AsianInvestor's regulatory roundup, Feb 6

Singapore: MAS allows RQFII applications
The Monetary Authority of Singapore (MAS) on January 24 opened the door for local financial institutions to apply for licences to invest directly into the mainland Chinese market.

Applications for the renminbi qualified foreign institutional investor (RQFII) scheme must be made to the China Securities Regulatory Commission via approved custodian banks. Only Singapore-incorporated institutions approved by MAS to conduct fund management activities may apply.

Last October, Singapore was allocated a quota of Rmb50 billion ($8.2 billion) under China’s RQFII programme, shortly after the announcement that London had received Rmb80 billion in quota.

However, some feel there won’t be a huge rush among fund houses to apply for the licence right now, given the disappointing performance of A-shares and the effect that tapering of quantitative easing in the US may have on RMB fixed income bonds.

Australia: Reviewing the rules on complex products
Australia’s markets regulator has launched a review of rules governing the sale of complex products to retail investors.

A report from the Australian Securities and Investments Commission (Asic) on January 31, suggests the current low-yield environment means more complex products may be being introduced that investors may find hard to understand, potentially resulting in misselling.

Hedge funds, hybrid securities and structured products are among the instruments categorised by the report as being complex for retail investors

While complexity does not necessarily mean a product is more risky, it can make it more difficult for investors to evaluate the level of risk posed given the expected returns, says Asic.

One area highlighted by Asic as a problem is the provision of advice, where it identified cases where advisers did not communicate the key features and risks accurately to clients. In some cases, advisers may have misrepresented the product as being less complex than it was.

Australia: Proposals to reverse some Fofa reforms
The Australian government started a consultation on January 29 aimed at reversing some of the reforms made by the previous Labour administration on the delivery of financial advice, arguing that they are “unwieldy, burdensome and unnecessarily complex”.

The consultation has put forward amendments under the Future of Financial Advice (Fofa) legislation, including removing the need for clients to renew their fee arrangements with their adviser every two years.

The consultation also suggests doing away with the need for advisers to disclose annual fee statements to clients who entered into a fee arrangement before July 1, 2013.

The consultation process is due to close on February 19 and the regulation is expected to be drawn up by the end of March, with the bill scheduled to be introduced into parliament by autumn.

Australia’s Financial Planning Association has welcomed the amendments.

Singapore: SGX to introduce circuit breakers this month
Singapore Exchange (SGX) will introduce circuit breakers for equities trading from February 24 in a move to protect investors from volatile market conditions.

These will be applicable to the Straits Times index, the MSCI Singapore index and securities priced $0.50 and above. This will also include stapled securities, funds, exchange-traded funds, exchange-traded notes and extended settlement contracts. The bourse expects that about 80% of trading of Singapore stocks will be affected by its introduction.

Circuit breakers will be triggered when a potential trade is matched at a price that is more than 10% above or below the reference price. The reference price is the last traded price at least five minutes earlier.

Once a circuit breaker is triggered, a five-minute cooling-off period follows where trading can only take place within a price band 10% above or below the reference price. Thereafter, trading will resume with a new reference price established during the cooling-off period.

Hong Kong is said to also be considering introducing circuit breakers on its exchange, according to the South China Morning Post, quoting the executive director of the Securities and Futures Commission, Keith Lui.

Hong Kong: Insider trader Chui Wing Nin jailed
A former executive at Citic Pacific based in Hong Kong pleaded guilty to insider trading on January 30 and been jailed for nine months and fined HK$612,000 ($79,000).

The case dates back to October 2012, when Simon Chui Wing Nin, former assistant director of finance at the Chinese state-owned conglomerate, was accused by Hong Kong’s Securities and Futures Commission of charges, which he initially denied.

Chui was at that time convicted and sentenced to 15 months and fined HK$1 million after pleading not guilty to the charges. However, the convictions were eventually quashed after a retrial was ordered by the Court of First Instance last September following an appeal by Chui.

The charges relates to his possession of insider knowledge gained in his role at Citic Pacific where he had responsibility for assessing foreign exchange derivatives contracts denominated in Australian dollars. 

Understanding that the firm would face significant losses on the contracts, Chui sold 81,000 shares on September 9 and 12, 2008, thereby avoiding a notional loss of about HK$1.36 million.

On October 20, 2008, Citic Pacific announced a mark-to-market loss of over HK$14.7 billion, sending the share price down around 60%, according to the SFC.

Hong Kong: Court overturns acquittal in false trading case  
Hong Kong's Court of First Instance has overturned a decision by the Magistrates’ Court to acquit a retail investor Chan Wing Fai for false trading following an appeal by the securities regulator.

The court agreed with the Securities and Futures Commission that the decision to acquit Chan was based on legal errors. The case is now being remitted back to the magistrate.

In January 2012, Chan was found not guilty in the Magistrates’ Court on charges of false trading in two stocks: Sonavox International Holdings and Pacmos Technologies Holdings.

The court heard that from September 21 to December 2, 2009, Chan bought single-board lots of the stocks, which the SFC alleged did not reflect a genuine desire to buy the shares, causing the price of Sonavox and Pacmos to increase by as much as 80% and 28%, respectively.