The Monetary Authority of Singapore (“MAS”) has issued a consultation paper seeking feedback on proposals to enhance the current rules for prospectus disclosures in securities offerings. The closing date for the consultation is 14 November 2013.
Part XIII of the Securities and Futures Act (“SFA”) regulates the offering of securities in Singapore. The general rule is that a prospectus compliant with prescribed requirements and registered with MAS is required, unless an exemption is otherwise applicable. Under section 243 of the SFA, the prospectus is required to contain all information which investors and their advisers would reasonably require to make an informed investment decision. The issuer, its directors and advisers are subject to statutory liabilities for any failures to comply with the requisite standard of disclosure.
In recent years however, prospectuses have grown significantly in length, and MAS noted that this has made it difficult for investors to read and understand.
MAS is now proposing the following:
- to extend the requirement for a product highlights sheet (“PHS”) to other types of securities beyond asset-backed securities, structured notes, unlisted collective investment schemes and exchange traded funds; and
- to allow certain information contained in a separate document to be incorporated by reference into the prospectus.
MAS will also be developing a regulatory guide to highlight common problems and encourage good drafting practices. This will be the subject of a separate consultation at a later date.
CURRENT REQUIREMENTS FOR A PHS
The PHS is a simplified disclosure document intended to highlight the key features of an investment product. It is to be given out together with the prospectus. At the moment, the PHS is required only for asset-backed securities, structured notes, unlisted collective investment schemes and exchange traded funds, these being investment products that are more complex in nature.
For the purpose of the statutory liability rule for prospectuses, the PHS is not considered to be part of the prospectus, and accordingly, the statutory liability rule does not apply although there are separate compliance requirements applicable to the PHS itself, namely:
- the PHS must not contain statements or matters that are false or misleading in the form or context in which they are included;
- the PHS must not contain any material information not already contained in the prospectus;
- the PHS must not contain any material information that differs materially from the prospectus;
- there must be no omission from the PHS which would result in the PHS being false or misleading; and
- the PHS must give a fair and balanced view of the nature, material benefits and material risks.
EXTENSION OF PHS REQUIREMENTS
MAS now proposes to extend the PHS requirements to offerings of other types of securities, namely:
- debt securities for which the SFA requires a prospectus or an offer information statement;
- hybrid instruments such as preference shares, perpetual securities and convertible bonds, for which the SFA requires a prospectus or offer information statement; and
- ordinary shares, units in real estate investment trusts and units in business trusts, for which the SFA requires a prospectus.
MAS proposes a slight variation in treatment for secondary offers (ie offers subsequent to the issuer’s listing on a securities exchange) according to whether the offer is of equity securities, on the one hand, or of debt securities and hybrid instruments, on the other.
For secondary offers of equity securities, if the issuer’s securities are already listed, there would already be information in the market concerning the nature and risks of those securities. Accordingly, MAS does not propose to require a PHS for secondary offers of equity securities if an offer information statement is already required under section 277 of the SFA.
However, for secondary offers of debt securities and hybrid instruments, MAS felt that investors who may be familiar with the listed shares of the issuer may not be as familiar with the new instrument offered. Accordingly, MAS is proposing that a PHS be required in such cases.
Summaries of the form and content of the various types of PHS, as well as templates have been published in Annexures A, B, C and D to the MAS consultation paper.
The rules relating to profile statements would remain. A profile statement is essentially an abridged version of the prospectus, which can be distributed without being accompanied by the prospectus, provided that the conditions specified for use of a profile statement are met. Since the PHS is a document to be distributed together with a prospectus, the PHS will not be required if the issuer meets the conditions for distributing a profile statement and does so.
INCORPORATION BY REFERENCE
Recognising that investors may not require detailed audit reports, valuation reports and industry overview reports in order to make their investment decisions, MAS is proposing that such documents need not be included as appendices to a prospectus but may instead be incorporated by reference. In this regard, MAS noted that incorporation by reference is already allowed in jurisdictions such as Australia, the UK and the EU.
Accordingly, it is proposed that incorporation of certain information by reference would be permitted if the following conditions are met:
- the information incorporated by reference is limited to the audit report in respect of historical financial information presented within the prospectus, lists of directorships held by the issuer’s directors in the last five years, and valuation reports and industry overview reports;
- the prospectus must not incorporate by reference any information which is specifically required in the PHS;
- the prospectus must itself contain sufficient information about the information incorporated (including a statement as to whether the information is primarily of interest only to professional analysts, advisers or investors) to enable the reader to decide whether to obtain a copy of the information incorporated by reference;
- the prospectus must say that the issuer would provide a copy of the information incorporated by reference free of charge upon request; and
- the information incorporated by reference must be in a document available from OPERA, MAS’s online prospectus database.
The information incorporated by reference into the prospectus would be considered part of the prospectus so that the statutory liability rules would apply to that information.
Please click on the following link to access the documents: