AsianInvestor's regulatory round-up, March 25

Hong Kong: Hedge fund wins legal battle with SFC
Hong Kong-based hedge fund Pacific Sun has won a long-standing court battle with the city’s Securities and Futures Commission over fund advertisments which the city’s regulator says were published without its approval.

In 2013, the SFC charged Pacific Sun and its director Andrew Mantal for having advertised its funds on its own website and through email without the regulator’s authorisation.

The regulator argued that this contravened the city’s Securities and Futures Ordinance, which requires SFC approval of advertisements issued to the public. But the defendants argued that they only intended to sell the fund to professional investors, and so the advertisements did not require authorisation; last Friday, the Court of Final Appeal ruled that they were correct.

China: Shanghai lists 10-year bond futures
Ten-year government bond futures were listed on the China Financial Futures Exchange (CFFEx) for the first time on March 20.

Zhang Qiang, deputy director of the finance ministry’s treasury department, said the listing in Shanghai would promote yield-curve accuracy and efficiency. Five-year futures were listed on the CFFEx in 2013.

The move is part of China’s efforts to liberalise the nation’s derivatives market to support the hedging needs of domestic institutions, while helping fund managers in product structuring.

Earlier this year, the China Securities Regulatory Commission approved the first option on the SSE50 exchange-traded fund, listed on the Shanghai Stock Exchange on February 9. 

CFFEx is now preparing to launch equity index futures for the SSE50 and CSI500 indices, scheduled for April 16. The exchange made CSI300 index futures available in 2010.

Hong Kong: SFC sets dual-shares framework
The Securities and Futures Commission (SFC) said it was considering allowing innovative companies listed elsewhere to dual-list in Hong Kong.

The news will be welcomed by the Hong Kong Stock Exchange, with CEO Charles Li having argued for dual-class structures ever since e-commerce company Alibaba listed in New York in late 2013 instead of Hong Kong.

Young Chinese internet firms have often chosen to list on Nasdaq, with the Hong Kong exchange requiring companies to have at least three years of profits before going public.

But on March 19, the SFC announced it would allow tech and other innovative firms to dual-list in the city if they met certain criteria, local media reported.

Singapore: MAS to work with police on misconduct
The Monetary Authority of Singapore said it would investigate market misconduct offences jointly with the city-state’s commercial affairs department.

Effective from March 17, the two bodies will jointly investigate all potential market misconduct offences from the outset in an effort to make enforcement more efficient.

Previously they carried out independent investigations based on an initial assessment of whether an offence was likely to invoke a civil penalty or criminal prosecution.

International: Iosco’s Asia members eye collaboration
The Asia-Pacific committee of the International Organisation of Securities Commissions (Iosco) agreed on a roadmap to enhance cooperation among the region’s securities regulators.

At a meeting in Tokyo on March 11, the committee sought to provide a framework for contributing to the region’s development. It involves extending training and assistance to member jurisdictions and collectively addressing the impact of US and European financial reforms in Asia.

International: BIS warns of fixed income crisis
The Bank for International Settlements warned that a concentration of fixed income assets among an increasingly small number of fund houses could trigger a new financial crisis.

Its warning, issued last week, comes in the face of quantitative easing programmes launched by central banks in the US, Europe and Japan to support flat-lining domestic economies.

These have lowered bond yields and driven international investors to take on more risk, leading to a concentration of fixed income assets among the largest fund firms.

“As a result, market liquidity may increasingly come to depend on the portfolio allocation decisions of only a few large institutions,” the report noted. “Broadly, investors may find that liquidating positions proves more difficult than expected, particularly in the context of an adverse shift in market sentiment.”

Separately, the International Monetary Fund criticised remuneration policies at fund houses that it claims encourage them to focus on AUM expansion, even in the face of asset bubbles.