GUIDELINES ON THE OFFERING OF STRUCTURED PRODUCTS

Transcription

1 GUIDELINES ON THE OFFERING OF STRUCTURED PRODUCTS

2 CONTENTS Page 1.0 INTRODUCTION 2.0 SCOPE 3.0 SUBMISSION OF PROPOSALS UNDER THESE GUIDELINES AND APPROVAL FROM THE SC 4.0 ELIGIBLE ISSUERS 5.0 ELIGIBLE INVESTORS 6.0 OTHER REGULATORY APPROVALS 7.0 RATING REQUIREMENT 8.0 DISCLOSURE REQUIREMENT 9.0 CONTINUOUS POST-ISSUANCE NOTIFICATION FOR TRANSACTIONS FALLING UNDER THESE GUIDELINES 10.0 SUITABILITY AND FAIR DEALING REQUIREMENTS Appendix 1 Examples of structured products falling under these guidelines Appendix 2 Information to be submitted for the purpose of obtaining SC s approval Appendix 3(a) Declaration by the Issuer Appendix 3(b) Declaration by the Principal Adviser (if applicable) Appendix 4 Information to be submitted to the SC on a quarterly basis

3 1.0 INTRODUCTION 1.01 Any person who issues, offers for subscription or purchase, or makes an invitation to subscribe for or purchase structured products would require the approval of the Securities Commission (SC) under section 32 of the Securities Commission Act 1993 (SCA) and as stipulated under the Guidelines on the Offering of Structured Products (hereafter referred to as these Guidelines ) These Guidelines stipulate the criteria which must be met with regard to any issue, offer or invitation of over-the-counter structured products which comes under the ambit of the Securities Commission Act For the purposes of these Guidelines: (a) (b) the term structured product means any investment product that falls within the definition of securities under the SCA which provides the holder with an economic, legal or other interest in another asset ( underlying asset ) and derives its value by reference to the price or value of the underlying asset; the term underlying asset means any security, index, currency, commodity or other assets or combination of such assets Appendix 1 sets out a non-exhaustive list of examples of structured products falling under these Guidelines. 2.0 SCOPE 2.01 Unless expressly stated in these Guidelines, the Guidelines on the Offering of Private Debt Securities shall not apply for any issue, offer or invitation of structured products approved under these Guidelines. However, these Guidelines shall not be used to circumvent the Guidelines on the Offering of Private Debt Securities, Guidelines on the Offering of Asset-Backed Securities or any other guidelines issued by the SC that would apply to a fundraising exercise by any body corporate Save for paragraphs 2.03 and 2.04, for any Islamic structured products which comes within the ambit of these Guidelines, the issuer must appoint an independent Syariah adviser approved by the SC. In addition, any Syariah principle and concept adopted must be based on such principles and concepts as approved by the SC s Syariah Advisory Council. In the event of doubt, clarification should be sought from the SC The following non-transferable structured products where at least one counterparty is a licensed institution as defined under the Banking and Financial Institutions Act 1989 (BAFIA) or the Islamic Banking Act 1983

4 (IBA), or a licensed dealer under the Securities Industry Act 1983 (SIA) with a universal broker status, will not require the prior approval of the SC under these Guidelines: (a) Bond options (b) Credit default swaps (c) Credit options (d) Total return swaps (e) Equity swaps / options Paragraph 2.03 shall not apply to equity swaps / options that come within the Issues Guidelines for which an approval by the SC under the said guidelines is necessary In addition, non-transferable structured product transactions where both counterparties are licensed institutions as defined under BAFIA, licensed institutions as defined under IBA or licensed dealers under the SIA with a universal broker status would not require the prior approval of the SC under these Guidelines For structured products falling under paragraphs 2.03 and 2.04 of these Guidelines, compliance with other regulatory approvals as set out in paragraph 6.01, post-issuance notification to the SC as set out in paragraphs 9.01 and 9.02 as well as Suitability and Fair Dealing Requirements set out in paragraphs to shall be applicable. 3.0 SUBMISSION OF PROPOSALS UNDER THESE GUIDELINES AND APPROVAL FROM THE SC 3.01 Save for structured products falling under paragraphs 2.03 and 2.04 of these Guidelines, the issuer or its adviser (where applicable) must submit the following documents to the SC before any proposed issue, offer or invitation of structured products may be made in Malaysia: (a) Information as set out in Appendix 2 (b) Declaration by the issuer and its adviser, if applicable, as set out in Appendix Such issue, offer or invitation of structured products shall be deemed approved by the SC on the date of receipt of complete documents set out above The issue, offer or invitation of structured products may also be made via a debt programme that grants the issuer flexibility on the issuance of such instruments subject to the pre-disclosed programme size and/or tenor. Any subsequent re-issuance would reduce the approved programme size.

5 3.04 The following categories of persons may act as principal adviser for any proposal which comes under the ambit of these Guidelines: (a) Licensed merchant banks as defined under BAFIA (b) Licensed commercial banks as defined under BAFIA (c) Licensed Islamic banks as defined under IBA (d) Licensed dealers as defined under SIA with a universal broker status 4.0 ELIGIBLE ISSUERS 4.01 The following categories of persons are deemed as eligible issuers under these Guidelines: (a) (b) (c) (d) A licensed commercial bank or a Special Purpose Vehicle (SPV), on whose behalf a performance guarantee has been issued by a licensed commercial bank; A licensed merchant bank or an SPV, on whose behalf a performance guarantee has been issued by a licensed merchant bank; A licensed Islamic bank or an SPV, on whose behalf a performance guarantee has been issued by a licensed Islamic bank; A licensed dealer with a universal broker status or an SPV, on whose behalf a performance guarantee has been issued by a licensed dealer with a universal broker status. The term "performance guarantee" means a guarantee to perform any and all of the SPV s obligations in the terms and conditions of the structured products issued by the SPV, if the SPV fails to perform those obligations itself In addition to these Guidelines, paragraphs 7.01 to 7.05 of the Guidelines on the Offering of Asset-Backed Securities shall apply where an SPV is involved in a structured product transaction. 5.0 ELIGIBLE INVESTORS 5.01 Eligible investors for any structured product which fall under these Guidelines shall be those set out under Schedule 2 and Schedule 3 of the SCA The issuer and its adviser, if applicable, must ensure that the investors to whom structured products are issued or offered are persons falling under Schedule 2 and 3 of the SCA.

6 6.0 OTHER REGULATORY APPROVALS 6.01 All necessary approvals in relation to the issue, offer or invitation of a structured product from other regulatory bodies, including the Kuala Lumpur Stock Exchange or Bank Negara Malaysia, must have been obtained prior to the submission of any information and declarations, if applicable, to the SC under these Guidelines. Any conditions imposed by such regulatory bodies, if applicable, must continue to be complied with throughout the tenor of the structured product approved under these Guidelines. 7.0 RATING REQUIREMENT 7.01 The issuer and its adviser, if applicable, and the investor will decide on the need for a credit rating in relation to the issue, offer and invitation of structured products. 8.0 DISCLOSURE REQUIREMENT 8.01 The following information must be made available to investors in relation to any issue, offer or invitation of structured products: (a) (b) (c) (d) (e) (f) (g) Risk disclosure statement highlighting risk factors of investing in structured products, including but not limited to the following: (i) Credit risk (ii) Legal risk (iii) Liquidity risk (iv) Market risk (v) Operational risk (vi) Prepayment & commitment risk (vii) Options risk (viii) Currency risk (ix) Mismatch risk (x) Counterparty risk Detailed description of the structure of the transaction and all significant agreements relevant to the structure; Recent price trends of the underlying reference security; Balanced view (upside and downside) on price simulations (if any); Principal terms and conditions of the transaction; Information on liquidity provider or other liquidity facilities (if any); Rating for the structured product and the definition of the rating (if any);

7 (h) An explanation of any matter of significance to investors relating to the issue, offer or invitation of structured products that would enable investors to make an informed decision The issuer and its adviser, if applicable must ensure that the above information is disclosed to all investors to whom structured products are issued and request for a confirmation from such investors that disclosure was in fact made. Subsequent to any primary issue, offer or invitation of structured products, the issuer must continue to provide the above information to any potential investor The issuer and its adviser, if applicable must also highlight in the predetermined format the following risk warning statement at the bottom of every page of any document released and/or any advertising medium used pertaining to an issue, offer or invitation of structured products under these Guidelines: WARNING THIS IS A STRUCTURED PRODUCT. THIS INVESTMENT IS LINKED TO THE PERFORMANCE OF ONE OR MORE MARKET PRICES, RATES, INDICES, SECURITIES AND OTHER FINANCIAL INSTRUMENTS THAT INTRODUCE SIGNIFICANT RISK THAT WILL AFFECT THE PERFORMANCE OF THIS INVESTMENT. Format: Arial Font size: 12(Bold) 9.0 CONTINUOUS POST-ISSUANCE NOTIFICATION FOR TRANSACTIONS FALLING UNDER THESE GUIDELINES 9.01 For any issue, offer or invitation of structured products that fall under these Guidelines, the eligible issuer is required to submit a quarterly postissuance notification to the SC, incorporating information in the format set out in Appendix 4 of these Guidelines The quarterly post-issuance notification highlighted above must be submitted to the SC in soft and hard copy SUITABILITY AND FAIR DEALING REQUIREMENTS The issuers and its adviser, if applicable, shall adopt fair dealing best practices when dealing, marketing and selling structured products to eligible investors.

8 10.02 The investor should be able to understand the risks in relation to investing in structured products The following are key measures that the issuer and its adviser, if applicable, are expected to observe to ensure adequate investor protection with regard to any issue, offer or invitation of structured products: (a) (b) (c) (d) KNOW YOUR CLIENT: To ensure that structured products are suitable for clients, the issuer and its adviser, if applicable, should take all reasonable steps beforehand to establish the client s financial position, investment experience and investment objectives. DUTY OF CARE: When issuing structured products to clients, the issuer and its adviser, if applicable, should ensure that clients are informed of and fully understand the financial risks and potential losses that may arise from investing in structured products. PROVIDE RISK DISCLOSURE STATEMENT: The issuer and its adviser, if applicable, should provide clients with pertinent information regarding structured products. Risk categories include credit risk, legal risk, liquidity risk, market risk, operational risk, prepayment risk, commitment risk, options risk, currency risk, mismatch risk and counterparty risk. DECLARATION BY ISSUERS/ADVISERS AND CONFIRMATION BY CLIENT: The issuer and its adviser, if applicable, should ensure that a risk disclosure statement has been provided to the client and that the client has been invited to read the risk disclosure statement, ask questions and take independent advice if the client so wishes.

9 Appendix 1 EXAMPLES OF STRUCTURED PRODUCTS FALLING UNDER THESE GUIDELINES Equity Linked Notes Bond Linked Notes Index Linked Notes Currency Linked Notes Interest rate Linked Notes Commodity (Contracts) Linked Notes Credit Linked Notes

10 Appendix 2 INFORMATION TO BE SUBMITTED FOR THE PURPOSE OF OBTAINING SC S APPROVAL 1. Application letter disclosing the following items: (a) Background information of the Issuer (i) Name (ii) Address (iii) Business Registration No. (iv) Date/Place of Incorporation (v) Date of Listing (in the case of a public listed company) (vi) Status : resident / non-resident controlled company (vii) Status : Bumiputera / non- Bumiputera controlled company (viii) Principal activities (ix) Board of Directors (x) Structure of shareholdings and names of shareholders or in the case of a public company, names of all substantial shareholders (xi) Authorised and paid-up capital (b) (c) (d) (e) (f) (g) (h) (i) Profile of Issuer s Directors A description of the structure of the transaction including the reference underlying / collateral; Details of expenses for the issue; Waiver(s) from complying with Guidelines and/or specific approval pursuant to the Securities Commission Act 1993 sought and obtained from the SC for the issue (where applicable); Specific approval sought and obtained from SC in relation to the appointment of an independent Syariah Adviser and/or applicable Syariah principle or concept; Conflict of interest situations and appropriate mitigating measures; Any other material information in relation to the issue; and Names, telephone numbers and facsimile number of the officers-in-charge of the Adviser 2. Principal Terms and Conditions of the Proposal comprising the following:- (a) Facility Description (b) Issue Size (c) Reference Underlying / Collateral (d) Tenor of Facility (e) Selling Restriction (f) Investment Terms (g) Other regulatory approvals required [please specify] in relation to the issue, offer or invitation and whether or not obtained

11 (h) Conditions Precedent (i) Representations and Warranties (j) Events of Default (k) Other principal terms and conditions for the issue 3. Issuer s Declaration (Appendix 3a) 4. Adviser s Declaration in the case where the issuer is an SPV (Appendix 3b) 5. Confirmation on compliance with all requirements of the controller of Foreign Exchange in accordance with Exchange Control Guidelines 6. Compliance checklist on the Guidelines on the Offering of Structured Products 7. In the case where the Issuer is a public company Declarations in accordance with Chapter 4 of the SC s Policies and Guidelines on Issue/Offer of Securities

12 Appendix 3(a) Date: (Date of Application) The Chairman Securities Commission Declaration by the Issuer Dear Sir ISSUER (Name of Issuer) Declaration Pursuant to:- Paragraph 3.01 of the Guidelines on the Offering of Structured Products We, (Name of Issuer). are proposing to undertake the following proposals:- (a).. (b).. (c).. (hereinafter referred to as the Proposal ). 2. We confirm that after having made all reasonable enquiries, and to the best of our knowledge and belief, there is no false or misleading statement contained in, or material omission from, the information that is provided to the adviser(s) / expert(s) or 1 to the SC in relation to the above Proposal. 3. We declare that we are satisfied after having made all reasonable enquiries that the Proposal is in full compliance with the following:- (a) (b) (c) Guidelines on the Offering of Structured Products; requirements of the Controller of Foreign Exchange with respect to the Proposal 2 ; and other requirements under the Securities Commission Act 1993 as may be applicable. 4. Save as otherwise disclosed in the attachment accompanying this declaration, the Company has not (a) been convicted or charged with any offence under the securities laws, corporations laws or other laws involving fraud or dishonesty in a court of law, for the last 10 years prior to the submission; and 1 To delete if the issuer is a commercial bank, merchant bank, Islamic bank or a Universal Broker 2 To delete if not applicable

13 (b) been subject to any action by the stock exchange for any breach of the listing requirements or rules issued by the stock exchange, for the past 5 years prior to the submission. 5. We declare that we will ensure continuous compliance with the requirements and conditions imposed by the SC in relation to the above Proposal. 6. We undertake to provide to the SC all such information as the SC may require in relation to the Proposal. The above Declaration has been signed by me as (designation of director) of the Issuer pursuant to authority granted to me by a resolution of the Board of Directors on (date of resolution) Yours faithfully. Date: Signature: Name: Name of Issuer

14 Appendix 3(b) Declaration by the Principal Adviser (if applicable) Date: (Date of Application) The Chairman Securities Commission Dear Sir ISSUER (Name of Issuer) Declaration Pursuant to:- Paragraph 3.01 of the Guidelines on the Offering of Structured Products (Name of Issuer). is proposing to undertake the following proposals:- (a). (b). (c). (hereinafter referred to as the Proposal ). We,..(Name of Principal Adviser), are advising..(name of Issuer).. on the Proposal. 2. We confirm that after having made all reasonable enquiries, and to the best of our knowledge and belief, there is no false or misleading statement contained in, or material omission from, the information that is provided to the SC in relation to the above Proposal. 3. We declare that we are satisfied after having made all reasonable enquiries that the Proposal is in full compliance with the following:- (a) (b) (c) Guidelines on the Offering of Structured Products; requirements of the Controller of Foreign Exchange with respect to the Proposal 3 ; and other requirements under the Securities Commission Act 1993 as may be applicable. 4. We undertake to immediately inform the SC if it has come to our knowledge that the Issuer has breached or failed to comply with such requirements, after submission of this declaration relating to the Proposal until the implementation of the Proposal. 3 To delete if not applicable

15 5. We undertake to provide to the SC all such information as the SC may require in relation to the Proposal. Yours faithfully Date: Signature: Name: Name of Principal Adviser:

16 Appendix 4 Information to be submitted to the SC on a quarterly basis (within 7 days from the end of each quarter) 1. Transactions falling under paragraph 2.03 and 2.04 of these Guidelines Instrument type Cumulative notional amount issued (RM 000) Bond options Equity swaps / options Credit default swaps Credit options Total return swaps Others (based on reference underlying/collateral)

17 2. Other transactions Issuer Facility Description Date of issue (dd/mm/yy) Exercise Date (dd/mm/yy) Maturity Date (dd/mm/yy) Issue size (RM 000) Issue Price (RM) Tenor of the issue (year) Reference underlying / collateral Interest / Coupon / Return Structure (%) Interest/Coupon/Return Payment frequency Interest/Coupon/Return Payment basis(where applicable) Maximum Yield (%) Minimum Yield (%) Rating (where applicable) Rating Agency (where applicable) Investors and amount subscribed/purchased Investor 1 Investor 2 Investor 3 Investor 4 Transferability of structured products counter parties and amount transferred Transferor/Transferee Amount (RM 000) Amount (RM 000) Facility Size (RM 000) Amount outstanding as at end of month (RM 000) Amount Not Utilised (RM 000)

18 FORMAT OF DOCUMENTS SUBMITTED TO THE SC: For the sake of consistency, all documents (soft and hard copy) submitted to the SC must be in the following format:- Information Hard copy Soft copy Font/Format (MS Excel) Appendix 2 X - Font: Arial Appendix 3 X - Font Size: 11 Appendix 4 X X Margins (Top, Down, Right, Left): 1 Spacing: Single Soft copy documents may be submitted to the SC via to the following address: DS@seccom.com.my. Should the issuer / adviser chooses to submit soft copy documents via CD-ROM or diskette, it should be clearly labeled with the following information: Name of the issuer Date of submission to the SC