30 October 2018

This article discusses the key changes to the market misconduct provisions under the Securities and Futures Act (“SFA”) which came into effect on 8 October 2018. The amendments form part of a suite of wide-ranging reforms introduced by the Securities and Futures (Amendment) Act 2017 to keep Singapore’s capital markets regulatory framework in pace with market developments and aligned with international standards and best practices.

Clarification of scope of prohibition against false or misleading disclosures

The SFA has been amended to clarify that the prohibition against making a statement that is false or misleading in a material particular and is likely to have an effect on the market price of securities, securities-based derivatives contracts or units in a collective investment scheme (“CIS units”) applies regardless of the significance of the price effect. This is a departure from the decision of Madhavan Peter v Public Prosecutor [2012] SGHC 153, which had held that a significant price effect was required for liability to be established.

New statutory definition of “persons who commonly invest” to tackle insider trading offences

To strengthen MAS’ ability to pursue insider trading cases, a definition of “persons who commonly invest” (or “Common Investors”) has been introduced in section 214 of the SFA to better reflect market participants who are accustomed to or likely to invest in a particular product in question. In determining liability for insider trading, whether information is generally available (under section 215 of the SFA) or price sensitive (under section 216 of the SFA) will be determined by reference to Common Investors in securities, securities-based derivatives contracts and CIS units.

Previously, the term “persons who commonly invest” was not statutorily defined. The Court of Appeal had held in Lew Chee Fai Kevin v Monetary Authority of Singapore [2012] SGCA 12 that the “persons who commonly invest” were reasonable investors possessing general professional knowledge, but did not include retail investors who traded regularly. It had also defined “general professional knowledge” as having a very high standard of market analysis and trading knowledge. In MAS’ view, however, this did not reflect the attributes of the average investor in the market.

Under the new definition, “persons who commonly invest”, in relation to investment in securities, securities-based derivatives contracts or CIS units, “means a section of the public that is accustomed, or would be likely, to deal in securities, securities-based derivatives contracts or CIS units, or in a class of securities, securities-based derivatives contracts or CIS units, of that kind”.

To provide guidance on the interpretation of the term, on 8 October 2018, MAS released the “Guidelines on the Interpretation of “Persons who Commonly Invest” in Division 3 of Part XII of the Securities and Futures Act (Cap. 289)” (SFA 12-G01) (“Guidelines”). The Guidelines provide that the new definition is intended to reflect the fact that there are different types of investors who invest in securities, securities-based derivatives contracts and CIS units. These categories encompass a wide range of products. Thus, “Common Investors” can comprise different types of investors, such as accredited investors, expert investors, institutional investors and retail investors, depending on the product in question. As emphasised in MAS’ “Response to Feedback Received on Draft Notices and Guidelines Pursuant to Securities and Futures Act” released on 1 October 2018, the peculiarities of any given Common Investor class, like dormant or exceptionally risk-averse investors within those classes, would not be taken into account when identifying the Common Investors classes.

Standardisation of civil penalty ceiling

The SFA has also been amended to standardise the maximum penalty that can be imposed to the greater of (i) S$2 million, or (ii) three times the amount of benefits gained or losses avoided (“Benefit”), for all civil penalty cases.

The standardisation of the civil penalty ceiling is aimed at ensuring that the civil penalty quantum is commensurate with the gravity of the misconduct. Previously, in cases where a Benefit was obtained, the maximum civil penalty available was capped at the greater of (i) S$50,000 (or S$100,000 for a corporation), or (ii) three times the Benefit obtained. Where the value of Benefit obtained was small, this might not adequately reflect the culpability of the offender or achieve sufficient deterrence. This was also incongruent with the maximum civil penalty of S$2 million for cases where no Benefit was obtained.

Conferring priority on MAS’ civil penalty claims

The SFA has also been amended to give MAS’ civil penalty claims priority over private unsecured claims which accrue subsequent to the contravention of the SFA, in line with the priority accorded to government claims under section 10(1) of the Government Proceedings Act. This will strengthen MAS’s ability to resist attempts by third party creditors to divert funds frozen by MAS for the satisfaction of civil penalties towards satisfaction of the contravening person’s private debts.

Reference materials

The following materials are available from the Singapore Statutes Online website sso.agc.gov.sg and the MAS website www.mas.gov.sg:


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Allen & Gledhill Regulatory & Compliance

To assist our clients with compliance matters, our consultancy arm, Allen & Gledhill Regulatory & Compliance, provides a range of services and solutions. Should you have any queries relating to compliance issues arising out of these developments, please contact:

Lawrence Low
+65 6890 7448