AsianInvestor's regulatory round-up, Jan 14
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Japan: Government reportedly seeking RQFII status
The Japanese government will seek to lobby Beijing for renminbi qualified foreign institutional investor (RQFII) status at pending talks to enable its domestic institutions to invest into Chinese stocks and bonds, according to Japanese media.
A delegation from Japan is expected to raise the issue as part of planned negotiations on a tri-lateral free-trade deal with China and South Korea at a meeting in Tokyo on January 16-17. Japan is also expected to call for the creation for an RMB clearing and settlement bank, reports the Nikkei Asian Review.
The magazine also states that Japan's central bank, domestic banks and brokers will lobby Beijing to allow the creation of a dim-sum bond market in Tokyo, saying it could benefit financial institutions and auto-leasing companies with operations in China to finance their expansion in the country.
Singapore: MAS revises proposals on bond issues
The Monetary Authority of Singapore (MAS) is considering proposals to make bond issues more accessible to retail investors following a consultation period that ended last September.
The regulator has been evaluating a relaxation of rules to allow the redenomination of bond lots into smaller sizes, to make them available to retail investors via secondary trading on the Singapore Exchange (SGX). It published its latest proposals on December 23.
Under current rules, bonds can only be acquired by institutional and accredited investors or by investors in large denominations of at least S$200,000 ($150,000).
But to reflect public sentiment, SGX has proposed adjusting the “seasoning” period, the six-month time-frame during which retail investors can assess a bond’s suitability and the issuer can publicise its track record.
Another change would require an issuer to record a positive net operating cash flow on average for the three most recent audited annual financial statements, as opposed to MAS’s original proposal that issuers cannot record a net loss over the previous five financial years.
The MAS will also look to cut by half the initially proposed minimum issue offer size of S$300 million to S$150 million ($225 million) for companies looking to go into the seasoning framework.
Based on proposed eligibility criteria, about 120 issuers in Singapore could be able to issue bonds under the framework, of which half could offer bonds directly to retail investors without a prospectus.
Interested parties may submit their comments on the draft regulations by January 23.
Hong Kong: HKMA sets sights on sales practices
The Hong Kong Monetary Authority (HKMA) has said it intends to focus on reforming banks’ investment product sales practices this year.
The regulator’s circular, dated January 6, comes after the publication last month of the results of a mystery shopping survey conducted by the city’s Securities and Futures Commission. The SFC said it was disappointed with the selling practices of financial firms revealed in the exercise, pointing to inaccurate explanations of high-yield bonds and derivative products as among the biggest problems of 2014.
Similarly, the HKMA said the industry needed to highlight whether the risks of a product are commensurate with its potential returns. The regulator also said banks needed to identify whether a product was suitable for its target market and that regulated institutions should make adequate disclosure of product features and risks to customers.
The HKMA will be scrutinising marketing materials and requiring presentation of benefits and returns alongside details of product risks. For example, using different font sizes to play down product risks and give greater prominence to potential returns would not be acceptable.
China: QDII to benefit from same-day trading
Products sold under China’s qualified domestic institutional investor (QDII) scheme will benefit from same-day trading for cross-border exchange-traded funds (ETFs) and listed open-ended funds (those listed on the mainland but investing in overseas assets) from January 19, the Shanghai and Shenzhen Stock Exchanges have jointly announced.
This would be a change to the current system, where such cross-border instruments operate under a T+1 system, meaning investors can only receive delivery of shares one trading day after purchase.
Consultancy Z-Ben Advisors said the implementation of T+0 trading will improve liquidity and pricing efficiency, and further promote the development of cross-border funds and protect small and mid-sized investors by minimising settlement risk.
Z-Ben also noted that this could potentially help with the development of QDII funds and funds using southbound Stock Connect trades (Hong Kong-listed stocks traded via Shanghai), especially given that T+0 is not allowed for A-shares.
Four cross-border ETFs would be eligible for same-day trading, said the announcement: Hua An Dax ETF, Bosera S&P 500 ETF, Guotai Nasdaq 100 ETF and E Fund Hang Seng China Enterprises ETF.
China: Big data helps CSRC nab insider traders
The China Securities Regulatory Commission (CSRC) said it has investigated 375 cases of suspected insider trading since mid-2013 thanks to the use of “big data” technology.
Of the cases, 142 of them have been transferred to law enforcement authorities for further investigation, said the mainland watchdog on January 9.
The number of investigations pursued has increased by 21% over the figure in the previous 18 months – from the start of 2012 to mid-2013 – with referrals to law enforcement agencies up by 33%.
Drawing on big data – which refers to the processing and analysis of vast amounts of information – the regulator has identified 43 listed companies and 125 individuals that engaged in insider trading since mid-2013, and these cases have been referred to the police, the CSRC said.
Hong Kong: Activist warns of consequences over Moody’s fine
Shareholder activist David Webb has warned that Hong Kong Securities and Futures Commission’s attempt to fine rating agency Moody’s risks having a “chilling effect on critical research”.
It comes after a November notice by the regulator stating it would fine and reprimand the agency based on several unspecified code-of-conduct provisions over the publication of a controversial report on Chinese companies.
Moody’s has since made an appeal against the fine resulting from the July 2011 report Red Flags For Emerging-Market Companies: A Focus on China.
The report, published on July 11, 2011, highlighted possible weaknesses in corporate governance, riskier or more opaque business models, fast-growing business strategies, poorer quality of earnings or cash flow, and concerns over auditors and the quality of financial statements.
“Free markets depend on free speech and the open exchange of opinions and analysis, whether it turns out to be right or wrong,” said Webb in an online commentary.
“The SFC will need to tread very carefully in this area and show good grounds for their actions in the [Securities and Futures Appeals Tribunal] and [Market Misconduct Tribunal], otherwise they are likely to have a chilling effect on critical research,” he added.
Other news on regulatory matters reported on AsianInvestor.net recently:
CSRC “plays safe card” in stock option launch
Ex-Credit Suisse trader gets life ban in HK
Regulator denies Ilas rules were imposed too fast
Long-only firms in HK shun Stock Connect
Governance to take centre stage in 2015
HK SFC proposes more information sharing
AML seen as biggest regulatory issue this year
BNPP IP eyes reform via new Shanghai office
Cayman fund numbers slump in Hong Kong
Shanghai bourse volatility boosts case for diversity