Securities and Financial Services Regulation

Date01 December 2018
AuthorHans TJIO LLM (Harvard), MA (Cambridge); Advocate and Solicitor (Singapore), Barrister (Middle Temple); Professor, Faculty of Law, National University of Singapore.
Published date01 December 2018
Publication year2018
Citation(2018) 19 SAL Ann Rev 738

25.1 There were about ten cases in 2018 involving securities or capital markets regulation, as the area may increasingly become known in Singapore with the coming into effect of the Securities and Futures (Amendment) Act 20171 in October 2018. This is because one of the main changes introduced was the enhanced coverage of the Securities and Futures Act2 to include over-the-counter (“OTC”) “derivatives contracts” as opposed to just exchange-traded “futures contracts” for, amongst other things, licensing purposes and exchange approval. At the same time, many of the provisions in the Act now apply to “capital markets products” rather than just “securities” or “futures contracts” through a streamlining process that has removed, for example, the duplication of provisions covering market abuse (although there are now a separate set of provisions on market abuse for the area of “financial benchmarks”).3 At the same time, provisions that in the past were peculiar to just “securities”, such as prospectus requirements, now apply to “securities” as well as “securities-based derivatives contracts”, although there may be more exclusions or exemptions in the case of the latter. For example, with the securities-based derivatives contracts, there is often a partial exemption under s 277 of the Securities and Futures Act in the case where the underlying is a share in a listed company, and what is needed instead of a full prospectus is an offer information statement.

Securities and Futures Act as “forum mandatory statute”

25.2 It was held in Goldilocks Investment Co Ltd v Noble Group Ltd4 that the Securities and Futures Act was arguably a “forum mandatory statute”. Here, the issue was whether the plaintiff, a company incorporated in the United Arab Emirates that held shares in the defendant, a Singapore Exchange (“SGX”) listed company incorporated in Bermuda, could be said to be a member of the company. Under the Companies Act,5 a member had to be registered as such in the company's register of members, and that was also the case under Bermuda law for Bermudan companies incorporated there. By virtue of s 81SJ of the Securities and Futures Act,6 however, a person that held shares in a listed company that were immobilised in the SGX's Central Depository Pte Ltd (“CDP”) would be deemed to be members of the company, and the CDP would not be a member even if listed in the register of members. The problem here was that the plaintiff did not maintain direct accounts with the CDP but held their shares through a sub-account with DBS Nominees Pte Ltd (“DBS Nominees”), which itself had an account with the CDP. The plaintiff applied for a declaration that it was entitled to requisition certain resolutions (including proposing directors)7 qua member at the defendant

company's annual general meeting (which it also sought an interim injunction against) as it held 8.1% of its shares and that it was entitled to exercise all rights as a shareholder and member of the company.

25.3 Aedit Abdullah J held that there was a serious question to be tried despite the defendant company's argument that a person had to be on the company's own register of members as required under Bermudan law to be recognised as such. This was because it was arguable that the Securities and Futures Act, and in particular s 81SJ, could be said to be a “forum mandatory statute, displacing the application of foreign law”.8 The judge acknowledged that the plaintiff's position as sub-account holder did not fall within the literal scope of s 81SJ, but held that:9

… the equities of the situation did not require immediate strict compliance with s 81SJ and that the injunction application should not be dismissed on the basis that Goldilocks did not fall squarely within the wording of s 81SJ. I found that it was within Goldilocks's rights to so register itself as the depositor in respect of its shares in Noble in the CDP register. Following the discussion at the hearing, I directed that Goldilocks, at least, begins the process of such registration by 3 May 2018.

25.4 The balance of convenience lay in favour of granting the interim injunction, as the plaintiff could move its shares from their sub-account with DBS Nominees to a direct account with the CDP and would then clearly fall within the deemed membership protection of s 81SJ. However, the injunction was limited to the holding of the annual general meeting only and not other company general meetings.

Locus standi of bondholders in restructuring

25.5 Similar issues arise with the standing of bondholders in a restructuring exercise involving bond indentures. In Re Swiber Holdings Ltd,10 the trustees of notes issued by the company under its multicurrency debt issuance programme applied to the court for directions as to whether (a) the trustees were the proper party to vote in respect of the notes; and (b) if so, whether, and how, the trustees should take into account the views of the ultimate beneficial owners of the

notes in exercising its vote. The notes were issued under the Classical Global Notes structure, where one or more notes representing the entire principal amount of a series were placed with a depository (“the CDP”). The CDP then held the notes on trust for two clearing systems that hold their interests on trust for persons who hold accounts with the clearing systems. These account holders hold the beneficial interest in the notes on their own account, or for clients who are either the ultimate beneficial owners or intermediaries holding their interests for the ultimate beneficial owners. Section 81SJ did not apply and Kannan Ramesh J had to apply extant common law as well as interpret the relevant restructuring provisions in the Companies Act in determining how to count the votes for and against the restructuring proposals.

25.6 The trust deed provided that Swiber's obligations to pay out on the notes were owed to the trustee. It was also the trustee's right to institute proceedings against the issuer/borrower to enforce the issuer/borrower's obligations pertaining to the notes except in certain exceptional situations. The issue here, however, was whether bondholders had direct rights to vote in the judicial management of the company, which may have involved a scheme of arrangement. The court held that the ultimate beneficial holders of notes, in those cases, were creditors of the issuer company and might be entitled to vote directly in a judicial management and/or scheme depending on how the restructuring provision was phrased. Some of those provisions gave standing only to the trustee (for example, ss 227M–227N creditor meetings), whereas the bondholders could vote in meetings in place of the trustee to approve a scheme of arrangement under s 227X read with s 210 of the Companies Act. The latter situation was permitted on the basis that the bondholders were contingent creditors, and the common law recognised that contingent creditors could vote in scheme meetings. Where the trustee-only vote in the former situation was concerned, the court analysed four methods to determine how the trustee could still represent the views of the ultimate beneficial owners and opted for the “Split Vote Approach”,11 in which the trustee cast one vote “for” and one vote “against” in terms of number – in the event that the vote was split – and just one vote “for” or “against” where there was unanimity (as s 227N has a majority in number requirement). As for the value of trustee's votes (where s 227N also has a majority requirement), the trustees' voting value would be split to reflect the value of notes voting for and against.

Regulation of intermediaries
Capital markets services licence

25.7 Although not a case on the capital markets services licence for one of the seven regulated activities under the First Schedule to the Securities and Futures Act, Ochroid Trading Ltd v Chua Siok Lui12 (“Ochroid”) may have shown once again the importance of obtaining a licence in the context of the Singapore financial markets.

25.8 In the old case of Tan Chor Thing v Tokyo Investment Pte Ltd13 (“Tan Chor Thing”), which involved the pledge of shares with an unlicensed futures broker, it was held by Chan Sek Keong J (as he then was), whose judgment was affirmed by the Singapore Court of Appeal, that the failure to obtain a licence rendered the transaction illegal and unenforceable. On the facts, however, the plaintiff was allowed to recover the shares as he was not in pari delicto with the defendants and did not have to rely on the illegal agreement to found his claim to possession of the shares or to support the claim. The court thought that the then Futures Trading Act14 was intended to protect members of the class of investing public, and the application of the usual canons of statutory construction permitted the court to allow the plaintiff's claim.

25.9 It was, however, strongly arguable that courts today will not find transactions with an unlicensed person illegal for a number of reasons. Cases in the UK have interpreted licensing provisions as protecting the public interest through criminal sanctions, but where the contracts themselves were not forbidden.15 This would also be consistent with the treatment of contractual illegality where there is failure by the remisier or dealer to obtain the requisite exchange approval. SGX requires dealer's representatives and remisiers to be registered with it as “Trading Representatives” and such persons have to be approved by it under Chapter 7 of the Singapore Exchange Securities Trading Limited (SGX-ST) Rules. In Theresa Chong v Kin Khoon & Co,16 however, it was held that an unregistered remisier was liable to pay his client pursuant to contracted share dealings that the court found not to be contrary to

public policy or illegal even though the parties had breached the exchange's rules and by-laws that required the remisier to be registered with the exchange.


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