Introduction

The Securities and Futures (Amendment) Act 2009 was passed in Parliament on 19 January 2009 after several rounds of public consultation, and contained a wide range of changes to the Securities and Futures Act (SFA).

A significant number of provisions of the Securities and Futures (Amendment) Act 2009 have progressively commenced since 2009, with the latest round of provisions (together with the supporting regulations) commencing in 2 phases: (i) the first phase having commenced as of 1 October 2012; (ii) and the second phase commencing on 19 November 2012.

We set out below a summary of those provisions which commenced on 1 October 2012 (New Provisions).

Attributed Liability

Previously, a company may not be held liable for market misconduct committed by its employees whilst trading on the company’s behalf unless management was involved in the misconduct. In such instances, if management was not involved in the misconduct, the company may benefit, either by making profits or avoiding losses, without being liable.

The New Provisions introduce a concept of attributed liability for market misconduct offences. A company may now be held liable where its employee engages in market misconduct with the company’s consent or connivance, or where the company has failed to prevent or detect the misconduct because of its negligence.

The New Provisions on attributed liability extend also to partnerships and limited liability partnerships.

Disgorgement against Third Parties

Under the previous legislation, a third party who was not a party to the market misconduct but who benefitted from a contravening trade (for example, being a client whose account had been unwittingly used by his broker to conduct contravening trades) may make profits or avoid losses as a result of such trades, but would not be liable to disgorge the profits gained or losses avoided even though they resulted from market abuse.

The New Provisions introduce a new remedy pursuant to which the court is empowered to order such third party to disgorge, depending on the circumstances, all or a portion of the benefits obtained from the contravening trades. Note however that the remedy of disgorgement cannot be ordered where the court is satisfied that it would inequitable to do so.

Recognition of Foreign Business Trusts

In recognition of the administrative difficulties faced by foreign-constituted business trusts in complying with overlapping provisions under the law of its place of constitution and the Business Trusts Act, the New Provisions establish a recognition regime such that recognised foreign business trusts will not need to be registered under the Business Trusts Act before their units can be offered to retail investors in Singapore.

A foreign business trust will only be recognised if the MAS is satisfied that the laws and practices of the jurisdiction under which the foreign business trust is constituted and regulated affords protection to Singapore investors equivalent to that provided under the Business Trusts Act.

Provisions Commencing on 19 November 2012

We will be examining the amendments to the SFA which will be commencing on 19 November 2012 (such as the new requirements on disclosure of interests in securities by directors, CEOs and substantial shareholders of listed entities) in a forthcoming issue of our Chronicle.