The new regime of disclosure of interests (DOI) affecting entities listed on the Singapore Exchange Securities Trading Limited (SGX) came into operation on 19 November 2012.
DOI obligations under the new regime
Under the new regime, the existing DOI obligations of directors and substantial shareholders of any listed entity (which include corporations (both Singapore incorporated and foreign incorporated entities), business trusts and REITs) in respect of their interests in the listed entity have been streamlined and consolidated under the Securities and Futures Act (Chapter 289) (the SFA).
CEOs who are not directors of listed corporations are now obliged to disclose their interests under the SFA, since CEOs are key decision-makers and their interests would be relevant to investors.
A shareholder of the trustee-manager of a listed business trust or real estate investment trusts (REIT) is be required to give notification when his shareholdings in the manager reaches, crosses or falls below 15%, 30%, 50% and 75%. Any acquisition or disposal of interest in the securities of the business trust or REIT by the manager must also be disclosed.
Directors and substantial shareholders will no longer be required to separately report their interests and changes in interests, in securities to SGX, thereby simplifying the reporting process and reducing the compliance burden on directors and substantial shareholders. However, the listed entity is required to disclose the relevant information to investors after receiving such information from its directors and substantial shareholders, thereby continuing to ensure market transparency. Further, the holding company is required to aggregate the interests of every related corporation for its reporting purposes while each subsidiary need only report its own interests.
Penalties for flagrant breaches of the DOI obligations under Part VII of the SFA (DOI Obligations) have been increased ten-fold to a fine of up to $250,000 and in the case of a continuing offence, a further fine not exceeding $25,000 for every day or part thereof during which the offence continues after conviction. If the contravention was committed by an individual, the individual may be imprisoned for a term of up to two years. Civil penalties may also be imposed for contravention of the DOI Obligations.
The SFA empowers the Monetary Authority of Singapore to exempt any person or class of persons from any or all of the provisions of Part VII of the SFA.
Situations in which persons are exempt from the DOI obligations (subject to any conditions stipulated in Part II of the Securities and Futures (Disclosure of Interests) Regulations 2012) are set out below:
Securities lending arrangement
A securities lending arrangement (SLA) is an agreement under which the owner of the listed securities (Lender) is to transfer securities (“Loaned Securities”) to another person (“Borrower”) for an agreed period of time, after which the Borrower is to transfer those securities back to the Lender. Such an agreement must be made in writing.
A capital market services licence holder for dealing in securities (or a person who is exempt from such licensing requirements) as well as securities lending intermediaries who are regulated in any foreign jurisdiction in respect of dealing in securities (“Intermediaries”) is exempt from the DOI Obligations in respect of its interests (or any change thereof) in the Loaned Securities if it acts as a securities lending intermediary under an SLA if the Loaned Securities are transferred into and out of its securities account within two business days. The Intermediaries must not acquire the Loaned Securities for his own proprietary needs but only to on-deliver such Loaned Securities to a customer.
Further, a Lender who is a substantial shareholder or unitholder who transfers Loaned Securities pursuant to an SLA is also exempt from the DOI Obligations in respect of its interests (or any change thereof) in the Loaned Securities if certain conditions are met. While the MAS has acknowledged that it is impracticable in most situations for the Lender to retain all beneficial interests in the Loaned Securities, the Lender must, during the term of the SLA, (a) be entitled to receive all interest, dividends or other distributions of any kind that are paid or made in relation to the Loaned Securities; (b) require the Borrower to exercise any voting rights attached to the Loaned Securities in accordance with the Lender’s instructions; and (c) require the Borrower to return the listed securities at an agreed point in time, within an agreed period of time, or within a specified time upon the Lender giving notice to the Borrower.
In determining whether the Lender is exempt from its DOI Obligations, the specific nature of its interests in the Loaned Securities should be considered. The duration of the SLA, however, is not a relevant consideration. As such, the SLA agreement should therefore ensure that the contractual rights of the Lender in relation to its entitlement to interests, dividends or distributions of any kind as well as its voting rights are clearly set out. In this regard, interests, dividends or distributions of any kind include an amount equivalent to such interest, dividends or other distributions which is factored into the price payable to the borrower for the return of the Loaned Securities by way of a corresponding reduction of the price, or the transaction costs or fees payable to the Lender for lending the Loaned Securities by way of a corresponding increase of the costs or fees. Further, the SLA agreement should also state the terms upon which the Loaned Securities are to be returned to the Lender.
The exemption from the DOI Obligations applies only to the Lender in respect of the Loaned Securities. The Borrower remains subject to the DOI Obligations.
With regards to take-over offers (Take-over Offers) governed by the Singapore Code of Take-overs and Mergers (Take-over Code), the MAS has recognized that a requirement for an offeror to notify the market of every change in percentage of its interests in addition to complying with its obligations under the Take-over Code may be too onerous. Further, as the market will be informed about the Take-over Offer pursuant to compliance with the Take-over Code, they would expect the offeror’s interests to increase during the offer period.
In view of the above, on the basis that the offeror complies with all relevant provisions of the Take-over Code, an offeror is exempt from its DOI Obligations in respect of any change in its interests in securities occurring after the offeror has announced the Take-over Offer and before the Take-over Offer closes, lapses or is withdrawn.
Other persons exempt from the DOI Obligations
Other persons who are exempt from the DOI Obligations are:
- Participants in a recognised or authorised collective investment scheme (“CIS”) and employee benefit scheme. However, if the person is also a director of a Singapore-incorporated listed company, he will be required to disclose his interests in such participatory interests to the company under section 133 of the SFA. If the CIS invests in securities of a listed entity (“Underlying Securities”), a unitholder or participant of the CIS is also deemed to have an interest in the Underlying Securities under section 4(3) of the SFA. However, if the interest in the Underlying Securities arises solely by virtue of section 4(3) of the SFA, the participant will be exempted from the requirement to report on his interest in the Underlying Securities;
- A substantial shareholder/unitholder if he is already obliged to give notice of that interest as a Director or CEO of the corporation/business trust/REIT/trustee-manager of a business trust; and
- A person who holds securities on behalf of a beneficial owner if the acquisition or disposal of such securities was effected according to the instructions of the beneficial owner, or (b) the authorised holder holds the securities as a bare trustee, custodian or nominee on behalf of the beneficial owner.