In February 2015, the Monetary Authority of Singapore (“MAS”) sought feedback on market conduct regulations under Part XII of the Securities and Futures Act (“SFA”). The amendments were intended to strengthen the effectiveness of MAS’ enforcement regime in deterring market misconduct.
MAS has reviewed the feedback and issued a consultation paper on 24 August 2015 (“Consultation Paper”) proposing draft legislative amendments to the following areas:
- Revision of Section 199 of the SFA;
- Insertion of a statutory definition for the phrase “persons who commonly invest” in Section 214 of the SFA;
- Revision of civil penalty ceiling;
- Priority of MAS’ civil penalty claims; and
- Amendment to Section 324 of the SFA to allow MAS officers to exercise investigative powers.
2. Revision of Section 199 of the SFA
The current Section 199 of the SFA is concerned with the dissemination of statements or information in the market which is false or misleading in a material particular, and not the extent of impact that the false or misleading disclosure has on the market. The element of liability is established so long as the false or misleading particular would likely result in either an inducement to trade or have an effect on the price of the securities (raising, lowering, maintaining or stabilising the price) (“Stated Effects”).
The proposed amendments aim to clarify that in order to establish a charge under Section 199, the following elements need to be shown:
- The statement or information disseminated must be false or misleading in a material particular; and
- must either likely induce other persons to subscribe for or trade in the securities; or
- likely have the Stated Effects on the price of the securities with no requirement of a material price impact ; and
- When making the statement or disseminating the information, the person does not care whether the statement information is true or false, or the person knows or ought reasonably to have known that the statement or information is false or misleading in a material particular.
3. Definition for the phrase “persons who commonly invest” in Section 214 of the SFA
The SFA uses the concept of “persons who commonly invest” in Sections 215(b)(i) and 216 of the SFA to define the scope of the general pool of information that is available to the investing public and the impact of information on securities pricing.
The proposed amendments to Section 214 of the SFA insert a statutory definition for the phrase “persons who commonly invest” as follows:
““persons who commonly invest” shall mean one or more members of the public who deal in securities, securities-based derivative contracts, or units in a collective investment scheme of the type in question on a regular basis.”
In the Consultation Paper, MAS had alluded to the Court of Appeal’s decision in Lew Chee Fai Kevin v MAS  2 SLR 913, where the Court linked the concept of “persons who commonly invest” to an “investor who possesses general professional knowledge as opposed to the said daily retailer or a person who has made specific researches”. The Court elaborated that “general professional knowledge” included the ability to do technical and fundamental analysis on information that is freely available, the knowledge to conduct financial statement analysis and valuation of the company’s shares, amongst others.
MAS has taken the position that enforcement actions should be taken against insider trading in order to preserve investors’ confidence in the integrity of the Singapore capital markets. In order to define insider information, there is a need to codify the opposite, which is the concept of standard market knowledge vested in the hypothetical “Common Investor” – reflecting the majority of market participants (including retail investors) and the realities of the market.
The range of investors which constitute “one or more members of the public” who deal in the relevant asset class “on a regular basis” (i.e. “persons who commonly invest”) can range from retail investors who invest on a regular basis to expert investors.
It is MAS’ view that the requisite level of knowledge and qualities possessed by “persons who commonly invest” as set out in Section 214 of the SFA, would be as follows:
- They would be rational and economically motivated investors with at least some experience and knowledge of investing in the relevant asset class, but they need not be investment professionals;
- They would be aware of the prevailing price of the relevant asset class from time to time; and
- They would have knowledge of or the ability to obtain, generally available information concerning the relevant industry of the asset class in question and in particular, information concerning the company in question, and would have the ability to draw inference from and assess the reliability of the information in question.
A set of guidelines, to be issued at a later date, will further elaborate on the above knowledge and qualities possessed by “persons who commonly invest”. MAS is seeking feedback on the proposed statutory definition and the proposed level of knowledge and qualities of “persons who commonly invest”.
4. Revision of Civil Penalty Ceiling
Currently, Section 232(2) of the SFA provides that, if a person, by result of his breach, had gained a profit or avoided a loss (collectively, obtained a “Benefit”), the maximum civil penalty that can be imposed will be capped at the higher of 3 times the amount of Benefit obtained or $50,000. MAS feels that this may not adequately reflect the culpability of the offender or achieve sufficient deterrence in cases where the Benefit obtained is of a small value.
In the light of the above discrepancy, it is MAS’ intention to amend Section 232 to provide that the civil penalty ceiling will be the greater of either $2 million or 3 times the amount of Benefit obtained in all cases. This would allow the civil penalty quantum to be commensurate with the gravity of the misconduct, even when the Benefit obtained happens to be of a small value.
5. Priority for MAS’ Civil Penalty Claims
It is MAS’ position that civil penalty claims under the SFA are pursued in the interests of the investing public. As such, it is MAS’ position that its claims should have priority over private claims that accrue subsequently after contravention, similar to claims made by the Government of Singapore (“Government”) under the Government Proceedings Act (the “GPA”).
Section 10(1) of the GPA accords priority to the Government for any sum due to it, over any debt that is subsequently incurred after the debt to the Government accrues. This priority is accorded regardless of when the Government obtains judgment for the sum that is due to it.
Under the proposed Section 237A in Division 6 of Part XII of the SFA, MAS has proposed to import the effect of Section 10(1) of the GPA by adopting a provision which states that any sum due to the MAS may be sued for and recovered by the MAS under the GPA as if it were a debt due to the Government.
6. Amendment to Section 324 of the SFA
As of 17 March 2015, it is MAS’ policy to jointly investigate market misconduct offences under Part XII of the SFA with the Commercial Affairs Department (“CAD”) of the Singapore Police Force. Under the arrangement, MAS’ enforcement officers are gazetted as Commercial Affairs Officers, and have the same criminal powers of investigation utilised by the CAD officers under the Criminal Procedure Code (“CPC”). Such powers include the ability to search and seize items from premises.
Presently, Section 324(1)(a) of the SFA empowers a court to make one or more orders set out therein, where an investigation is being carried out under the SFA for offences under the SFA.
Under the above investigation arrangement, a strict reading of Section 324(1)(a) of the SFA may preclude MAS officers from applying for an order under Section 324 of the SFA, if MAS officers are investigating a case under the CPC.
With the above considerations in mind, MAS has proposed to amend Section 324(1)(a) of the SFA to clarify that the orders sought under Section 324 of the SFA are available to support any investigation conducted by MAS, notwithstanding that the investigation was carried out under the CPC.
7. Consultation Period
The consultation period ends on 23 September 2015.