Consultation Paper
Proposed changes to the SGX-ST Rules and other rulebooks 10 October 2017
Singapore Exchange
Responding to this Consultation Paper On behalf of Singapore Exchange Securities Trading Limited (“SGX-ST”), The Central Depository (Pte) Limited, Singapore Exchange Derivatives Trading Limited (“SGX-DT”) and Singapore Exchange Derivatives Clearing Limited (“SGX-DC”), Singapore Exchange Limited (“SGX”) invites comments on this consultation paper. Please send your responses through any of the following means: Mode
Correspondence Details
Email
[email protected]
Mail
Singapore Exchange Regulation 11 North Buona Vista Drive #06-07, The Metropolis Tower 2 Singapore 138589 (Attention: Regulatory Development & Policy)
Responses should include a summary of the major points, a statement of interest, and reasoned explanations. Please identify the specific policy or rule proposal on which you are commenting. Please also include your full name and, where relevant, the organisation you are representing, as well as your email address or contact number so that we may contact you for clarification. Anonymous responses may be disregarded. We may make public all or part of any written submission, and may disclose your identity. You may request confidential treatment for any part of the submission that is proprietary, confidential, or commercially sensitive, by clearly marking such information. You may request not to be specifically identified. We may subject any policy or rule amendment to regulatory concurrence. For this purpose, you should note that notwithstanding any confidentiality request, we may share your response with the relevant regulator. By sending a response, you are deemed to have consented to the collection, use, and disclosure of personal data that is provided to us for the purpose of this consultation paper or other policy or rule proposals. We request all comments by 7 November 2017.
i
Contents I
II
III
IV
V
Introduction 1
Scope of this Consultation Paper .................................................................................................... 1
2
Structure of this Consultation Paper .............................................................................................. 1
Proposed updates to policies and rules relating to SGX-ST members, registrants and their obligations3 3
Registration of persons ................................................................................................................... 3
4
Members’ arrangements with remisiers ........................................................................................ 4
5
Internal controls by members......................................................................................................... 4
6
Other changes ................................................................................................................................. 6
Proposed changes to supervisory rules.................................................................................................... 7 7
Suspension or restriction of SGX-ST members, their CEOs and their trading representatives ...... 7
8
Termination of SGX-ST membership............................................................................................... 7
9
Reporting of adverse events by members and designated market makers of SGX-ST .................. 8
10
Disciplinary Committee and Appeals Committee ........................................................................... 8
Proposed changes arising from amendments to the SFA ......................................................................10 11
Definitions and terminology .........................................................................................................10
12
Other SFA amendments ................................................................................................................10
Other proposed changes ........................................................................................................................12 13
VI
Limitation of liability and indemnity .............................................................................................12
Proposed drafting changes to SGX-ST Rules ..........................................................................................13 14
Existing SGX-ST practices ..............................................................................................................13
15
Structural and drafting changes to SGX-ST Rules .........................................................................13
ii
I
Introduction
1
Scope of this Consultation Paper
1.1
SGX seeks public comment on proposed amendments to the following rulebooks:
1.2
(a)
SGX-ST Rules;
(b)
CDP Clearing Rules;
(c)
DVP Rules;
(d)
CDP Depository Rules;
(e)
Futures Trading Rules; and
(f)
SGX-DC Clearing Rules
The proposed rule amendments are to: (a)
update policies and rules relating to SGX-ST members, registrants and their obligations;
(b)
make changes to the SGX-ST supervisory rules;
(c)
make consequential changes to the various rulebooks as a result of changes to the Securities and Futures Act and the regulations promulgated thereunder (collectively “SFA”) that will be introduced by the Securities and Futures (Amendment) Act 2017 or that the Monetary Authority of Singapore (“MAS”) has indicated it intends to introduce1;
(d)
make other proposed changes, such as to the limitation of liability and indemnity clauses, under the various rulebooks;
(e)
make structural and drafting changes to the SGX-ST Rules, such as the deletion of obsolete rules, the formalisation and clarification of existing SGX-ST practices and the reorganisation of the rulebook.
2
Structure of this Consultation Paper
2.1
Details of the proposed rule amendments are set out in Parts II to VI of this consultation paper.
2.2
The proposed rule amendments are set out in the appendices to this consultation paper as follows: Appendix 1
Structure of the restructured SGX-ST Rules (“new SGX-ST Rules”), compared to the structure of the current SGX-ST Rules
Appendix 2
New SGX-ST Rules compared against the current SGX-ST Rules
1
See for example (i) Consultation Paper on Short Selling (published by MAS on 14 December 2016), (ii) Consultation Paper I on Draft Regulations Pursuant to the Securities and Futures Act (published by MAS on 28 April 2017) and (iii) Consultation Paper II on Draft Regulations Pursuant to the Securities and Futures Act (published by MAS on 26 May 2017). As the SFA changes consulted on are only in draft form and have not been finalised, the rulebooks may have to be further amended when those changes are finalised.
1
Appendix 3
Clean version of the new SGX-ST Rules
Appendix 4
Current SGX-ST Practice Notes and Directives amended and re-issued as new SGX-ST Regulatory Notices; and new SGX-ST Practice Note 2.2.3 and 6.2.2
Appendix 5
Amended CDP Clearing Rules
Appendix 6
Amended DVP Rules
Appendix 7
Amended CDP Depository Rules
Appendix 8
Amended Futures Trading Rules
Appendix 9
Amended SGX-DC Clearing Rules
2
II
Proposed updates to policies and rules relating to SGX-ST members, registrants and their obligations
3
Registration of persons Registration of officer responsible for compliance with Rules
3.1
The current SGX-ST Rule 6.1.1(1) provides for the registration of at least one of a member’s executive director with SGX-ST and further provides that such registered director(s) will be responsible for ensuring that the member complies with the SGX-ST Rules.
3.2
The requirement for registration is to ensure that compliance with SGX-ST Rules is upheld by a senior executive person(s) within each member. To best serve that objective, the person required to be registered should be the one ultimately responsible for the day-to-day management of the entire company and its activities. The most appropriate person to be registered is the chief executive officer of the member. SGX notes that registration of the CEO is currently practised by all members.
3.3
SGX therefore proposes to make changes to provide for the registration of a member’s chief executive officer or equivalent (“CEO”)2, instead of its executive director(s). A member should notify SGX-ST immediately if its CEO triggers any deregistration condition, whereupon the CEO will be deemed deregistered. Please see new SGX-ST Rules 2.6 and 2.7. Registration of trading representatives
3.4
Currently, SGX-ST approves the registration of trading representatives with the current SGX-ST Rule 7.1.1 setting out the eligibility criteria and the current SGX-ST Rule 7.2.4 setting out the grounds on which SGX-ST may refuse registration. SGX-ST will automatically deregister a trading representative when de-registration conditions in the current SGX-ST Rule 7.7.1 are triggered.
3.5
SGX proposes to make changes to this process such that SGX-ST will no longer approve registrations of trading representatives. Instead, SGX-ST will leave it to members to ensure that an individual meets SGX-ST’s eligibility criteria before registering that individual with SGX-ST as a trading representative. SGX-ST will retain the discretion to refuse registration in the appropriate circumstances. Please see new SGX-ST Rule 2.8. Members will be required to notify SGX-ST if a trading representative triggers any deregistration condition, whereupon the trading representative will be deemed deregistered. Please see new SGX-ST Rule 2.9.
3.6
The proposed change will streamline the registration process. Currently, SGX understands that members already perform eligibility checks on potential trading representatives. In the circumstances, another layer of checks by SGX-ST means unnecessary duplicated work. Further, it is appropriate for and in the interest of members to perform those eligibility checks as their trading representatives pose financial and reputational risks to them.
3.7
Consistent with this approach, the current SGX-ST Rule 7.5.6 will also be amended so that oversight of a trading representative’s other businesses will rest with his member instead of SGXST. Please see new SGX-ST Rule 2.17.10.
2
The definition of “CEO” follows the definition in the SFA (i.e. among other things, he is the person who is “principally responsible for the management and conduct of the business of the relevant person in Singapore”) – see section 3(g) of the Securities and Futures (Amendment) Act 2017.
3
4
Members’ arrangements with remisiers Legal agreement with remisiers
4.1
The current SGX-ST Rule 4.6.13(2) not only requires a member to enter into a written agency agreement with each remisier that it engages, but also stipulates the terms which such agreement must address. SGX proposes to only require a written agency agreement setting out the terms of the relationship between the parties. Please see new SGX-ST Rule 4.20.2(a).
4.2
SGX remains of the view that there is a need for a formalised agency agreement between remisiers and members. In light of the increasing maturity of the industry however, we consider it appropriate to allow for parties to negotiate the terms of such agreement. Risk management of remisiers
4.3
The current SGX-ST Rule 7.6 prescribes a security deposit of $30,000 to be placed by a remisier with its member. It also provides that the amount may be increased if the member is of the opinion that the deposit is insufficient for the volume of business transacted by the remisier.
4.4
SGX proposes to amend the SGX-ST Rules to remove the prescription of a minimum amount for the security deposit. The new rules will leave it to the member to determine the appropriate amount, taking into account the member’s credit assessment of the remisier and the trading limit assigned to the remisier. Please see new SGX-ST Rules 4.20.2(b), (c) and (d).
4.5
The new rules are intended to provide for proper risk management of remisiers by members, while providing members the flexibility of calibrating such arrangements appropriately for their businesses3. The removal of the minimum sum may also have the benefit of removing a barrier of entry for younger remisiers who have less business and can only put up a smaller deposit. This may attract more remisiers into the industry and improve service standards.
5
Internal controls by members
5.1
SGX intends to make changes to existing requirements on internal controls to be imposed by members in various areas, the key ones which are set out below. The changes seek to move to a principle-based, as opposed to a prescriptive, approach. Additionally, requirements that are no longer necessary in light of changes in market circumstances have been adjusted or removed. In general, SGX will not mandate specific steps and procedures that have to be adopted, but will instead preserve the general obligation to have in place effective internal controls and processes. This will afford members increased flexibility in the implementation of effective controls calibrated for their business activity. Trading by members’ employees and agents
5.2
The current SGX-ST Rule 12.17 provides that a member must require its officers, employees or agents to get prior written approval from senior management before they execute trades for their own benefit4. Procedures to guard against the use of confidential information by the members’ employees and agents are also stipulated5.
5.3
SGX proposes to amend the current SGX-ST Rule 12.17 to adopt a more principle-based approach.
3
SGX will take a principle-based approach in respect of such credit assessments and trading limits. However, to guard against an arbitrary limit being assigned to a remisier, a member will be required to ensure that any limit set take into account the credit assessment conducted on and the security deposit required of the remisier. 4 Current SG-ST Rules 12.17.1 and 12.17.2 5 Current SGX-ST Rule 12.17.5
4
While members will still be required to have in place procedures to ensure that officers, employees and agents who are privy to confidential information relating to any dealings in securities or futures contracts do not misuse such information to trade for their own benefit, such procedures will not be prescribed. Please see new SGX-ST Rule 4.19. This will afford members more flexibility in applying effective policies and procedures that are calibrated for their business. Opening of customer accounts 5.4
The current SGX-ST Rules 12.3.1, 12.32, and 12.3.3 set out the particulars that a member must obtain before it opens an individual customer account, corporate customer account and agency customer account respectively.
5.5
SGX proposes to amend the rules to adopt a less prescriptive and more principle-based approach. Instead of setting out a list of the particulars that a member must obtain before opening customer accounts, SGX proposes to change the rule to indicate that a member must undertake necessary know-your-customer checks before opening such accounts. Please see new SGX-ST Rule 4.15.2. To continue to provide guidance to members, the particulars in the existing rules will be set out in a Practice Note. Off-premises broking
5.6
The current SGX-ST Rule 13.13 requires members whose trading representatives carry out offpremises broking to inform SGX-ST and its customers of that, and to obtain customers’ written acknowledgement.
5.7
SGX proposes to remove that requirement. However, members will still be required to disclose to customers the limitations of off-premises broking. Please see new SGX-ST Rule 4.22.2.
5.8
The change is proposed in light of off-premises broking becoming prevalent and common-place, with customers becoming accustomed to it. As such, special attention no longer needs to be called to the practice. However, as service levels associated with off-premises broking may differ, SGX considers it appropriate that any limitations should still be communicated to customers. In this regard, we consider that a disclosure of the risk, as part of general risk disclosure, will be adequate. Trade restrictions on member undertaking research
5.9
The current SGX-ST Rule 15.8.1(4) provides that a member undertaking research and its research staff must not trade contrary to the most recent research report published unless three market days have passed, subject to certain exceptions.
5.10
SGX proposes to add a further exception that the prohibition will not apply if the proprietary desk of the member had no knowledge of the report before it was issued. This is to avoid the overapplication of the prohibition to even those situations where there is little risk of any conflict of interests. Please see new SGX-ST Rule 4.39.10(d). Outsourcing requirements
5.11
SGX proposes to formalise in the SGX-ST Rules requirements and standards that a member must comply with when it outsources any of its operations. Please see new SGX-ST Rule 4.11. Those requirements and standards are currently already in place and have been communicated to members via email. The rationale behind them is so members remain primarily responsible for the operations that they outsource. They also give SGX-ST access to records and operations of outsourced activities so that SGX-ST can effectively carry out its supervisory functions.
5
6
Other changes Register of interests
6.1
The current SGX-ST Rules 4.6.16 and 7.5.5 require members and trading representatives to maintain a register of their interests in securities (and futures contracts listed on SGX-ST), in accordance with the SFA. The rules reflect the requirement in regulation 4 of the Securities and Futures (Licencing and Conduct of Business) Regulations (“SF(LCB) R”) for such a register to be maintained.
6.2
SGX proposes to remove from the SGX-ST Rules the requirement to maintain a register of interests as SGX-ST does not require the register for its regulatory purposes. However this removal will not affect any obligations under the SF(LCB)R.
Question 1: SGX seeks your views and comments on the various proposals to update policies and rules relating to SGXST members, registrants and their obligations. In particular, do you agree with: (a)
the proposed changes to the registration of persons with SGX-ST?
(b)
the proposed changes to members’ arrangements with remisiers?
(c)
the proposed changes to internal controls by members?
(d)
the other proposed changes?
(e)
the rule amendments to effect the proposed changes?
Please provide reasons for your views/comments.
6
III
Proposed changes to supervisory rules
7
Suspension or restriction of SGX-ST members, their CEOs and their trading representatives
7.1
SGX intends to harmonise the process and factors of consideration for the exercise by SGX-ST of its powers of suspension and restriction against members, registered officers and trading representatives6. This will eliminate any inconsistencies and provide clarity as to the process that applies when a person is suspended or restricted.
7.2
Under the proposed new rule:
7.3
(a)
The duration of the suspension or restriction will be standardised to such period as determined by SGX-ST except where the suspension or restriction is on the grounds of an on-going investigation in which case, the suspension or restriction will end upon acquittal, the charge not being proceeded with or the investigation not being proceeded with. This will ensure that a person may be suspended or restricted for such period as may be appropriate.
(b)
Any suspension or restriction by SGX-ST will be subject to appeal to the Appeals Committee by the affected person (within 14 days of being notified of SGX-ST’s decision). This will provide assurance of accountability and transparency for members, as well as an avenue of appeal against SGX-ST’s decision.
SGX also proposes to introduce new grounds on which SGX-ST may suspend or restrict the activities of a member, its chief executive officer or its trading representative. In particular, SGXST may do so if the relevant person: (a)
engages in conduct that is inconsistent with principles of just and equitable trading;
(b)
conducts its activities in a manner detrimental to the financial integrity, reputation, or interests of SGX-ST, or organised markets established or operated by SGX-ST; or
(c)
breaches any term, condition, or restriction imposed by SGX-ST pursuant to its powers under the SGX-ST Rules.
7.4
This will give SGX-ST express power to take action against an errant member, chief executive officer or trading representative in appropriate circumstances. Currently, when (a) and (b) occur, the Disciplinary Committee may take action against the relevant person.
7.5
SGX considers that the new rule strikes an appropriate balance between the need for prompt action by SGX-ST to preserve market integrity, and that of transparency and due process. Please see new SGX-ST Rules 2.22 and 2.24.
8
Termination of SGX-ST membership
8.1
Currently, the membership of a member may be terminated by the Disciplinary or Appeals Committee in the exercise of their powers.
8.2
SGX proposes to introduce the power for SGX-ST to terminate the membership of any member without referring the matter to the Disciplinary or Appeals Committee, such power to be exercisable in appropriate circumstances, namely:
6
The powers are variously found in the current SGX-ST Rules 8.12, 11.4.3 and 14.12.
7
(a)
if the member’s trading rights have ceased (including by reason of having been suspended);
(b)
if the member has been dormant for more than two years; or
(c)
if the member has failed to pay fees for more than two years.
Please see new SGX-ST Rule 2.23. 8.3
Any termination by SGX-ST under (a) will be subject to appeal to the Appeals Committee. Please see new SGX-ST Rule 2.24.
8.4
The purpose of the new power is to allow SGX-ST to remove from its register those members who no longer have any legitimate interest in maintaining their membership. Removing such members from the register will also allow for more effective use of regulatory and market supervisory resources. Where the circumstances in (a) apply, SGX-ST would exercise its powers to terminate a member only in appropriate circumstances, for example if the member has been suspended for a prolonged period and is unable or unwilling to do what is required to have its trading rights reinstated. SGX-ST’s decision in such a situation will be subject to appeal to the Appeals Committee. This aligns with the proposed process when a member is placed under suspension by SGX-ST as discussed in the preceding section.
9
Reporting of adverse events by members and designated market makers of SGXST
9.1
The current SGX-ST Rules 4.6.9 and 5.5.9 set out the events that a member and a designated market maker would have to immediately notify SGX-ST of upon occurrence.
9.2
SGX proposes to additionally require a member and designated market maker to inform SGX-ST immediately if it is experiencing an emergency or potentially debilitating situation that threatens its operations (e.g. a cyber-threat or terror attack). Please see new SGX-ST Rules 2.18 and 6.6.8.
9.3
Such situations can potentially impact the operation of the market and this new reporting requirement would allow SGX-ST to take the necessary action to maintain a fair, orderly, and transparent market.
10
Disciplinary Committee and Appeals Committee
10.1
The SGX-ST Rules, CDP Clearing Rules, Futures Trading Rules and SGX-DC Clearing Rules all provide for the establishment of a Disciplinary Committee and an Appeals Committee. They also set out the powers of those committees, and the rules of procedure for hearings before them. SGX proposes to make the following changes to all four rulebooks. Disciplinary and Appeals Committee eligibility criteria
10.2
The four rulebooks currently provide that to be eligible as a member of the Disciplinary or Appeals Committee, among other things, a person must not be a director, officer or employee of SGX or its related corporations. The rulebooks will be amended to provide that such independence must exist not only at the point of the proposed appointment but also for the three years preceding the proposed appointment. This aligns the standard of independence to that for the Listings Disciplinary Committee as set out in the SGX-ST Listing Manual (Mainboard Rules) and SGX-ST
8
Listing Manual (Catalist Rules)7. 10.3
Please see new SGX-ST Rule 12.5.2 and 12.6.1, CDP Clearing Rule 11.4.1 and 11.7.1, Futures Trading Rules 7.5.1 and 7.9.1 and SGX-DC Clearing Rules 3.01.2 and 3.02.2. Maximum fine by Disciplinary Committee
10.4
The four rulebooks currently provide that the maximum fine that the Disciplinary Committee may impose is $250,000. SGX proposes to amend the rulebooks to make it explicit that the maximum fine of $250,000 is for each charge, and to impose a cap of $1,000,000 per hearing if multiple charges are heard at the hearing.
10.5
Please see new SGX-ST Rule 12.5.7(c), CDP Clearing Rule 11.5.4(3), Futures Trading Rule 7.6.2(c) and SGX-DC Clearing Rule 4.03A.4.3. Procedures
10.6
The four rulebooks currently contain procedures for hearings before the Disciplinary Committee and the Appeals Committee. SGX proposes to migrate those procedures to a separate handbook. The change will streamline the rulebooks and provide a single point of reference for participants with respect to the procedures of the committees. The new handbook will be legally binding and will be available publicly.
10.7
Please see Chapter 12 of the new SGX-ST Rules, CDP Clearing Rule 11, Futures Trading Rules 7.5 to 7.11 and Chapters 3 and 4 of the SGX-DC Clearing Rules.
Question 2: SGX seeks your views and comments on the proposed changes to SGX-ST’s supervisory rules. In particular, do you agree: (a)
that the changes to SGX-ST’s powers to suspend or restrict the activities of registered person strike an appropriate balance between the need for prompt action by SGX-ST to preserve market integrity, and that of transparency and due process?
(b)
with the length of time (14 days) within which any appeal against a decision by SGX-ST to suspend, restrict or terminate a registered person must be made?
(c)
with the new eligibility criteria for the Disciplinary and Appeals Committees?
(d)
with the rule amendments to effect the proposed changes?
Please provide reasons for your views/comments.
7
See Rule 1403(2) of the SGX-ST Listing Manual (Mainboard Rules) and Rule 303(2) of the SGX-ST Listing Manual (Catalist Rules) for the Disciplinary Committee. Rule 1404(2) of the SGX-ST Listing Manual (Mainboard Rules) and Rule 304(2) of the SGX-ST Listing Manual (Catalist Rules) for the Appeals Committee.
9
IV
Proposed changes arising from amendments to the SFA
11
Definitions and terminology
11.1
The term “securities” is currently defined in the SFA and in the rulebooks to mean a broad range of products including (but not limited to) debentures, stocks, shares, company warrants, structured warrants, units in a collective investment scheme (“CIS”) and units in a business trust.
11.2
MAS will be amending the definition of “securities” in the SFA to align its meaning closer to “a simple understanding of [the term], confining it to represent only equity instruments representing legal or beneficial ownership interests and debt instruments”8. Warrants and units in a CIS will no longer be classified as “securities”. Instead, warrants will be re-classified as “derivatives contracts”, and units in a CIS will exist in its own separate product class. To refer to the universe of products currently known as “securities”, the SFA will use the term “specified products” instead.
11.3
With the SFA changes, SGX proposes to add a new definition of “securities” in the rulebooks (other than the CDP Depository Rules). The definition will be delinked from that in the SFA and will continue to have the same meaning that the term is currently understood to have. Please see new SGX-ST Rule 13.1 for the new definition of “securities”. Please also see CDP Clearing Rule 1.2.1, Futures Trading Rule 8.1 and SGX-DC Clearing Rule 9.01.1.
11.4
For the purposes of those rules that refer to the SFA (e.g., new SGX-ST Rule 3.11 which relates to margin financing) however, the SFA term (i.e., “specified product”) will be used instead. This is to avoid any inconsistencies between the rules and the SFA.
11.5
“Securities” in the CDP Depository Rules will have the same meaning given to the term in section 81SF of the SFA, which governs the central depository system. Please see CDP Depository Rule 17.1.
11.6
Other definitions in the SFA will also be changed. For example, the term “securities financing” will be replaced with the term “product financing”; and a “market”, a “securities market” or a “futures market” will be referred to as an “organised market” instead. SGX proposes to make corresponding changes in the rulebooks.
12
Other SFA amendments
12.1
Changes to requirements under the SFA will be introduced by the Securities and Futures (Amendment) Act 2017. The MAS has also indicated that it intends to make various changes to existing SFA requirements. The rulebooks will be amended for alignment with those new SFA requirements, including the ones set out below.9 Requirement to mark short sell orders on SGX-ST
12.2
The SFA will be amended to introduce a requirement to mark short sell orders10. Consequently, SGX proposes to amend the SGX-ST Rules so that they are aligned with the new SFA requirement. Please see new SGX-ST Rule 8.7.
8
See MAS’s “Response to feedback received on proposed amendments to the Securities and Futures Act” published on 7 November 2016. 9 As the final form of some of the new SFA requirements has not been published, the rulebooks may have to be further amended when the new SFA requirements are finalised. 10 See new Part VIIA of the SFA.
10
Best execution requirement on SGX-ST 12.3
The MAS intends to introduce new best execution requirements on capital market services licensees. Consequently, SGX proposes to amend the SGX-ST Rules to clarify that compliance with those requirements is part of members’ obligations. Please see new SGX-ST Rule 5.5.1(d). Risk disclosure to SGX-ST customers
12.4
The MAS has consulted on a new requirement for a capital market services licence holder to disclose in writing to customers the material risks of capital market product11. The current SGX-ST Rule 12.3.6 that requires members to obtain risk acknowledgement statements from customers will be amended for alignment with the new requirement. Statements of accounts to SGX-ST customers
12.5
The MAS has also consulted on amendments to the current SF(LCB)R requirement relating to statement of accounts for customers12. The current SGX-ST Rule 12.7.2(1) that requires members to send customers a statement of account will be amended for alignment with the amended requirement.
Question 3: SGX seeks your views and comments on the proposed drafting and other changes to take into account the changes to the SFA. In particular, do you agree that: (a)
the changes will sufficiently eliminate any conflict between the rulebooks and the SFA?
(b)
the changes will not render the rulebooks unnecessarily difficult to understand?
Please provide reasons for your views/comments.
11 12
See draft regulation 47DA of the draft SF(LCB)R published by MAS on 26 May 2017. See draft regulation 40(1A)(b) of the draft SF(LCB)R published by MAS on 26 May 2017.
11
V
Other proposed changes
13
Limitation of liability and indemnity
13.1
With Singapore Exchange Regulation Pte Ltd (“SGX RegCo”) taking over the regulatory responsibilities of SGX and its regulated entities on 15 September 2017, administrative amendments were made to the SGX-ST Rules, CDP Clearing Rules, CDP Depository Rules, Futures Trading Rules and SGX-DC Rules to make clear SGX RegCo’s authority to exercise the rights, powers, authorities and discretions of the relevant regulated entity under the relevant rules, and to allow the regulated entities to delegate and assign those rights, powers, authorities and discretions to any other person or entity (“delegatee”).
13.2
Given that SGX RegCo acts on behalf of the regulated entities, amendments were also made to expand the limitation of liability and indemnity clauses in those rules to cover SGX RegCo and its directors, officers, employees, representatives, and agents. SGX now proposes to further expand those clauses to also cover any other delegatees, as such delegatees will also be acting on behalf of the regulated entities and should be duly protected.
13.3
Additionally, SGX proposes to amend the limitation of liability and indemnity clauses in the various rulebooks to cover related companies of the relevant SGX entity (i.e., other SGX entities). Necessary regulatory actions taken by an SGX entity (e.g., suspension of trading by SGX-ST, the securities exchange) can have a corollary impact on the activities of other SGX entities (e.g., the clearing and settlement of trades by CDP, the securities clearing house). The amendment is thus necessary so that legitimate actions taken by SGX in the discharge of its functions will not expose it to legal liability.
13.4
Please see new SGX-ST Rules 1.9 and 1.10, CDP Clearing Rule 1.1.3 and Chapter 10, CDP Depository Rule 1.1.2 and Chapters 13 and 14, Futures Trading Rules 1.6 and 7.3.8 and SGX-DC Clearing Rules 1.01, 2.34, 2.35 and 4.15.
13.5
The various limitation of liability clauses in the current SGX-ST Rules will also be combined into one rule with attendant drafting changes, for better readability. Please see new SGX-ST Rule 1.9.
Question 4: SGX seeks your views and comments on the proposed changes set out in Part V of this consultation paper and the rule amendments to effect the proposed changes. Please provide reasons for your views/comments.
12
VI
Proposed drafting changes to SGX-ST Rules
14
Existing SGX-ST practices
14.1
For transparency and clarity, existing SGX-ST practices will be formalised in the SGX-ST Rules. These include matters relating to error trades13, trading practices14 and SGX-ST investigations15.
15
Structural and drafting changes to SGX-ST Rules
15.1
SGX proposes to introduce Regulatory Notices as an additional regulatory instrument in the SGXST Rules, in addition to Directives and Practice Notes. Regulatory Notices in a rulebook are binding notices on market regulatory and operational matters which elaborate on the requirements of a rule. Regulatory Notices already exist as part of the Futures Trading Rules.
15.2
Existing matters found within Directives and Practice Notes, where appropriate, will be reissued in a binding form as Regulatory Notices.
15.3
In addition, SGX also proposes to re-organise and make general drafting changes to the SGX-ST Rules to improve their overall readability and clarity. Consistent with SGX’s principle-based approach, rules that are more appropriate as non-binding guidance will be moved to Practice Notes.16
15.4
The following rules will also be deleted: (a)
The current Chapter 10 of the SGX-ST Rules relating to foreign market linkages. SGX-ST does not have any foreign market linkages.
(b)
The current Chapter 10A of the SGX-ST Rules relating to the ASEAN trading linkage. With effect 6 October 2017, the ASEAN trading linkage will no longer be in operation.
(c)
The current Chapter 18 of the SGX-ST Rules relating to the trading of options that are listed or quoted on SGX-ST. There are no options listed or quoted on SGX-ST.
Question 5: SGX seeks your views and comments on the other proposed structural and drafting changes to the SGX-ST Rules. Please provide reasons for your views/comments.
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Among other things, SGX will make clear that it will only review an error trade if parties to the trade have gone through the process to attempt mutual cancellation. 14 Among other things, SGX will clarify that SGX-ST’s determination of whether a course of conduct is likely to create a false or misleading appearance will be made on an objective basis (see new SGX-ST Rule 5.12.2); trade confirmation messages contain the identity of the counterparties (see new SGX-ST Rule 8.1.2); and SGX-ST may, upon a member’s request, assist that member to withdraw an order if the member is unable to do so without SGX-ST’s assistance (see new SGX-ST Rule 8.4). 15 SGX will clarify that SGX-ST may refer investigations of registered persons to another investigating authority if SGXST is of the opinion that the circumstances warrant the referral (see new SGX-ST Rule 12.1.5). 16 See for example the current SGX-ST Rules 4.2.4 and 5.2.4, the details in which will be moved to new SGX-ST Practice Note 2.2.3 and 6.2.2.
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