AsianInvestor's regulatory roundup, Aug 20

Hong Kong brokers sign for Stock Connect; India allows Reits; Taiwan to relax fund approval process; Australia probes investor relations; US banks lobby for Dodd-Frank extension; and HK's SFC fines ex-Delta Asia Securities worker.
AsianInvestor's regulatory roundup, Aug 20

Hong Kong: Most HK brokers sign up for Stock Connect
A large majority of brokers in Hong Kong have applied to be part of the highly anticipated Shanghai-Hong Kong Stock Connect programme that is due to go live in October.

In an update on the scheme, Hong Kong Exchanges and Clearing (HKEx) said 110, or 80%, of the city’s brokers had asked to be admitted to the programme.

The exchange said it is finalising draft amendments to rules and operational procedures on the Stock Connect scheme and is seeking approval from relevant authorities. It will communicate the changes in “due course”.

The issues under consideration include those around tax and the borrowing and lending of securities, which HKEx said would be resolved before the scheme is launched. It did not give further details.

India: Sebi gives go-ahead for Reits
The Securities and Exchange Board of India has approved regulations allowing the formation of real estate investment trusts (Reits). The new rules limit Reits to investment in commercial property.

Property services firm CBRE said the move is the most important reform for India’s real estate market for several years and would provide alternative funding channels for the property sector.

“Successful implementation and development rests on a number of critical success factors, such as a clear regulatory regime, faster and clearer structural reforms and increasing the supply of investable assets,” said Henry Chin, head of Asia-Pacific research at CBRE.

Anshuman Magazine, chairman of CBRE for South Asia, said that while the performance of select commercial property hubs across India is improving, concerns over stagnant rental growth and oversupply remain.

Private equity groups Blackstone and Brookfield Asset Management have reportedly been accumulating office assets in India in preparation for Reit launches.

Taiwan: RQFII quota under further discussion
China and Taiwan will discuss renminbi qualified foreign institutional investor (RQFII) quota independently from the controversial cross-strait trade in services agreement, with which it had previously been bundled, report Taiwanese media.

Agreed by China and Taiwan in June last year, the trade agreement was originally planned to take effect by March. But student protests and political opposition to closer economic ties with the mainland have reportedly delayed implementation.

Taiwan does not yet have an RQFII quota, despite initial expectations that it would receive one before London or Singapore, which already have theirs. Officials in Taiwan have asked China for a quota of Rmb100 billion ($16.3 billion).

Australia: Regulator turns up heat on investor relations
The Australian Securities and Investments Commission (Asic) has probed how analyst briefings are conducted following leaks of sensitive information.

In June, the regulator filed for legal action against Newcrest Mining for having briefed analysts in 2013 on market-sensitive information. The firm revealed to them its expected gold production ahead of the information being disclosed to the market. The mining company admitted the misconduct and was given a A$1.2 million ($1.1 million) penalty.

“A particular issue of concern for Asic is the temptation that listed entities may have to manage broker consensus or market expectations through selective analyst briefings,” said commissioner John Price in a speech to the Australasian Investor Relations Association on August 5.

“If market expectations diverge in a material way from the entity’s internal forecasts, it is not acceptable to conduct selective briefings to try to bring the analysts ‘in line’ with the entity’s views,” he added.

An improved market surveillance system that had recently been implemented would help the regulator better detect misconduct, including the incorrect handling of confidential information, said Price.

Improvements include faster data processing over longer periods than the preceding system. Asic said performance gains would enable it to identify suspicious trades and help investigators connect patterns to uncover insider trading relationships and market manipulation.

“Since the introduction of this system, we have also been able to commence inquiries into matters that traditionally we have not had the information to pursue,” Price said.

International: Banks seek delay for fund disposal deadline
US regulations requiring banks to offload their stakes in private-equity and venture-capital funds should be loosened, several banks have told American policymakers.

Bank officials have been lobbying the Federal Reserve to extend the summer 2014 deadline by up to seven years for rules under the Dodd-Frank Act that limit banks’ investments in such funds, reported the Wall Street Journal

If the deadline is not extended, banks risk being forced to sell PE and VC fund stakes worth tens of billions of US dollars at lower prices, said the report.

"We think it is important for the Federal Reserve to address this issue promptly so that banking entities can plan how to handle their fund investments," wrote Democrat representatives Gary Peters of Michigan, John Carney of Delaware and Dennis Heck of Washington wrote in a letter last week to the Federal Bank, according to the report.

Hong Kong: Regulator fines former securities officer
Hong Kong's securities regulator has reprimanded and fined Hung Lai-Ping, a former responsible officer of Delta Asia Securities, HK$150,000 ($19,000) for managerial and supervisory failures.

From January 2010 to February 2013, Delta Asia used shares belonging to clients and held in segregated client accounts at the Central Clearing and Settlement System to settle transactions for other clients who did not have sufficient shares in their accounts to discharge their respective settlement obligations on the settlement date.

The actions were taken without the consent or authorisation of the clients whose shares were used for settlement.

The Securities and Futures Commission (SFC) also found that Delta Asia failed to implement proper controls to safeguard client securities and to supervise its staff in executing the settlement.

The regulator attributed the settlement malpractice and failures to Hung’s negligence. She was responsible for overseeing the compliance function and all front- and back-office operations of Delta Asia, including its settlement functions.

In deciding the sanctions, the SFC took into account that Hung has accepted the regulator’s findings.

Other regulation-related stories published on recently:

China insurers tipped to roll out tax-deferral scheme

Liberalisations stir interest in Greater China equities

Dark pool probes prompt investors to think twice

Vietnam welcomes debut onshore ETF

Beijing to permit funds of funds to stir competition

Industry flags Stock Connect trading risks

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