Part XIII of the Securities and Futures Act and New Regulations

This article will discuss some of the more significant changes that Part XIII of the Securities and Futures Act 2001 and the new regulations (which came into force on 1 July 2002) has brought.

The Securities and Futures Act 2001 (A42/2001) ('SFA') was first passed by Parliament on 5 October 2001. Since then, it has been coming into force in parts. Part I (Preliminary), Part VIII (Securities Industry Council and Take-over Offers), Part IX (Supervision and Investigation), Part X (Assistance to Foreign Regulatory Authorities) and Part XV (Miscellaneous, except ss 314 and 342(1) and (3)) came into effect on 1 January 2002.

The Monetary Authority of Singapore ('MAS') announced, on 23 May 2002, that Part XIII of the SFA would come into force on 1 July 2002. Part XIII of the SFA deals with offers of shares, debentures and collective investment schemes.

In tandem with the announcement of the in-force date of Part XIII of the SFA, the MAS has also issued new regulations to supplement Part XIII, of which the main regulations are:

• the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2002 ('Shares and Debentures Regulations'); and
• the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2002 ('Collective Investment Schemes Regulations').

These regulations also came into force on 1 July 2002.

Overview
The coming into force of Part XIII essentially means that the provisions relating to offers of shares and debentures move from the Companies Act (Cap 50) ('Companies Act') to the SFA. This is largely a relocation exercise as the major amendments to the prospectus regime were done in 13 November 2000 when the Companies Act was amended.

However, this does not mean that the coming into force of Part XIII will not see any changes. Of the changes made, the following sets of changes arising from Part XIII of the SFA stand out:

• the matters that need to be disclosed in the prospectus have undergone further refinement;
• the process of lodgement and registration of a prospectus has also undergone further updating and refinement to encourage greater disclosure and to reflect MAS's position as the main regulatory body; and
• the current regime of 'interests other than shares' under Part 4, Division 6 of the Companies Act will be replaced by a new concept: 'collective investment schemes'.

These changes will be discussed in greater detail below.

Changes to Matters for Disclosure and the Prospectus Registration Process

Registration of prospectus with MAS

Prospectuses will no longer be registered with the Registry of Companies and Businesses, and the MAS will take over as the body overseeing the lodgement and registration of prospectuses.

Matters that must be disclosed in prospectuses
Matters that must be disclosed in a prospectus must satisfy the general test on disclosure set out in s 243 of the SFA. Generally speaking, this provides that prospectuses must disclose all the information that investors and their professional advisors would reasonably require to make an informed assessment of an investment, as well as the matters prescribed by the MAS. This test is essentially the same as that previously contained in s 45 of the Companies Act.

The new regulations set out the matters that have been prescribed by the MAS by way of prospectus checklists, and updates the current list of matters set out in the Fifth Schedule of the Companies Act. In this regard, the Shares and Debentures Regulations have set out a total of eight checklists in the Fifth to Twelfth Schedules (a three-fold increase from the current three in the Companies Act). Broadly speaking, these checklists are classified to distinguish between the following circumstances:

• whether it is shares or units of shares that are to be issued, or whether it is debentures that are to be issued;
• whether the shares, units of shares, debentures, or units of debentures are to be quoted on a securities exchange, or whether they are not to be quoted; and
• where debentures or units of debentures are to be issued under a debenture issuance programme.

These distinctions have been drawn in recognition of the different investment risks arising from each of the different situations set out above, and the separate checklists provide for different disclosure requirements accordingly. Hence:

• for debenture issues, the amount of historical financial information required in the prospectus has been reduced, focusing on the issuer's ability to meet its financial obligations;
• where the debenture or bond issue will involve multiple offerings over a period of time under a debenture or bond issuance programme, a base prospectus may be registered (this is further discussed below); and
• prospectuses for shares or debentures that will be listed and traded on a securities exchange are subject to more exacting standards than for unlisted shares or debentures, because listed shares or debentures tend to be offered to a wider group of investors.

Bond and debenture issues only require registration of a base prospectus
As noted above, in respect of bond and debenture issues, the new regulations also allow an issuer to make multiple offers under a debenture issuance programme, provided that the issuer registers with the MAS a base prospectus that is applicable for the entire programme. Subsequently, the issuer will only need to register a brief pricing statement containing information specific to that particular offer without having to register the base prospectus. The intent is to encourage bond and debenture issues in Singapore by reducing costs for bond and debenture issuers, and allow them to raise funds more quickly.

Two-week holding period for prospectuses lodged to obtain public feedback
Section 240(8) of the SFA provides that the MAS may register a prospectus lodged with it on any day between the 14th and 21st day from the date of lodgement of the prospectus, unless it has extended the time of registration (which cannot be more than 28 days from the date of lodgement of the prospectus). This essentially provides the MAS with a minimum two-week holding period to review the prospectus.

The MAS has also explained in its press release dated 23 May 2002 that during this time, the MAS will post a copy of the lodged prospectus on a database to be made available on the MAS website, the Offers and Prospectuses Electronic Repository and Access ('OPERA'). This power is provided for under s 240(12) of the SFA. The public may view and comment on offer documents lodged with the MAS. The intent of this is to raise the standard of prospectus disclosure. The MAS has assured the public that there will be safeguards in place to discourage frivolous comments.

Stop orders
The MAS has the power to issue a stop order on a prospectus that has been lodged and registered with it (s 242 SFA). The intent of this provision is to act as a safeguard should a prospectus be found to be misleading or deficient after it has been registered. Such a stop order will direct the person issuing the prospectus to halt any issues or shares or debentures, or units of shares or debentures. Furthermore, where a stop order has been issued, s 242 of the SFA also provides that any applications made prior to the issuance of the stop order will be deemed to have been withdrawn. Where shares or debentures, or units of the same, have already been issued prior to the issuance of the stop order, any such issuance will be void. In either case, applicants must be refunded any payments they have made.

Collective Investment Schemes
Currently, the Companies Act regulates the offer of 'interests other than shares' under Part 4, Division 6 of the Companies Act. In order to bring our regulatory regime in line with that of international practice, the SFA instead provides for the regulation of 'collective investment schemes'. Collective investment schemes are wider than and encompass 'interests other than shares' and include unit trusts, investment arrangements, mutual funds and close-end funds. The SFA divides collective investment schemes into two categories: (1) schemes constituted in Singapore; and (2) schemes constituted outside Singapore with a different regulatory regime for each.

In addition, the SFA will also allow foreign investment funds to market themselves in Singapore, without having to constitute a public company in Singapore, as currently required under the Companies Act.

Offers of foreign collective investment schemes to institutional and sophisticated investors
Where under the current regime, an offer of interests in an overseas investment fund cannot take advantage of the exemptions under Part 4, Division 5A of the Companies Act (ie public offers made to sophisticated or institutional investors), collective investment schemes under the SFA may be offered to such investors.

Where investment in a collective investment scheme is to be offered to institutional investors, such offer of a collective investment scheme does not have to comply with the requirements in the SFA for collective investment schemes (s 304 SFA).

Where investment in a collective investment scheme is to be offered to sophisticated investors, such offers of such collective investment schemes (referred to in the Collective Investment Schemes Regulations as restricted schemes) will be subject to less stringent requirements. To be approved by the MAS, such offers must satisfy the following criteria (set out in paras 2 and 3 of the Fifth Schedule of the Collective Investment Schemes Regulations):

• the manager must be licenced (if the restricted scheme is one constituted in Singapore, the manager must be the holder of a capital markets services licence or otherwise exempted);
• the manager must be 'fit and proper'; and
• if the collective investment scheme is a Singapore unit trust, an approved trustee must be appointed.

Disclosure requirements for collective investment schemes
The Third Schedule of the Collective Investment Schemes Regulations sets out a checklist of matters to be disclosed in prospectuses for collective investment schemes. This checklist updates and revises the current list of matters set out in the Seventh Schedule of the Companies Act. The key changes are:

• items which are necessary for making an investment decision, such as the investment objective and specific investment risks of a fund as well as fees and charges, which are currently administrative requirements, will be required; and
• new requirements, such as the track record of the manager and, where applicable, information on the past performance of a fund, have been added.

Advertising for collective investment schemes
The Collective Investment Schemes Regulations enhance the advertising restrictions on collective investment schemes to prevent false and misleading advertisements. The provisions include detailed requirements on how each of the following should be presented if included in an advertisement:

• past performance of a fund;
• comparison of past performance of a fund with that of another fund, index or that of another form of investment; and
• performance of the manager or submanager.

Projections of future fund performance continue to be generally prohibited. To prevent important information from being hidden in print, advertisements must comply with specified criteria on legibility and font size.

Conclusion
The gradual implementation of the SFA has allowed companies to prepare themselves for the new regime. The coming into force of Part XIII of the SFA will help in Singapore's continuing efforts to upgrade its financial markets, and assist companies in the raising of finances in Singapore. The remaining parts of the SFA will soon be brought into effect as well, and the MAS press release has indicated that this will take place in the third quarter of this year.

Lim Wee Teck
Rajah & Tann