30 October 2018

On 8 October 2018, wide-ranging changes were introduced to the Securities and Futures Act (“SFA”) to keep the Singapore capital markets regulatory framework in pace with market developments and aligned with international standards and best practices. These changes are set out in the Securities and Futures (Amendment) Act 2017 (“2017 Amendment Act”).

Background information

By way of background, on 9 January 2017, the Securities and Futures (Amendment) Bill 2016 was passed by the Parliament. The 2017 Amendment Act was gazetted on 16 February 2017.

The 2017 Amendment Act is implemented primarily in two phases. On 1 October 2018, the provisions in the 2017 Amendment Act which set out the legislative framework for the disclosure of short sell orders and reporting of short sell positions came into force.

This article highlights the key provisions of the 2017 Amendment Act which came into effect on 8 October 2018.

Summary of key changes to the SFA effective on 8 October 2018

  • Regulating market operators and market intermediaries for OTC derivatives: In line with international standards and practice, the Monetary Authority of Singapore (“MAS”) has put in place requirements for the reporting of over-the-counter (“OTC”) derivatives and the regulatory regime of OTC derivatives trade repositories and clearing facilities. The regulatory regime for operators of organised markets is extended to the operators of organised markets for the trading of OTC derivatives. The SFA provides for a new definition of “organised market” which largely reprises the existing definition of “securities market”, but extends to derivatives contracts, securities and units in a collective investment scheme (“CIS”) and includes prescribed facilities.
  • Streamlining definitions of investment products and regulated activities: MAS has re-organised and introduced simple, principles-based definitions of products in the securities and derivatives industry that are regulated under the SFA. For example, the revised definition of “securities” comprises equity instruments representing legal or beneficial ownership interests and debt instruments, such as shares, debentures (including bonds) and units in a business trust (“BT”) but excludes secondary rights, options and interests derived from interests in corporations, bodies unincorporate and BTs. The latter now falls within the revised definition of “derivatives contract”. The categories for “regulated activities” for capital markets services licence holders have also been fine-tuned. For example, the scope of regulation of “dealing in securities” is expanded to “dealing in capital markets products” which covers dealing in, apart from securities, units in a CIS, derivatives contracts and spot foreign exchange contracts for the purposes of leveraged foreign exchange trading.
  • Refining classification of non-retail investor: Individuals qualify as accredited investors (“AIs”) if they have net personal assets of more than S$2 million. The 2017 Amendment Act changed the way net personal assets is calculated such that the value of an individual’s primary residence (net of any secured loan) can only contribute up to S$1 million of the net personal assets threshold of S$2 million. Individuals qualify as AIs if they have more than S$1 million of financial assets (such as bank deposits) net of any related liabilities. An opt-in regime will be introduced providing AIs the option of electing AI or retail status, and where retail status is chosen, an AI will benefit from the full range of capital markets regulatory safeguards applicable for retail investors. The definition of “institutional investor” is widened to include persons professionally active in the capital markets such as financial institutions regulated by foreign regulators and sovereign wealth funds. Statutory bodies, other than prescribed statutory boards, are no longer deemed as institutional investors.
  • Establishing legislative framework for regulation of financial benchmarks: New Part VIAA of the SFA sets out a legislative framework for the regulation of financial benchmarks. The new framework is intended to promote fair and transparent determination of financial benchmarks and reduce systemic risks. As financial benchmarks play an important role in the pricing of financial instruments and contracts, the new framework aims to safeguard the credibility and reliability of financial benchmarks in Singapore.
  • Allowing incorporation of specific information into prospectus by reference to a separate document: Section 243 of the SFA permits specific information to be incorporated in the prospectus by reference to another document that is lodged with MAS together with the prospectus, subject to conditions and restrictions prescribed by regulations under the SFA.
  • Prospectus exemption for offers of securities by a subsidiary of a listed entity: Section 277 of the SFA empowers MAS to declare that the provision of an offer information statement in lieu of a prospectus relating to an offer of securities by a subsidiary of an entity listed on an approved exchange would not be prejudicial to investors of such securities where the offer of securities meets certain prescribed criteria. 
  • Widening factors for recognising CIS constituted outside Singapore: MAS is given the flexibility to have regard to factors other than the laws and practices of the jurisdiction under which a foreign CIS is constituted and regulated in determining whether to recognise the foreign CIS. These other factors are prescribed by regulations under the SFA.
  • Statutory duty of REIT managers to prioritise interests of participants: The SFA is amended to impose a statutory duty on the managers of real estate investment trusts (“REITs”) to, and the directors of the managers to ensure that the managers, act in the best interests of all the REIT participants as a whole and to give priority to the interests of all the REIT participants as a whole over the manager’s own interests and the interests of the manager’s shareholders in the event of a conflict of interests.
  • Stronger enforcement regime against market misconduct: Measures to strengthen the enforcement regime against market misconduct include:
    • Information that is false or misleading in a material particular need not be price sensitive: The SFA is revised to depart from the Singapore High Court decision in Madhavan Peter v PP [2012] SGHC 153 and clarify that the words “material particular” in section 199 of the SFA do not refer to the effect of the false or misleading statement on the price of the securities, securities-based derivatives contracts or CIS units.
    • New statutory definition of “persons who commonly invest”: To strengthen MAS’ ability to pursue insider trading cases, section 214 of the SFA provides for a definition of “persons who commonly invest” which refers to “a section of the public that is accustomed, or would be likely, to deal in” the applicable securities, securities-based derivatives contracts or CIS units. This allows the court to take into account the reality that there can be different classes of “persons who invest”, each with a different level of knowledge and expertise. 
    • Standardisation of civil penalty ceiling: Section 232 of the SFA is revised to raise the maximum civil penalty that can be awarded in respect of a breach of the market misconduct provisions. If a person has gained a profit or avoided a loss by virtue of his market misconduct, the maximum civil penalty is the greater of either S$2 million or three times the amount of the profit gained or loss avoided (instead of limiting the maximum civil penalty to the higher of three times the amount of the benefit obtained or S$50,000). If no profit was gained or loss was avoided as a result of the contravention, the maximum civil penalty is S$2 million. The minimum civil penalty that must be awarded is S$100,000 in the case of a corporation and in any other case, S$50,000.

Reference materials

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