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Author: Mohammed Reza (JWS Asia Law Corporation, Singapore)
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On 24 August 2015, the MAS published a Consultation Paper with proposed amendments to Part XII (Market Conduct) of the Securities and Futures Act (Cap. 289) (the “SFA”). The proposed amendments are aimed at strengthening its market misconduct enforcement regime and include:
- Clarifying the trigger for liability for false or misleading disclosure under section 199 of the SFA - there is no requirement of material price impact to establish a case of false or misleading disclosure. Liability is established as long as the false or misleading disclosure would likely result in either an inducement to trade or have an effect on the price of the securities (i.e. raising, lowering, maintaining or stabilising the price). The behaviour targeted by the MAS is the misleading disclosure itself, rather than only those misleading disclosures which have, or are likely to have, a material price impact. The extent of price movements may be dependent on other market factors unrelated to the false or misleading disclosure. These amendments seek to address prior instances in which liability for false or misleading statements has been avoided because of lack of material price impact.
- The introduction of a statutory definition of the phrase “persons who commonly invest”, which is a phrase used in certain insider trading sections of the SFA. The proposed statutory definition is “members of the public who deal in securities… on a regular basis”. This expands the definition found in case law which has defined “persons who commonly invest” as meaning something more than a retail investor i.e. an investor with “general professional knowledge” of making investments such as being able to analyse financial statements. The MAS is keen to ensure that the standard market knowledge vested in the hypothetical common investor reflects the majority of market participants (including retail investors). The MAS plans to explain the knowledge and qualities possessed by “persons who commonly invest” in guidelines to be subsequently issued by the MAS.
- The revision of the civil penalty ceiling. At present, the maximum civil penalty for misconduct is capped at the higher of 3 times the amount of any benefit resulting from the breach or SGD50,000. The MAS considers that this may not reflect the culpability of the offender or achieve sufficient deterrence if the benefit obtained is of a small value. In contrast, if the offender had not obtained a benefit, the civil penalty amount that could be ordered is between SGD50,000 and SGD2 million. It is therefore proposed that section 232 of the SFA will be amended to provide that the civil penalty ceiling will be the greater of either SGD2 million or 3 times the benefit obtained in all cases in order to make the penalty quantum commensurate with the gravity of the misconduct, even if the benefit obtained is small.
- The MAS proposes that its civil penalty claims will have priority over private claims that accrue subsequent to the contravention.
The proposed changes signal an effort by the MAS to correct legislative loopholes or areas in which the courts have taken a more restrictive approach. On paper, the proposed changes would strengthen and expand the scope for liability for market misconduct in Singapore. It remains to be seen whether the legislative changes will translate into active enforcement by the MAS in circumstances where the number of enforcement cases are noticeably fewer than in other jurisdictions.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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