mr Speaker Sir, the key building blocks for a market
and disclosure-based regime for the capital markets are in
place, and are being enhanced with this Bill. However, the SFA
will remain very much a work in progress. With constantly
evolving capital markets, MAS will continue to engage in
discussions with industry practitioners, monitor developments in
regulatory practices internationally, and keep our capital
markets legislation relevant.
Singapore is not alone in this process of
continued refinement and reform of capital markets legislation.
In Hong Kong, the Securities and Futures Commission has been
reviewing various aspects of its regulatory framework, less than
year after its Securities and Futures Ordinance came into effect
in April 2003.
There has also been a flurry of reforms in the
United States, including major reforms regarding conflicts of
interest on the part of analysts and corporate governance found
in the Sarbanes-Oxley Act and in the managed funds industry.
There have also been recent moves in the US to modernise the
process of securities offers and update the regulation of
markets to keep pace with technological and industry
Capital markets regulation in Singapore as
around the world will have to continue evolving to respond to
new developments and concerns, while allowing for innovation,
liquidity and growth of the markets.
Sir, the market-driven and disclosure-based
regulatory regime that we have adopted is the most effective way
of governing a modern and rapidly innovating capital market,
with a growing range of investment offerings and a wide spectrum
of investors with differing levels of risk tolerance. Market
discipline is at the heart of this approach. The responsibility
for making market discipline work is shared amongst all
participants in the system, not just the regulator. In
particular, the onus is on issuers and their professional
advisers to provide meaningful, accurate and timely information
to investors. The regulator, on its part, stands ready to take
effective enforcement action when laws are breached or
prescribed standards of market conduct are not upheld. But
market discipline also means that investors have to accept the
risks of a business failing for legitimate reasons, or an
investment not performing up to expectations.
In conclusion, Sir, the market and
disclosure-based regulatory approach that underpins the SFA and
the amendments that this Bill proposes will enhance confidence
in our markets and encourage continued innovation and growth.
The Bill continues MAS' efforts to establish a framework of
laws, rules and standards that encourages complete and clear
disclosure of information, markets that operate with integrity,
intermediaries who deal fairly with their customers, consumers
who are empowered and educated of the risks involved in
investments, and a regulator able to take effective enforcement
when breaches occur.
Sir, I beg to move.
Monetary Authority of Singapore
Press Release 25 Jan 2005