AsianInvestor's regulatory roundup, Sep 3

Singapore proposes bond investment reform; Stock Connect test a success; China's regulator drops insider-dealing probe; Malaysia issues new sukuk guide; and Hong Kong formalises Reit rules.
AsianInvestor's regulatory roundup, Sep 3

Singapore: MAS aims to simplify retail bond purchases
The Monetary Authority of Singapore (MAS) is proposing to simplify the process whereby retail investors buy bonds, amid rising interest in the asset class.

Singapore has seen a significant increase in the amount of corporate bond issuance, which was S$107.3 billion $85.6 billion in aggregate from 2010 to 2013. Of that, only 0.9%, or S$970 million, was available to retail investors.

Under proposed rules, retail investors will be able to buy bonds initially offered by eligible issuers to institutional and accredited investors, after these bonds have been listed for six months. Retail investors will be limited to buying plain-vanilla unsubordinated bonds with a maximum tenor of 10 years.

In addition, qualified issuers will be able to sell to retail investors without issuing a prospectus.

To make bonds accessible, the MAS proposes that they can be re-denominated into smaller lot sizes and made available to retail investors via secondary trading.

“These proposals are part of MAS’ overall efforts to improve retail access to simple investment products that give decent returns without too much risk," said MAS managing director Ravi Menon. "Low global interest rates have spurred a search for yield, sometimes in risky and unconventional schemes or concentrated investments in property.

“At the same time, growing financial awareness has spurred demand for a broader range of retail investment products, including for retirement savings,” he added.

The consultation will close on September 30.

Hong Kong/China: Stock Connect passes full trial
Hong Kong’s stock exchange said a weekend-long operational test of Stock Connect was completed smoothly on Sunday.

The trial was undertaken to ensure participants’ systems are ready for the implementation of Stock Connect, which is expected in October.

The trading, clearing and settlement processes for northbound trades (for offshore investors trading A-shares on the Shanghai Stock Exchange) were verified, as were those for southbound trades (for mainland investors trading H-shares).

Test participants also familiarised themselves with the new features of northbound trading and trialled their own trading and clearing operations.

Foreign investors are not allowed to own more than 28% of any single A-share name. The trial included a simulation of northbound trades hitting that restriction, which saw further buy orders suspended until aggregate foreign holdings fell below 26%.

A daily quota of Rmb3 billion ($2.1 billion) will be in force for northbound trades. One of the weekend’s tests included a simulation of northbound trades reaching that quota, which triggered the suspension of buy orders for the rest of the trading session.

Another test is scheduled for September 13.

China: Regulator ceases probe into Fortune SG manager
Chinese joint-venture fund house Fortune SG has reinstated former fund manager Guo Pengfei after the mainland securities regulator confirmed it had ceased an insider-trading probe into trades he had made.

The firm is a JV between Societe Generale and Bao Steel.

The China Securities Regulatory Commission launched an investigation into Guo in June last year because of two trades he executed in 2011 in shares of Anhui Shengyun Machinery. It did not provide further details of the transactions. Guo was then manager of the firm’s emerging industries equity fund.

Insider trading, which involves trading on non-publicly disclosed information, has been a big problem in China. But the country’s government has cracked down on the practice. Since 2009, the National People’s Congress has prescribed imprisonment of up to 10 years for cases of market misconduct.

To date, the largest insider-trading case in China involved Ma Le, a former fund manager at Shenzhen-based Bosera Asset Management, who was found to have made Rmb18.83 million ($3.06 million) from front-running between 2011 and 2013.

He was sentenced to three years in prison in March this year, and fined Rmb18.84 million and made to return his gains.

Malaysia: Regulator issues rules for ethical sukuks
Malaysia’s Securities Commission on August 28 launched a sustainable and responsible investment (SRI) framework for sukuk, so-called Islamic bonds.

The code contains guidance on the issuance of sukuks, the utilisation of proceeds, eligible SRI projects, the appointment of independent parties and disclosure and reporting requirements.

It was first announced in October last year by prime minister Najib Razak.

He noted that shifts in investor demographics are creating greater appetite for socially responsible financing and investments. Investors are now increasingly concerned with the environmental and social impact of business and are demanding stronger corporate governance and ethics, the government added.

The SRI sukuk framework is also intended to meet demand from investors and encourage participation in the sukuk market.

Hong Kong: SFC formalises new Reit rules
Hong Kong's Securities and Futures Commission has implemented a revised code for real estate investment trusts (Reits) as of August 29.

Under the amendments published in July, Reit managers are allowed to participate in property development projects and invest in financial instruments to manage their cashflow.

However, restrictions will be put in place, including a 10% limit of a Reit’s gross asset value (GAV) on the amount that can be invested into development projects. Completed projects must also be held for at least two years.

Additionally, at least 75% of a Reit’s GAV must comprise property assets that generate recurrent rental income. Also, investment in vacant land is prohibited.

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