Asia Pacific Regulatory Summary

Transcription

1 Asia Pacific Regulatory Summary CONTACT Asia Pacific Canada EMEA United States REGULATION Australia ASIC Eyes Accountability for Algorithmic System Operators 02 ASIC Proposes Guidance for AFS Licensees Providing Sell-side Research 02 ASIC s Powers to Ban Individuals Set to Increase 03 China China Securities Regulator Pledges to Strengthen Oversight 03 CSRC Says State Meddling Stabilises China Stock Market 04 New Rules Guiding Securities, Futures Investors Take Effect 04 Hong Kong HK SFC Inquiries Reveal Fund Managers Best Execution Failings 05 Japan Japanese Brokers Face Scrutiny of Information Controls 05 Japanese Brokerages Testing AI Systems to Detect Market Manipulation 06 Taiwan Taiwan Bourse to Raise Bar for Overseas Listings of Subsidiaries 06 MARKET STRUCTURE Australia Rules Force Super Funds to Shift Currency Hedging Policy 07 China MSCI Warns Chinese Companies against Share Suspensions 07 China to Impose 3 Percent VAT on Asset Managers from January China Expands RQFII Quota for Hong Kong 08 Hong Kong Hong Kong Investors Come Out Against Dual-class Shares 09 HKEX Implements Second Phase of Closing Auction Session 09 HKEx Consults on Delisting Mechanism, Curbing Share Issuance Abuses 10 Hong Kong Concludes Listing Regulation Consultation 10 Korea S. Korea, Taiwan to Launch Joint Tech Stock Index in Q3 11 S. Korea Toughens Short-selling Rules 11 Singapore SGX Still Evaluating Dual-class Share Structures for Primary Listings 11 SGX Equities Market Structure Adjustments Go-Live in November 12 DERIVATIVES China Chinese-Backed Singapore Bourse to Launch by End of Year 13 Singapore SGX Becomes First in Asia to Offer Daily Leverage Certificates 13 SGX Sends Message to Trading Community on Derivatives Market Spoofing 14

2 Regulation 2 REGULATION lights ASIC Plans to Hold Technology and Algo Providers Accountable SFC Finds Gaps in Best Execution Controls Japan Reviews Retail Brokers Insider Trading Policies AUSTRALIA SOURCE ASIC Eyes Accountability for Algorithmic System Operators SEPTEMBER 8, 2017 ASIC chairman Greg Medcraft has set out the regulator s plans to enforce accountability among the operators of technology platforms and algorithms, focusing on individual responsibility, ability to explain, and redress. He explained any algorithmic system must have an individual responsible for its design and outcomes echoing incoming BEAR (the Banking Executive Accounting Regime) regulations. asic-eyes-algorithmicaccountability/ On the explanation requirement, automated decisions must be able to be meaningfully explained to customers, to the regulator, and to any other interested stakeholders. And on redress, Medcraft said ASIC should not allow technology platforms and algorithms to simply shift risk to the consumer or other areas of society. AUSTRALIA ASIC Proposes Guidance for AFS Licensees Providing Sell-side Research JULY 3, 2017 ASIC is consulting on proposed guidance on managing conflicts of interest and on handling material, non-public information by AFS (Australian Financial Services) licensees that also provide sell-side research. The guidance specifies what AFS licensees should do to appropriately manage conflicts of interest at each stage of the capital raising process, as well as sets out general guidelines for the identification and handling of material, non-public information and for the structure and funding of research teams. Where material, non-public information is mishandled or conflicts involving research are not managed appropriately, AFS licensees are at risk of breaching financial services laws, including those covering insider trading, market manipulation and misleading and deceptive conduct, said ASIC Commissioner Cathie Armour.

3 3 Regulation AUSTRALIA ASIC s Powers to Ban Individuals Set to Increase SEPTEMBER 8, 2017 Australia s Treasury has released the sixth position paper of the ASIC Enforcement Review Taskforce. The taskforce s first position is that ASIC should be able to ban a person from performing a specific function in a financial services business, such as being a senior manager or controller. The taskforce has also proposed increasing ASIC s power to ban individuals to include circumstances where ASIC believes the person is not fit and proper, not qualified, or is not competent to provide financial services or hold a senior management role. Minister for Revenue and Financial Services Kelly O Dwyer said the new powers would complement APRA s proposed powers to remove banking executives from their positions or adjust remuneration under BEAR (the Banking Executive Accountability Regime). CHINA China Securities Regulator Pledges to Strengthen Oversight JULY 13, 2017 China will strengthen oversight on the securities market to keep it fair, open and impartial, CSRC (China Securities Regulatory Commission) vice chairman Jiang Yang said when responding to local media on the regulator s upcoming priorities. Jiang said the crack down on violations of securities laws and regulations would continue, noting that so far this year administrative penalties have been imposed on 113 cases, with total fines of CNY6.4 billion (USD million), and 30 people prohibited from entering the market. China will advance capital market reforms to better serve the real economy, and further open up to foreign investors so domestic brokerages can expand business overseas. China will also promote countercyclical regulation on stock, bond and futures markets and improve the emergency mechanisms to guard against risks.

4 4 Regulation CHINA CSRC Says State Meddling Stabilises China Stock Market AUGUST 16, 2017 The CSRC took credit for curbing market volatility and steering valuations to rational levels, saying that the gauges tracking China s large-cap blue-chip stocks beat the world s other major benchmarks including the Dow Jones Industrial Average and the UK s FTSE 100 Index in the first seven months of the year. The regulator mainly attributed the tame market performance to state-linked funds, which were created during the equity crash in 2015 to shore up stocks, and said maintaining market stability was a pre-condition for carrying out reforms. State funds have since been suspected of frequent meddling in the market, including in January this year. While state intervention has reduced price swings, it has come at a cost of waning trading activity among retail investors, with the number of new investors growing at the slowest pace in almost two years and turnovers down 80% from all-time highs. CHINA New Rules Guiding Securities, Futures Investors Take Effect JULY 3, 2017 Chinese securities and futures investors will be categorised as either professional or ordinary investors, depending on their asset and income levels and professional experience, according to the new CSRC guidelines which took effect on July 1. Professional investors include financial institutions, as well as individuals with financial assets worth more than CNY5 million (USD756,000), or annual incomes of more than CNY500,000 for the past three years. They must also have at least two years of professional experience in related sectors. Ordinary investors are advised to buy financial products in line with their risk tolerance and should be reminded by investment professionals when buying higher risk products. However, the new rules do not restrict them from buying higher risk products.

5 5 Regulation HONG KONG HK SFC Inquiries Reveal Fund Managers Best Execution Failings SEPTEMBER 15, 2017 The SFC has issued a notice detailing breaches of regulatory obligations by fund managers active in Hong Kong, saying some do not have in place sufficient systems and controls to ensure best execution one of the key requirements under MiFID II as well as local regulation. SOURCE hk-sfc-study-best-executionfailings/ The report is based on about 250 recent investigations of asset managers, including subsidiaries of international firms. It sets out specific failings, such as where CEOs have too much influence, orders are being directed to brokers offering arrangements such as rebates, and failures to document post-trade review intended to ensure best execution. The SFC found that there are also issues with funds management of liquidity, with some firms not performing separate liquidity assessments with the involvement of senior risk managers. JAPAN Japanese Brokers Face Scrutiny of Information Controls JULY 19, 2017 Japan s Securities Dealers Association chief has promised to examine how the country s retail brokerages train and educate branch managers who also act as investment bankers, in an effort to ensure they don t share inside information with sales staff. SOURCE japanese-brokers-informationcontrols/ Securities firms face inspection by the industry association into their compliance procedures following an internal investigation into Nomura Holdings which found that a branch manager mishandled private news about a stock split being considered by a company it had taken public. It is illegal for Japanese brokerage employees to share inside information which could impact investors decisions. The restrictions apply especially to interactions between investment bankers and other staff.

6 6 Regulation JAPAN Japanese Brokerages Testing AI Systems to Detect Market Manipulation AUGUST 10, 2017 Japanese securities firms SBI Securities and Rakuten Securities have enlisted NEC to design artificial intelligence software that flags suspicious activities while monitoring order data, stock price movements and trading values. The software looks for evidence of market manipulation like spoofing. SOURCE japanese-brokerages-testingai-systems-detect-marketmanipulation/ Currently, the brokerages use human monitors to detect market manipulation. However, an AI system could handle monitoring and inspection and help deal with evolving forms of manipulation that have emerged with the rise of high-frequency trading, freeing up human investigators to work on complex cases. TAIWAN Taiwan Bourse to Raise Bar for Overseas Listings of Subsidiaries AUGUST 23, 2017 Taiwan s Stock Exchange has decided to amend its operating rules to require listed companies to get shareholder approval before listing key subsidiaries overseas. The exchange also plans to strengthen disclosure requirements for such companies, which will have to provide information on how listing overseas will impact their finances and existing shareholders. The bourse is expected to implement the new rules as soon as late 2017.

7 Market Structure 7 MARKET STRUCTURE lights Outpouring From Hong Kong Investors on Possibility of Dual-class Shares Phase II of HK CAS Includes Short Selling New Rules on Short Selling Penalties in Korea SGX Lunch Break and Tick Sizes Take Effect in November AUSTRALIA Rules Force Super Funds to Shift Currency Hedging Policy AUGUST 16, 2017 More superannuation funds are saying the most important factors in managing currency risk are regulatory rules and environment rather than actual currency moves, according to NAB s latest superannuation FX hedging survey. Among regulations which have come into force in the past two years are new margin requirements, changes to the tax treatment of gains from FX deals, and rules for disclosing fees and costs. One of the implications is that cash earmarked for hedging must instead be used to meet margining needs. Pressure to grow or merge, rapid technological change and higher standards of transparency are also influencing currency hedging policy. CHINA MSCI Warns Chinese Companies against Share Suspensions JULY 31, 2017 MSCI has warned Chinese companies that suspend trading in their A-shares for more than 50 days will be removed from its Emerging Markets index, and not be brought back for at least 12 months following resumption of trading. MSCI had said in June it would add 222 A-shares to its EM index in May and August 2018, although last year arbitrary and long suspensions were cited as a reason for vetoing their inclusion. Currently the number of suspended stocks in China is at its highest level in a year, after one in every 13 listed companies suspending trade in July.

8 8 Market Structure CHINA China to Impose 3 Percent VAT on Asset Managers from January 2018 JULY 5, 2017 Asset managers in China will face a new 3% VAT (value-added tax) on returns on assets under management from 1 January A more complicated 6% VAT levy had been due to come into effect on July 1, following a 14-month grace period ending in June. Authorities have delayed the levy on asset managers twice, amid complaints that it was unfair. Under the new regime, a three percent, simplified tax will be applied, retroactive to May Asset managers are responsible for recovering the VAT on investment products held by clients, although it is not clear how this will function in practice. CHINA China Expands RQFII Quota for Hong Kong JULY 5, 2017 China s State Council has increased Hong Kong s RQFII (Renminbi Qualified Foreign Institutional Investor) quota from CNY270 billion to CNY500 billion (USD75.6 billion). The move will further satisfy demand for yuan-denominated assets among Hong Kong investors, further open the mainland China financial market, and strengthen financial ties between the two sides, a PBOC statement said. Hong Kong was the first place to pilot the RQFII scheme following its implementation in late The RQFII quota for Hong Kong was expanded twice in 2014 and has already been fully allocated, according to the HKMA.

9 Market Structure 9 HONG KONG Hong Kong Investors Come Out Against Dual-class Shares AUGUST 23, 2017 Asset managers have all come out against HKEx s plans to introduce dual-class shares in Hong Kong, saying the proposals would weaken corporate governance and encourage exchanges around the world to lower their standards. The Council of Institutional Investors, Hong Kong Investment Funds Association and Asian Corporate Governance Association each wrote separate responses to a June concept paper that called for a new exchange allowing dual-class stocks. ASIFMA and The Chamber of Hong Kong Listed Companies backed the plan, however, with ASIFMA saying that there should be restrictions on who can hold such shares, as well as sunset clauses and limits on the ratio of voting rights. HONG KONG HKEX Implements Second Phase of Closing Auction Session JULY 24, 2017 HKEx introduced Phase 2 of the (CAS) Closing Auction Session in its securities market. This expands the CAS implementation to include constituents of the Hang Seng Composite SmallCap Index, and allows regulated short selling during the CAS. Phase 1 was implemented in July 2016, covering constituents of the Hang Seng Composite LargeCap and MidCap indexes, H-shares which have corresponding A-shares listed on a Mainland exchange and all ETFs.

10 Market Structure 10 HONG KONG HKEx Consults on Delisting Mechanism, Curbing Share Issuance Abuses SEPTEMBER 22, 2017 HKEx released two consultation papers on proposed rules changes for capital raisings, delisting and other issues, in an effort to crack down on poor-quality companies listed on Hong Kong s stock exchange. Hong Kong does not have an effective delisting mechanism to remove poor quality companies, allowing them to suspend trading for years at a time to address problems. There have additionally been instances of investors falling prey to deep discount share offerings. HKEx s consultation paper proposes to delist companies after a continuous suspension for a prescribed period, possibly set at 12, 18 or 24 months, and seeks to address issues concerning capital raisings and other share issuance transactions. The consultations are open to the public until November 24. HONG KONG SOURCE Hong Kong Concludes Listing Regulation Consultation SEPTEMBER 15, 2017 The SFC (Securities and Futures Commission) and SEHK (the Stock Exchange of Hong Kong) are moving forward with proposed enhancements to the exchange s decision-making and governance structure for listing regulation, following a joint consultation and consideration of market feedback. The exchange will retain its role as the front-line regulator administering listing rules, while the SFC will discharge its statutory oversight through materially enhanced, published audits of the exchange s Listing Committee and Listing Department. edistributionweb/gateway/en/ news-and-announcements/ news/doc?refno=17pr122 Additionally, a new independent Listing Policy Panel will be established as an advisory, consultative and steering body to initiate and centralise discussion of listing policies with broader regulatory or market implications.

11 Market Structure 11 KOREA / TAIWAN S. Korea, Taiwan to Launch Joint Tech Stock Index in Q3 JULY 7, 2017 KRX announced a cross-border stock index managed by South Korean and Taiwanese bourse operators will be launched during the third quarter of this year. The new IT Premier Index will be comprised of blue-chip technology shares, such as Korea s Samsung Electronics, SK Hynix and Naver Corp, as well as Taiwan s TSMC and Foxconn. It is being developed by KRX and Taiwan Index Plus, an affiliate of TWSE. KOREA S. Korea Toughens Short-selling Rules AUGUST 24, 2017 Korea s FSC (Financial Services Commission) will from the end of September tighten labelling standards for stocks that are deemed subject to excessive short selling, and also start punishing repeat violations of short-selling rules more harshly, even if unintentional. SOURCE korea-toughens-short-sellingrules/ Short-selling is currently limited to 20% of the KOSPI but this will be tightened to 18%. On the KOSDAQ the limit will be reduced from 15% to 12%. The new rules on short trading penalties will come into effect before the end of this year. Illicit short selling will be labelled intentional, light or heavy, with the maximum fine for the offence doubled from KRW50 million to KRW100 million, and an additional 50% can be levied if the offence is for unfair gain. SINGAPORE SGX Still Evaluating Dual-class Share Structures for Primary Listings SEPTEMBER 21, 2017 SGX is still evaluating its public consultation results to determine whether companies with dual-class share structures should be allowed primary listings in Singapore, a decision that will take some time, according to the exchange s directors. Chairman Kwa Chong Seng said that while SGX needs to be willing to move, it doesn t need to be the first to move. He added SGX is keeping an open mind on the controversial issue and will revisit it at the next board meeting. SGX chief executive Loh Boon Chye later clarified that he wants to allow time for market players to understand dual-class shares better, noting that existing rules do allow companies with such structures to seek a secondary listing on the SGX.

12 Market Structure 12 SINGAPORE SGX Equities Market Structure Adjustments Go-Live in November JULY 19, 2017 SGX is proceeding with adjustments to its equity market structure aimed at addressing market conditions, after receiving largely supportive feedback during the March 2017 public consultation. Effective from 13 November 2017, the equities market will break from 12.00pm to 1.00pm. In addition, the minimum bid size for stocks in the SGD1.00 to SGD1.99 price range will be increased to SGD0.01 from SGD0.005, and the forced order range for relevant securities will be widened to +/- 30 ticks from +/- 20 ticks.

13 Derivatives 13 DERIVATIVES lights SGX to Offer Trading in Popular Daily Leverage Certificates Third Derivatives Exchange to Launch in Singapore by Year End CHINA Chinese-Backed Singapore Bourse to Launch by End of Year AUGUST 24, 2017 Asia Pacific Exchange Pte, has received in-principle approval from MAS to start a third derivatives exchange in the city, and is now working on getting final approval to launch before the end of The exchange plans to open with refined palm oil contracts, priced in dollars and with physical delivery in Malaysia and Indonesia. It is also reportedly considering rubber and metals futures contract listings. The new exchange will be a new rival for ICE and SGX, which already operate in Singapore, Southeast Asia s biggest derivatives market. SINGAPORE SGX Becomes First in Asia to Offer Daily Leverage Certificates JULY 1, 2017 SGX became Asia s first venue to offer trading in DLCs (Daily Leverage Certificates), starting from 17 July DLCs, widely popular among investors in Europe where they are also called constant leveraged products or factor certificates, allow qualified investors to gain fixed leveraged exposure to key Asian indexes, without implied price volatility, time decay and margin call features impacting pricing. The first batch of DLCs issued by Societe Generale will consist of 10 products, including Long and Short DLCs offering fixed leverage of three or five times the daily returns of the underlying indexes, namely MSCI Singapore, the HSI (Hang Seng Index) and HSCEI (Hang Seng China Enterprises Index).

14 Derivatives 14 SINGAPORE SGX Sends Message to Trading Community on Derivatives Market Spoofing JULY 5, 2017 An SGX derivatives trading member in May 2017 was fined SGD200,000 and expelled from the market for alleged spoofing activity which violated Rule of the Futures Trading Rules. Rule concerns good-faith entering of bids and offers into the trading system for the purpose of executing bona fide transactions, and not with the intent to cancel before execution. This announcement heightens the need for compliance officers to ensure their understanding of Rule 3.4.8, and for post-trade surveillance systems to be in place for effective early detection. This is the first time a disciplinary action for spoofing has been initiated by the Singapore Exchange Derivatives Trading Disciplinary Committee since the SGX Futures Trading Rules were implemented in September 2006.

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