Opening New Opportunities of Investment Between India and Pakistan

Relationship between India and Pakistan has always been looked into Political terms and controversies around the policy. However, Indian Regulator issued new guidelines of Foreign Direct Investment related to India and Pakistan and certaily this initiatation may lead to more economic consolidation process of SAARC.

Reserve Bank of India (RBI) under  RBI/2012-13/198 A. P. (DIR Series) Circular No. 25 and  RBI/2012-13/173 A. P. (DIR Series) Circular No. 16 allowed "Overseas Investment by Indian Parties in Pakistan"and  "Foreign Direct Investment by citizen / entity incorporated in Pakistan".

In process of  Overseas Investment by Indian Parties in Pakistan, In terms of Regulation 6 (2) of the Notification ibid, “Notwithstanding anything contained in these Regulations, investment in Pakistan shall not be permitted.” It has now been decided that the overseas direct investment by Indian Parties in Pakistan shall henceforth be considered under the approval route under Regulation 9 of the Notification, ibid.

Foreign Direct Investment by citizen / entity incorporated in Pakistan, In terms of sub-regulation (1) of Regulation 5 of the Notification ibid, a person resident outside India who is a citizen of Pakistan or an entity incorporated outside India in Pakistan, is not allowed to purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme. It has now been decided that notwithstanding anything contained in sub-regulation (1) of Regulation 5 of the Notification No.FEMA. 20, a person who is a citizen of Pakistan or an entity incorporated in Pakistan may, with the prior approval of the Foreign Investment Promotion Board of the Government of India, purchase shares and convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions specified in Schedule 1 of the Notification, ibid, provided further that notwithstanding anything contained in Schedule 1 of the Notification,  ibid, the Indian company, receiving such foreign direct investment, is not engaged or shall not engage in sectors / activities pertaining to defence, space and atomic energy and sectors/ activities prohibited for foreign investment.

Above Circular certainly consider as beginning of opening investment market between two countries and  same must lead to more equal opportunities of growth of business society of related country.

Singapore Implements Enhanced Regulatory Regime for Fund Management Companies

The Monetary Authority of Singapore (MAS) has announced that the implementation of an enhanced regulatory regime for fund management companies (FMCs) will take effect from tomorrow, 7 August 2012.  Amendments have been made to the Securities and Futures (Licensing and Conduct of Business) Regulations, Securities and Futures (Financial and Margin Requirements) Regulations and Financial Advisers Regulations. 

Under the enhanced regulatory regime, all FMCs will have to meet enhanced business conduct and capital requirements. These include rules requiring independent custody and valuation of investor assets, as well as requirements for FMCs to undergo independent annual audits by external auditors and having an adequate risk management framework commensurate with the type and size of investments managed by the FMCs. 

A new category of Registered Fund Management Companies (RFMC) will replace the current Exempt Fund Manager (EFM) regime. RFMCs may serve up to 30 Qualified Investors and manage up to S$250 million in assets under management.  All other FMCs will have to apply for a license.

To facilitate a smooth transition for EFMs and FMCs to apply for a license or to register with MAS, MAS has put in place the following measures:

• Current EFMs will have six months to apply for a licence or to register with MAS under the new RFMC regime.
• FMCs can submit their licence applications or register online via the Corporate e-Lodgment system. This new online system will also allow FMCs to submit their regulatory returns.

New Financial Requirements for Issuers of Over-the-Counter Derivatives

Australian Securities & Investments Commission (ASIC) released new financial requirements for Australian financial services licensees who issue over-the-counter (OTC) derivatives to retail clients, including contracts for difference and margin foreign exchange.

The changes aim to ensure these AFS licensees have adequate financial resources to operate their business in compliance with the Corporations Act and to carry out supervisory arrangements.

ASIC Commissioner, Greg Tanzer said the new requirements had been developed to help ensure licensees have the financial resources to more adequately manage their operational risks in this growing area and followed a lengthy consultation process with industry.

‘Considering the complex and risky nature of retail OTC derivative businesses, issuers should be subject to enhanced financial requirements’, Mr Tanzer said.

‘In our review of this sector, we have found that poorly resourced issuers of retail OTC derivatives are less likely to carry out adequate supervisory arrangements and are more likely to encounter compliance breaches.

‘We need to raise the bar higher to ensure licensees have adequate financial resources to properly oversee and manage the operational risks inherent in the OTC derivatives market. Ultimately, this goes to our strategic priority of promoting the confident participation of retail investors in financial markets.

‘The increase to the minimum financial requirements for retail OTC derivative issuers also brings Australia in line with comparable jurisdictions, such as the United Kingdom and Singapore’, Mr Tanzer added.

The requirements, implemented through Class Order [CO 12/752] Adequate financial resources for financial services licensees that issue OTC derivatives to retail clients and outlined in Regulatory Guide 239 Retail OTC derivative issuers: Financial requirements (RG 239) build on the general guidance in Regulatory Guide 166 Licensing: Financial requirements (RG 166), by addressing the particular operational risks and characteristics of the retail OTC derivatives sector.

Under the changes, retail OTC derivatives issuers must meet a net tangible asset (NTA) requirement, which will require them to hold NTA the greater of:

From 31 January 2013:	$500,000, or 5% of average revenue
From 31 January 2014:	$1,000,000, or 10% of average revenue.

Issuers will also be required to, each quarter, prepare projections of cash flows over at least a 12 month period based on their reasonable estimate of revenues and expenses over that term. These projections must be certified as reasonable by the issuer’s directors.

To ensure financial resources can be used effectively to meet unexpected losses and expenses as they arise, there is also an NTA liquidity requirement. Under this requirement, issuers must hold 50% of the required NTA in cash or cash equivalents and 50% in liquid assets.

Financial trigger point reporting obligations will also be modified to enable issuers to temporarily draw down on the required NTA to meet unanticipated costs and contingencies. However, if issuers hold inadequate NTA for more than two months, they will be required to report this to clients. If NTA falls too low, issuers will be forbidden from taking on new client liabilities.

ASIC released Consultation Paper 156 Retail OTC derivative issuers: Financial requirements (CP 156) in 2011 to seek feedback on the financial requirements for issuers of OTC derivatives to retail investors.

The new financial requirements for retail OTC derivative issuers follow ASIC’s enhancement of the financial requirements for responsible entities of managed investment schemes (see Appendix 1 to Report 259 Response to submissions on CP 140 Responsible entities: Financial requirements (REP 259)).

"Crowd Funding": New Challenges for Regulator

Australian Securities & Investments Commission (ASIC) has issued guidance to promoters of ‘crowd funding’ to clarify arrangements which may be regulated by ASIC under the Corporations Act 2001 (Corporations Act) and Australian Securities and Investments Commission Act 2001 (ASIC Act).

ASIC has also highlighted some risks for operators of crowd funding websites and people considering participating in crowd funding projects.

‘Crowd funding’ involves the use of the internet and social media to raise funds in support of a specific project or business idea. Project sponsors or pledgers typically receive some reward in return for their funds. In some cases, the reward expected may be of minor value and is merely incidental rather than the purpose of the contribution.

ASIC Commissioner, Greg Tanzer, said ASIC has been monitoring increasing use of crowd funding for investment purposes to identify any arrangements, or aspects of those arrangements, that may be regulated by ASIC.

‘Crowd funding, as a discrete activity, is not prohibited in Australia nor is it generally regulated by ASIC’, Mr Tanzer said.

‘However, depending on the particular crowd funding arrangement, ASIC's view is that some types of crowd funding could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure document. These activities are regulated by ASIC under the Corporations Act and ASIC Act and may impose legal obligations on operators of crowd funding sites and on people using those sites to raise funds.

‘We want to make sure anyone involved in crowd funding is aware of these obligations to ensure they operate within the law and don’t potentially expose themselves to penalties under the Corporations Act or ASIC Act’, Mr Tanzer said.

Along with other factors, depending on the type of ‘reward’ offered by the project creator to those giving funding, crowd funding could involve a managed investment scheme under Chapter 5C of the Corporations Act, provision of a financial services requiring an Australian financial services (AFS) licence or a fundraising under Chapter 6D of the Corporations Act.

There are also advertising and publicity restrictions that apply to advertising and publicising an offer of financial products or securities, in certain circumstances.

ASIC has written to a number of Australian-based operators of crowd funding websites outlining its views on crowd funding and the circumstances that may impose legal obligations.

In addition, as a result of its current monitoring of crowd funding, ASIC has identified some risks in crowd funding that website operators can help manage. These include:

• a risk of fraud being carried out through crowd funding websites. Website operators can help manage this risk by doing background and credentials checks on project creators to help minimise the opportunity for fraud.
• a risk that funded projects are not completed and the project sponsors do not receive the rewards promised. As well as background and credentials checks, the website operators can manage this risk by assessing the viability of the project before it is posted on their website, requiring the project creator to provide more information on how and when they complete the project and consider requiring the project creator to report periodically through the website on their progress in implementing the project.
• a risk that the money collected is lost due to the fraud or bankruptcy of the website operator before the money is passed on to the project creator. The website operator can manage this risk by holding all crowd funding money in a trust account separate from its own assets, avoiding excessive holding periods and implementing appropriate internal controls to ensure withdrawals are appropriate.

ASIC also recently published information on the MoneySmart website about things that people who are thinking of participating in a crowd funding project should consider before getting involved. More information is available from www.moneysmart.gov.au.

Background

Ventures funded by a crowd funding site could be a managed investment scheme if funds contributed are pooled or used in a common enterprise to produce financial benefits or benefits consisting of interests in property for the contributors. Interests in a managed investment scheme are generally financial products and regulated under the Corporations Act.

If the people providing the funds are making a donation or are only told they may receive some asset of nominal value which is not itself a financial product, regulation under the Corporations Act may not apply. These arrangements are not generally regulated by ASIC.

In some circumstances, crowd funding may also be considered as pre-purchase arrangement of a product or a service. In these circumstances, the activity would be regulated under the Competition and Consumer Act 2010, which incorporates the Australian Consumer Law. Amongst other things, the Australian Consumer Law, like the ASIC Act, prohibits businesses from making false or misleading representations to consumers. Consumers concerned that they may have been misled about a crowd funded product or service that is not financial product or service may wish to contact the Australian Competition and Consumer Commission or their local office of fair trading.

In the circumstances that crowd funding involves an offer that meets the definition of a financial product, the owner of Australian-based websites that facilitate this crowd funding may be legally considered as the person making an offer to arrange for the issue that financial product. In these circumstances, a person must meet certain requirements under the Corporations Act:

• hold or obtain an AFS licence with the appropriate licence authorisations or be an authorised representative of an AFS licence holder
• if offering to arrange for issue of a financial product to retail investors or inviting them to apply for a financial product, give a Product Disclosure Statement (PDS) for the offer to the client.

If there is an offer to issue securities such as shares or debentures in a company, or an invitation to apply for securities, then the issuer of those securities or equity may be required to lodge a prospectus or other complying disclosure document. If the offer is to issue an interest in a managed investment scheme, then the issuer of the interest may be required to give a PDS, and may be required to have the scheme registered by ASIC under Chapter 5C of the Corporations Act.

Offering a financial product or securities without meeting the relevant obligations under the Corporations Act may have a number of consequences, including fines or other penalties. For example, the maximum penalty for failing to register a managed investment scheme is 200 penalty units ($22,000), five years imprisonment or both.

The maximum penalty for carrying on a financial services business without an AFS licence is 200 penalty units ($22,000), two years imprisonment or both.

There are also advertising and publicity restrictions that apply to advertising and publicising an offer of financial products or securities which require a PDS or a prospectus or other complying disclosure document under the Corporations Act unless there are appropriate references to the relevant document.

There are various consequences for failing to comply with these requirements under the Corporations Act. In particular:

• a person may be liable to compensate another person contributing funds for loss or damage resulting from a contravention of the requirements in the Corporations Act; and
• a publisher (which would include the operator of a website that provides access to crowd funding projects) may commit an offence if they contravene the advertising and publicity restrictions in the Corporations Act.

The maximum penalty for contravening the restrictions on advertising and publicity for financial products is 25 penalty units ($11,000), two years imprisonment or both.

New Regulatory Measures Take Effect under Securities and Futures (Amendment) Ordinance in Hong Kong

The Securities and Futures Commission (SFC), Hong Kong has enacted the Securities and Futures (Amendment) Ordinance 2012 (Amendment Ordinance).

Under the Amendment Ordinance, which will be gazetted, the SFC is empowered to implement the following new regulatory initiatives:

• The establishment of a statutory disclosure regime whereby listed corporations will be required to disclose price sensitive information (PSI) in a timely manner, backed by civil sanctions for non-disclosure of PSI;
• The SFC can directly institute proceedings before the Market Misconduct Tribunal (MMT), without having to first refer the case to the Financial Secretary for his decision, to enforce PSI disclosure requirement, and to deal with the existing six types of market misconduct under the Securities and Futures Ordinance (SFO) (Note 1); and
• The SFC will establish the Investor Education Centre (IEC) to take up broader investor education responsibilities covering the entire financial services sector (Note 2).

Provisions relating to the SFC directly instituting proceedings before the MMT and the establishment of the IEC will come into operation on 4 May 2012.

The PSI disclosure regime will take effect on 1 January 2013 to give listed companies sufficient time to prepare themselves to comply with the new requirements and to set up the necessary internal control systems.

Guernsey Regulator Consultation on Changes to AML/CFT Regulations and Handbooks

The Guernsey Financial Services Commission has written to the managing directors of all financial services businesses, seeking comments on proposed changes to the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (the “Regulations”), the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing (the “Handbook”), schedules 1 and 2 to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (the “1999 Law”) and schedule 1 to the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (the “2008 Law”).

 

A copy of the proposed amendments to the FSBs Regulations highlighted in purple are available here.

 

A copy of the proposed amendments to the FSBs Handbook highlighted in red are available here.

 

A copy of the proposed amendments to schedules 1 and 2 to the 1999 Law highlighted in blue are available here.

 

A copy of the proposed amendments to schedule 1 to the 2008 Law highlighted in blue are available here.

 

The Commission has also written to the managing directors/partners of prescribed businesses seeking comments on the proposed changes to the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) Regulations, 2008 (the “PB Regulations”) and the Handbook for Legal Professionals, Accountants and Estate Agents on Countering Financial Crime and Terrorist Financing (the “PB Handbook”).

 

A copy of the proposed amendments to the PB Regulations highlighted in blue are available here.

 

A copy of the proposed amendments to the PB Handbook highlighted in red are available here.

The Future of New Zealand Competition Law

Present blog is the gist of speech of Craig Fross released from Ministry of Commerce of New Zealand.

"Thank you for the introduction and for inviting me to speak today. Based on the calibre of presenters and the agenda for the next two days, this year's conference will no doubt provide some challenging and stimulating discussion around competition law, policy and regulation in New Zealand.

I would like to start by explaining the government's key policy objectives, because these drive the reforms.  At the broadest level, the government has four key policy objectives for the next three years."

These are:

 •responsibly managing the Government's finances;

 •building a more competitive and productive economy;

 •delivering better public services; and

 •supporting the rebuild of Christchurch.

For New Zealand to realise its potential, it's essential that we build a more competitive and productive economy.  Effective competition spurs innovation, which in turn underpins the productivity of individual firms and the public sector.

Competition law promotes a competitive culture in New Zealand, it is an important tool because it applies to all sectors, except those specifically exempt.

The Commerce Act is designed to incentivise competitive behaviour through prohibiting anti-competitive practices. Clear and robust legislation is an important part of the regime but it alone cannot achieve the Government's objectives.

I'd like to spend a moment commenting on the other institutions that have an important role to play: the Commerce Commission, the courts, commentators and you - the people that advise business.

The Commerce Commission helps build a more competitive and productive economy through administering and enforcing the law.

Over the past year the Commission has honed its focus on lifting voluntary compliance by placing greater emphasis on helping businesses understand what they need to do to comply with the law.

 To do this, the Commission has focused on education initiatives and improving the quality of engagement with stakeholders. The work done to raise awareness in the construction sector is a great example of using softer methods to promote compliance with the Act, and it is my understanding that this has been very successful.

Advisors also play a significant role in ensuring that the competition regime operates as intended.

The Commerce Act does not set out prescriptive rules.

It is principle-based.

This means it is essential that advisors understand the purpose of the Act.

This enables advisors to provide savvy advice, which in turn will facilitate pro-competitive business transactions.

Courts also play an important role.  High quality judicial precedent plays an integral part in building a more productive and competitive economy.

To the extent that cases come before the Courts, the Commission and advisors also have a role in influencing how the judiciary understands the purpose and structure of the legislation.

We cannot forget about the commentators. We need them.

Their critiques of decisions contribute to the quality of debate and ultimately improve the quality of decision-making.

Commentators generate discussion. This has to be a good thing. Academics and advisors can also play a role in holding the courts and the Commission to account.  This contributes to quality debate on policy and legislative issues.

Similarly forums such as this conference allow a detailed discussion of  developments in competition law and policy increase the capability of all institutions.

This makes it a real privilege for me to talk today because as Minister of Commerce I see my role as supporting the network of people and institutions that will help build a more competitive and productive economy.

This brings me to the final feature of our competition regime that is integral to the promotion of a competitive culture in New Zealand: the legislation.

As you will be aware, there are currently two bills before Parliament designed to improve the operation and enforcement of competition law in New Zealand. These are the Commerce Commission (International Co-operation and Fees) Bill, and the Commerce (Cartels and Other Matters) Amendment Bill.

The Cartels Bill in particular is a significant piece of law reform as the competition provisions of the Commerce Act have not been subject to any substantial amendment since 2001.

I know many of you here today have participated in the policy development of these Bills, and I commend those of you who have done so.

I would like to spend a few moments talking about how the Cartels Bill furthers the Government's policy objectives and key issues that were considered as part of the policy process.

The Cartels Bill is about enabling business.

It does a lot more than just criminalise hard-core cartel conduct.

It enbables business to entire into pro-competitive, innovative and efficient collaborative activity.

This Bill will:

 • Clarify the scope of the prohibition.

 •Introduce a collaborative activity exemption

 •Introduce a clearance regime so that businesses can test with the Commission to find out whether their proposed collaborative activity gets the green light.

The initial stages of the policy process focused on whether or not to criminalise hard-core cartel conduct….so it is understandable that when people think about the Bill, they focus on criminal sanctions.

BUT, this Bill does so much more.

It aims to clarify the scope of the prohibition against hard-core cartels, in part by introducing the collaborative activity exemption.  The scope of the collaborative activity exemption is broad and focuses on the substance of the activity, not the form of the arrangement. As a result, it should apply to all pro-competitive collaborations.

The collaborative activity exemption has also been designed so that businesses can assess for themselves whether their proposed collaboration falls within the exemption.  The exemption sends a clear signal that the Government recognises that pro-competitive, innovative and efficiency enhancing collaborative activities are essential to New Zealand realising its productive potential.

The design of the prohibition is critical.

I don't think we would have achieved our policy objectives had we introduced criminal sanctions while retaining the current prohibition.

In considering whether to criminalise hard-core cartel conduct, my predecessor Simon Power had regard to the Legislative Advisory Committee Guidelines.

He identified three factors of particular relevance and I'd like to spend a moment discussing these.

The Guidelines suggest that regard should be had to the following questions:

 •Will the conduct in question, if permitted or allowed to continue unchecked cause substantial harm to individual or public interests?

•Is the conduct that is to be categorised as a criminal offence able to be defined with precision?

•Would public opinion support the use of the criminal law, or is the conduct in question likely to be regarded as trivial by the general public?

These questions are crucial because they focus both on the legislative design but also on the role of the various institutions in making the regime work.

During the policy process some submissions suggested that the scope of the prohibition was unclear and may prohibit pro-competitive conduct.  To some extent, some of the discomfort with criminalisation appeared to be a product of uncertainty about the current law.

Given the feedback about the current prohibition, answering the questions posed by the Guidelines becomes problematic.  Obviously if the current prohibition seems to capture or hinder pro-competitive behaviour from occurring, allowing this to continue does not cause substantial harm.

A large part of the policy process was about listening to competition law experts and business about how we could get the design of the Bill right.

The Bill specifically aims to clarify the scope of the prohibited conduct and provide safeguards - namely the collaborative activity exemption and clearance regime - to encourage businesses to continue to find ways to collaborate and innovate in a way that builds their productive and competitive capacity.

The government is not shy about the fact that people intentionally participating in hard-core cartels deserve to go to jail.

Any behaviour that distorts prices and undermines the competitiveness of New Zealand markets - is not acceptable.

People that intentionally participate in hard-core cartels deserve to be sanctioned in the same way as those that participate in tax evasion, fraud and other white collar crimes.

We know these are significant changes. To provide greater certainty, the government has invited the Commerce Commission to:

 •Develop prosecution guidelines that outline when they would take a criminal prosecution; and

 •undertake further advocacy work to promote better understanding of the prohibitions in the Commerce Act.

These reforms will also have a significant impact on the operation of the legislative regime.  Cabinet has agreed to sequence the introduction of the new regime so that the majority of the regime will come into force on the day the Act receives royal assent, but to delay the commencement of criminal sanctions. This should leave sufficient time for the regime to bed-in, alleviating some of the uncertainty.

While the amendments arose from the question of whether or not to introduce criminal sanctions for hard-core cartel conduct, the Bill does much more.

The design means that the focus should no longer be on criminal sanctions, but rather on facilitating pro-competitive collaborative activities.

The industry's focus must change.

If everyone continues to focus on criminal sanctions - we will miss a real opportunity to improve the current regime.

I anticipate that the Bill will receive its first reading soon, but the exact timing will depend on Parliamentary priorities.

The Bill will then be referred to the Commerce Select Committee for consideration. Select Committee provides an opportunity for legal practitioners to add value, both by identifying areas where the proposed regime could be improved, and highlighting the features of the regime that are an improvement on the current regime.

Constructive input into the legislative process at this stage is invaluable, and helps ensure that the regime has the robustness to stand the test of time.

Another important part of this suite of reforms is the Information Sharing Bill, which also ties into the amendments of the Cartels Bill. The ability for the Commerce Commission to share compulsorily-acquired information with equivalent overseas regulators is another lever the Government can use to deter anti-competitive behaviour, especially behaviour that takes place overseas but affect New Zealand.

Both the Cartels Bill and the Information-Sharing Bill represent significant reforms for New Zealand competition law, and go directly towards achieving the Government's policy objective of building a more competitive and productive economy.

As I have mentioned, this does not mean that competition law acts within a vacuum. The Commission, the Courts, commentators and advisors have a vital role to play in ensuring the workability of the law.  In this context I urge you to consider the Cartels Bill and the policy intent behind it, and encourage you to participate in the Select Committee process by identifying features of the Bill that represent an improvement, and where the Bill could be enhanced.

Again, thank you for providing me with opportunity to address you today, and I wish you all the best for the rest of the conference.

Thailand Regulatory Revision Concerning Return Payment of Property sector Fund

The Securities & Exchange Commission, Thailand (SEC) is seeking public comment on the revision to regulation governing return payment from the investment of property sector fund. The revision aims to solve tax differences between indirect investment through property sector fund and direct investment in property fund established and managed in Thailand (Thai property fund). 

Under the proposed regulations, property sector fund must pay dividend to unit holders the entire amount of return obtained from Thai property fund in any accounting period. Omission of dividend payment is, however, allowed in the accounting period where dividend to be paid is lower than 0.25 baht per unit. In addition, to prevent any impact  from the revision, the SEC will allow asset management company to prepare the operating system and amend project details, including inform every unitholder of the changes at least 60 days in advance. Within such period, asset management company must repurchase the fund’s units at least once, while unitholder may exit from the fund with no fee charged.

The consultation paper is available on the SEC website at www.sec.or.th. Stakeholders and the interested public are welcome to submit comments through the website, or through facsimile number 0-2695-9915 until June 14, 2012.

Singapore Regulator Reviews Regulatory Requirements for Unlisted Margined Derivatives Offered to Retail Investors

The Monetary Authority of Singapore (MAS) has issued a consultation paper on proposed enhancements to the regulatory requirements for unlisted margined derivatives.

The proposals aim to address the specific risks posed by unlisted margined derivatives such as contracts for differences (CFDs) and leveraged foreign exchange products (LFX), which are currently available to retail investors.  Retail investors who trade in CFDs and LFX are exposed to considerable risks, given the leveraging effect of margin trading on potential losses.  The unlisted nature of such products further subjects investors to counterparty risks since they do not trade through an exchange which has a central clearing house to guarantee the settlement obligations to investors.  Instead, investors are exposed to the creditworthiness and operational risks of the derivative product dealer.  In the event of a default, they may not have recourse to transfer their positions or recover their moneys in their trading accounts.

The proposed regulatory enhancements seek to afford better protection to retail investors who participate in the CFDs and LFX markets by addressing specific risks. The proposed measures aim to:   

i) Enhance credit risk management  by derivative product dealers and mitigate the risk of over-leveraging by retail investors;

ii) Ensure derivative dealers are adequately capitalised and financially sound in the operation of their business;

iii) Enhance the protection and recovery of retail investors’ moneys and assets in the event of insolvency of the dealer; and

iv) Enhance risk disclosure to retail investors to better highlight the specific risks associated with trading unlisted margined derivatives so as to help them make informed decisions on the suitability of such products.

Mr Lee Chuan Teck, Assistant Managing Director for Capital Markets, said, “The proposed enhancements will increase the level of protection for investors and facilitate faster recovery of their funds should the intermediary default.  MAS strongly encourages consumers seeking financial services to deal only with persons regulated by MAS. Entities overseas may offer lower margin requirements but investors trading with them will not be protected under laws administered by MAS.”

MAS invites interested parties to provide their views and comments.  Details of the proposals are contained in the consultation paper available on MAS’ website. The consultation period will end on 2 July 2012.

FINMA Opens Consultation on Insurance Bankruptcy Ordinance

The Swiss Financial Market Supervisory Authority FINMA has opened the consultation on the new Insurance Bankruptcy Ordinance. This Ordinance is needed because the Insurance Supervision Act only provides a rudimentary framework for bankruptcy proceedings and because FINMA is responsible for overseeing the bankruptcy of insurance companies since 1 September 2011. The consultation period ends on 30 June 2012.

 

Since 1 September 2011, FINMA is responsible for initiating and conducting bankruptcy proceedings concerning companies subject to the Insurance Supervision Act (ISA). The ISA only provides a rudimentary framework for bankruptcy proceedings, so the new Ordinance adds the necessary detail and thus ensures legal certainty and predictability.

 

The draft Ordinance of the Swiss Financial Market Supervisory Authority on the Bankruptcy of Insurance Companies (FINMA Insurance Bankruptcy Ordinance, IBO-FINMA) is intended to protect insurance policy holders in the event of an insurance company’s bankruptcy. Policy holders' claims that are to be secured by the insurance company using tied assets are especially important here. On the one hand, such claims are to be classified as preferential to other privileged claims (see Art. 219 para. 4 of the Debt Enforcement and Bankruptcy Act for ranking) and settled before the latter (see Art. 54a para. 2 in conjunction with Art. 17 ISA). On the other hand, provision is made for bankruptcy dividends to be paid to policy holders from tied assets in full or in part prior to the schedule of claims takes legal effect. This is significant because several years may pass before the schedule of claims takes effect after an insurance company goes bankrupt, and policy holders' money would remain blocked until then.

 

While the Banking Act gives FINMA the authority to issue implementing regulations for the law on both bankruptcy and restructuring as far as banks are concerned, the ISA and thus the draft IBO-FINMA cover only the bankruptcy of insurance companies.

Mortgage Financing: Swiss Regulator Recognises New Minimum Standards

The Swiss Financial Market Supervisory Authority FINMA has approved the new minimum re-quirements for mortgage financing drawn up by the Swiss Bankers Association (SBA) as a minimum regulatory standard. The new self-regulatory regime, which enters into force from 1 July 2012, for the first time lays down minimum requirements concerning down-payments by borrowers and introduces compulsory amortisation. The recognition comes in the context of the measures presented by the Federal Council concerning the implementation of Basel III, “too big to fail” and reduction of the risks in the mortgage market, which FINMA expressly welcomes. 

 

FINMA has for a long time been pointing out the risks that could build up as a result of rapid growth in mortgages for residential property. There is no sign of a weakening in the strong demand for mortgage financing, not least due to the exceptionally low level of interest rates. In the course of its supervisory activities and direct inspections, FINMA has also noted that many banks are stretching their own lending criteria to the limit, as regards both financial sustainability for the borrower and the loan-to-value ratio applied to the property, and are also making increased use of exceptions to policy. This is creating a new segment of borrowers who would not be able to acquire residential property under different market conditions. In particular, there is a risk that rising interest rates would leave such borrowers unable to service their loans, ultimately raising the possibility of defaults and falling property prices. When a real-estate bubble bursts, the implications for a country’s financial stability can be extremely serious. 

 

Guidelines on minimum down-payments and amortisation

The SBA guidelines set out basic requirements concerning minimum down-payments by borrowers and contain clear rules on amortisation that must be taken into account during financial sustainability analyses. Given that this is a self-regulatory regime imposed by the banks themselves, FINMA expects it to be widely accepted by them and implemented swiftly and conscientiously.

 

Minimum down-payments from own funds: In future, borrowers will be required to supply at least 10 per cent of the lending value of the property from their own funds, which may not be obtained by pledging or early withdrawal of Pillar 2 assets. This means that the purchase of a property by a mortgagor using a down-payment derived exclusively from pension fund assets will not meet the minimum standards. The new guidelines require borrowers to be on a sounder financial footing. Equally, they reduce the danger that they will put at risk their retirement capital and, with it, their pensions. 

 

Amortisation: Under the new rules, mortgages must in all cases be paid down to two thirds of the lending value within a maximum of 20 years. Waiving amortisation in the expectation of rising property prices would not, therefore, meet the minimum standards. The amortisation rules require the debt burden to be steadily reduced, which will have a positive effect on long-term financial sustainability. 

 

Revised Capital Adequacy Ordinance contains reference to the new minimum standards

 

In the event that a mortgage granted after 1 July breaches these new minimum standards, banks will be required to significantly increase the capital involved to cover it. This is stipulated in the Federal Council’s revised Capital Adequacy Ordinance, which also contains a further instrument for reducing mortgage risks. If a bank grants a mortgage amounting to more than 80 per cent of the lending value, it will be required to back it with a higher level of capital. This measure comes into force on 1 January 2013. As a further measure, from 1 July 2012 the Federal Council will have at its disposal a new capital buffer for all banks that can be selectively and temporarily activated for specific sectors, such as the mortgage business. 

 

Although the amortisation requirement has a direct impact on financial sustainability calculations, there are still no binding minimum standards in this central area of residential property financing. However, a realistic assessment of the medium-term financial situation is invariably in the interest of borrowers too, as it ensures that their property remains affordable for them even if interest rates rise or their own income falls.

Study Shows Decline in U.S. Share of Global Markets in 2011

The Committee on Capital Markets Regulation (CCMR), an independent and nonpartisan research organization dedicated to improving the regulation and enhancing the competitiveness of U.S. capital markets, released data from the fourth quarter of 2011 and the first quarter of 2012. The value of foreign issuer-raised equity in the U.S. private markets showed a significant increase in 2011, suggesting a further decline in the relative competitiveness of the U.S. public capital markets.

 

On the other hand, while several measures of competitiveness have shown limited improvement in the first quarter of 2012, it is premature to tell whether this is an anomaly or the beginning of a broader trend. CCMR will have a better perspective on these results following the release of our quarter 2 data this summer.

Global IPOs

In 2011, U.S. equity markets captured only 8.6% (by value) of the global IPO market. This is a decrease from 14.2% in 2010 and 16.9% in 2009, and is substantially less than the historical average of 28.7% for the period 1996–2006.

Three of 2011’s 20 largest IPOs were sold on U.S. markets. This represents an improvement from only one IPO in 2010, two in 2009, and none in 2008 or 2007. However, the figure is still lower than the historical average of five IPOs for the period 1996 –2006.

U.S. Public & Private Equity Markets

In 2011, the U.S. raised 42.7% of the equity raised in worldwide public markets. This figure represents a significant increase over the 2010 figure of 30.0%. But it just reflects the fact that U.S. IPOs, of U.S. firms, were more active than IPOs of foreign companies.

At the same time, however, in 2011, the 144A market also captured a larger relative share (6.3%) of foreign issues in the U.S., a substantial increase from 3.8% in 2010. The value of foreign issuer–raised equity on the 144A market during that period was $1.32 billion, a dramatic increase over 2010’s $771 million. This shows that our public markets are still unattractive to foreign issuers who have a real choice as to whether to use them. These issuers prefer the private markets.

In addition, in 2011, a total of 11 foreign companies cross–listed their shares on U.S. exchanges without raising capital. This remains well below the historical average of 18 for the period 2000–2006.

Quarter 1 of 2012

Global IPOs

U.S. equity markets captured 17% (by value) of the global IPO markets during the first quarter of 2012. This is a significant increase over the 8.6% U.S. share in 2011, and a hopeful sign, but it still remains well below the historical average of 28.7%. The U.S. share of the 20 largest global IPOs remained relatively flat.

U.S. Public & Private Equity Markets

In the first quarter of 2012, the U.S. raised 47.4% of global equity raised in public markets. This marks a further increase over 2011 levels. Again, this just shows the active IPO for U.S. firms. More importantly, the percentage of private IPOs by foreign companies relative to total global IPOs in the U.S. decreased in the first quarter to 67.9% (from 82.5% in 2011), reflecting that foreign companies were finding U.S. public markets more attractive. This is a promising development, but the figure remains above the historical average of 64.1%.

The Committee believes that measures suggested in its 2006 Interim Report must be taken to help restore U.S. competitiveness. We also urge regulators implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to minimize, to the extent possible, adverse competitive impacts, particularly in areas where the U.S. regulatory approach differs significantly from that taken in other markets.

Australian Regulator Consults on New Guidelines for Credit Advertisements

Australian Securities & Investments Commission (ASIC) has released a consultation paper about credit advertising to promote good practice and help industry comply with their legal obligations when advertising credit products and services.  

Consultation Paper 178 Advertising credit products and credit services: Additional good practice guidance (CP 178), reflects ASIC’s strong focus on ensuring accurate advertising that does not mislead financial consumers and investors.  

‘ASIC recognises the important role that advertising can play in helping investors make financial decisions and a focus on ads is part of ASIC’s drive to promote confident and informed consumers’, said ASIC Commissioner Peter Kell. 

‘Ads should give balanced information to ensure the overall effect creates realistic expectations about a credit product or service’, Mr Kell said. 

Mr Kell reminded promoters of credit products and services, and publishers of advertising for these products and services, that ASIC will be regularly reviewing ads, noting recent actions taken against some banks for misleading advertising about credit card limit increases and home loan discounts. 

‘ASIC wants to help industry understand their obligations. However, we will also take action against financial institutions who engage in misleading marketing. We have a greater range of penalties that we can seek in such cases compared to the past’, Mr Kell said.  

‘Banks, credit unions, mortgage brokers and other players in the credit industry have clear legal responsibilities when it comes to advertising which they need to take seriously. We hope this consultation process will help to build clear expectations among industry and better outcomes for consumers.’ 

ASIC’s guidance also contains real examples of the concerns raised with promoters of credit products or services. 

CP 178 relates specifically to credit facilities and builds on Regulatory Guide 234 Advertising financial products and advice services: Good practice guidance (RG 234) which was released earlier this year and applies to all types of financial products.

New Regulation of Real Estate Investment Trust (REITs) in Thailand

The SEC, Thailand Board and the Capital Market Supervisory Board have approved regulations on establishment and management of Real Estate Investment Trust (REITs) to offer a new investment alternative, develop fund raising framework and investment in real estate to be in line with international practice and facilitate more flexibility for investment in real estate. 

Regulator revealed that “The SEC introduces REITs to facilitate development of fund raising for real estate and real estate investment to be in line with international practice by utilizing trust to create the investment vehicle having company with expertise in real estate investment and management perform duty of REITs manager. 

REIT regulations are partially similar to those governing listed company in the areas of issuance and offer for sale of securities, information disclosure and investor protection. Investment regulations are generally comparable to that of Type 1 property fund but offer  more flexibility and impose less restriction; for instance (1) company with expertise in real estate investment and management is eligible to participate in REITs establishment and management, (2) no restriction on type of investment property is imposed while investment overseas is allowed. In addition, up to 10% of total property can be invested in project under construction and (3) loan for investment or improvement of property is permissible up to 35% of NAV or 60% of NAV, if gaining investment grade. 

Certain aspects of REIT regulations also share similarity with share offering regulations; for instance right of REIT holders to protect their own interest, pre and post offering information disclosure and allocation through securities underwriter, holding of annual REIT holders’ meeting and REIT holders’ right to approve an acquisition or disposition of key assets and related-person transactions.

Key persons in establishment and management of REITs include (1) REIT manager which may be company founded to manage REITs and having expertise on real estate investment and management or asset management company, providing that the company must be approved by the SEC. REIT manager has duty to seek the SEC approval for offer for sale of REITs and (2) trustee which has duty to take custody of REITs’ property and monitor REIT manager’s compliance with trust deed. Trustee must be commercial bank, securities company, asset management company, financial institution or wholly owned subsidiary of the said entities and must be approved by the SEC Board to undertake trust business (professional trustee). 

“REITs will be a new investment alternative for those interested in real estate investment with less restriction than Type 1 property fund due to REITS’ international features and more flexible rules on investment. After REIT regulations become in force, asset management company and Type 1 property fund will have one year adjustment period during which the SEC will continue approving establishment of new Type 1 property fund and existing funds’ increase of scheme capital,” said SEC Deputy Secretary-General.

Thailand Regulator Proposed Revision Concerning Proportion of Investment Unit Holding in Retail Fund

The Securities and Exchange Commission (SEC), Thailand is seeking public comment on proposed revision concerning proportion of investment unit holding in mutual fund for general investors (retail fund). The revision is based on existing key principles aiming to ensure that (i) retail fund’s investment units will be allocated to general investors; (ii) retail fund will not be used to seek undue benefit for any particular individual, in particular tax privilege; and (iii) any person or group of persons will not be allowed to dominate mutual fund management.

Key proposed revisions require retail fund and money market fund to comply with rule preventing any person or group of persons from holding more than 1/3 of total investment units sold which has already been applicable to other types of mutual funds. In case where any person or group of persons holds investment units in the amount exceeding the said limit, asset management company will be prohibited from distributing dividend and counting vote in the excess portion. The prohibition, however, will not apply if excess holding is not resulted from making additional investment, providing that asset management company must arrange to have appropriate measure to prevent other unitholders from being dominated, for example. 

The consultation paper is available on the SEC website at www.sec.or.th. Stakeholders and the interested public are welcome to submit comments through the website, or through facsimile number 0-2263-6332 until June 5, 2012.

FMA Consultation on Disclosure of Non-GAAP Financial Information

The Financial Markets Authority, New Zealand Regulatory watchdog has today published draft guidance for public consultation on the disclosure of non-GAAP financial information.

One of the most common forms of non-GAAP financial information is profit information often referred to as 'alternative performance measures' (APMs). 

"The use of APMs such as 'underlying profit' and 'normalised profit' in public documents including annual reports, market announcements and transaction documents is becoming increasingly common in New Zealand. These measures can provide useful information to investors, but they also have the potential to be misleading if used to mask bad news," said Elaine Campbell, FMA Head of Compliance Monitoring. 

FMA's guidance is designed to assist issuers in their communication of financial information to investors and other stakeholders to minimise the potential for it to be misleading.

FMA commenced initial consultation with market participants in November last year. In developing this draft guidance FMA held targeted discussions with small groups of NZX listed company chief financial officers, independent directors and audit firms. 

"The candid feedback we received during our preliminary consultation has been valuable in shaping the draft guidance within this consultation paper.  It is important for both issuers and investors to have greater clarity on the use of non-GAAP financial information which will contribute to increasing confidence in our markets," said Elaine Campbell.

FMA welcome comments and suggestions from interested parties before the guidance is finalised.

Interested parties are invited to provide feedback on the revised draft guidance to consultation@fma.govt.nz by 5pm on Friday 29 June 2012.

FMA aims to publish final guidance by 31 August 2012 to apply to documents published from 1 January 2013.

The consultation paper can be found here.

Overseas Direct Investments by Indian Party - Online Reporting of Overseas Direct Investment in Form ODI

Reserve Bank of India (RBI) under new circular A.P. (DIR Series) Circular No.131 has included Overseas Direct Investments by Indian Party through Online Reporting of Overseas Direct Investment in Form ODI.

Accordance to the Circular Authorised Dealer Category - I (AD Category - I) banks is invited to A.P. (DIR Series) Circular No. 36 dated February 24, 2010, wherein ADs were advised about the operationalisation of the online reporting system of overseas direct investments (ODI) with effect from March 2, 2010. The system, inter alia enables online generation of the Unique Identification Number (UIN).

Under the online reporting system, AD Category – I banks could generate the UIN online under the automatic route. However, reporting of subsequent remittances under the automatic route as well as the approval route was to be done online in Part II of form ODI, only after receipt of the letter from the Reserve Bank confirming the UIN.

It has now been decided to communicate the UIN in respect of cases under the Automatic Route to the ADs/Indian Party through an auto generated e-mail to the email-id made available by the AD/Indian Party. Accordingly, with effect from June 01, 2012 (Friday), the auto generated e-mail, giving the details of UIN allotted to the JV / WOS under the automatic route, shall be treated as confirmation of allotment of UIN, and no separate letter shall be issued by the Reserve Bank to the Indian party and AD Category - I bank confirming the allotment of UIN.

It may also be noted that the subsequent remittances under the automatic route and remittances under the approval route are to be reported online in Part II of form ODI, only after receipt of the e-mail communication/confirmation conveying the UIN.

The applications in form ODI for overseas direct investment under the approval route would continue to be submitted to the Reserve Bank in physical form as hitherto, in addition to the online reporting of Part I of the Form as contemplated in A.P. (DIR Series) Circular No. 36 dated February 24, 2010.

DFSA Introduces Proposals to Regulate Credit Rating Agencies

Dubai Financial Services Authority has introduced Proposal to Regulate Credit Rating Agencies Registered under the authority and promote to structure credit rating agencies in Middle east in light of changing global financial and economical chemistry.

This proposal stems from the DFSA’s policy of conforming to international regulatory standards. Poor quality credit ratings assigned by CRAs, particularly to complex structured financial products, are generally recognised as a contributor to the financial markets crisis of 2008. Credit Ratings are relied on by members of the public for investment purposes, market participants for credit assessments of their counterparties and, regulators for regulatory purposes. Therefore, in the wake of the crisis, the international standard setters, particularly the International Organisation of Securities Commissions (IOSCO), placed new emphasis on ensuring that CRAs are subject to adequate regulation and supervision.

The proposals in this paper are designed to meet the IOSCO standards relating to the regulation of CRAs. In designing the proposed regime, DFSA has followed the principles based approach adopted by IOSCO, with recourse to the CRA regimes under EU Regulation 1060/2009 and those adopted by Hong Kong and Singapore where appropriate.

FSA Publishes New Rules to Ensure Pension Transfers

The Financial Services Authority (FSA), UK has published new rules and guidance, following consultation, to strengthen the protection for members of defined benefit pension schemes who are considering moving their money into personal pensions.

The changes are designed to deal with the FSA’s concern that in most cases a pension transfer is not in the best interest of pension scheme members.

The FSA is raising the standards on the assumptions used when a pension transfer value analysis (TVA) is made. This will make it less likely that an adviser will be able to recommend a transfer from a defined benefit pension scheme to a personal pension.

Respondents to the consultation welcomed the changes and there was broad support for updating and clarifying the assumptions.

Sheila Nicoll, director of conduct policy at the FSA, said:

“In the vast majority of cases someone in a defined benefit pension scheme will not be better off transferring to a personal pension. The new assumptions will make it tougher for advisers to make the case for a transfer. As a result of these new rules, we would expect the number of pension transfers to decrease, leaving pension scheme members better off.”

German Regulator Notified Procedure for Net Short Positions

Federal Financial Supervisory Authority (BanFin), German Capital Market regulator notified

"Net short positions" that exist on 26 March 2012 and have not yet been notified under the General Decree or that arise on 26 March 2012 are to be notified and/or published for the first time. Net short positions are to be notified by the end of 27 March 2012, (12 midnight) and, where they are also subject to the publication requirement, to be published within the above period.

Section 30i of the WpHG replaces the General Decree on transparency requirements of BaFin for the shares of ten selected companies of 4 March 2010. As of 26 March 2012, the notification and publication requirements for net short positions will pertain to all shares admitted to trading on the regulated market of a German stock exchange. 

The Regulation on Net Short Positions introduces details on calculating net short positions as well as an electronic notification and publication procedure. For the notifications, BaFin will make available an electronic notification procedure through its Reporting and Publishing Portal (Melde- und Veröffentlichungsportal – MVP). No later than when the first notification is submitted, a successful registration on the Reporting and Publishing Portal of BaFin and a registration for the specialised procedure for net short positions are necessary to be able to notify BaFin of net short positions electronically.

Notifications may be submitted by the person or entity subject to the notification requirements either itself, through its contact person or through an external third party. For notifications to be clearly attributed to the person or entity subject to the notification requirement, each person or entity subject to the notification requirement as well as their contact persons or external third parties must identify themselves to BaFin once, at the latest when the first notification is submitted. For this purpose, the application for the specialised procedure is to be printed out after being transmitted electronically, signed and then sent without undue delay to BaFin by fax or post with further documents required for identification. Once the written documentation has been received, BaFin compares the data provided electronically with the documentation submitted. In the event of successful verification, BaFin activates the notifying party’s account for the specialised procedure. From that point in time, the notifications are no longer deemed to be preliminary. BaFin informs both the reporting party and the person or entity subject to the notification requirement of such account activation.

For the notifying party’s account to be activated by BaFin as soon as possible (so that the notifications are no longer deemed preliminary), users can now register in advance without submitting a notification. Since a great number of persons or entities subject to the notification requirement and users can be expected, BaFin recommends using the opportunity of advance registration.

Canadian Regulator Provides Guidance To Improve Compliance of Disclosure Requirements Related to Prospectus Exemption

The Canadian Securities Administrators (CSA) published two notices aimed at improving market participant compliance with exemptions to prospectus requirements. Staff Notice 45-308 Guidance for Preparing and Filing Reports of Exempt Distribution and Multilateral Staff Notice 45-309 Guidance for Preparing and Filing an Offering Memoranda, offer guidance related to disclosure rules found under National Instrument (NI) 45-106 Prospectus and Registration Exemptions. 

“The CSA is committed to ensuring that market participants understand what is expected of them when relying on prospectus exemptions to sell securities,” said Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. “These Notices not only provide clear guidance to assist issuers in preparing and filing certain exempt market documents, but also serve as a reminder to market participants who rely on prospectus exemptions that their filings or disclosure may come under staff review and that non-compliance may result in appropriate action by a CSA regulator.” 

The Notices primarily focus on Form 45-106F1 Report of Exempt Distribution and Form 45-106F2 Offering Memorandum for Non-Qualifying Issuers, and provide guidance on such topics as filing deadlines, correct and consistent reporting, financial statement requirements and adequate disclosure of certain information. 

Issuers should be aware that the primary responsibility for compliance with NI 45-106 rests with them and that the exempt market is not free from regulation and oversight.

Reserve Bank of India Opened External Commercial Borrowing Route for Civil Aviation Sector

Reserve Bank of India (RBI) has issued Circular on "External Commercial Borrowings (ECB) for Civil Aviation Sector". 

As per the extant guidelines, availing of ECB for working capital is not a permissible end-use. On a review of the policy related to ECB and keeping in view the announcement made in the Union Budget for the Year 2012-13, RBI has decided to allow ECB for working capital as a permissible end-use for the civil aviation sector, under the approval route, subject to the following conditions:

1. Airline companies registered under the Companies Act, 1956 and possessing scheduled operator permit license from DGCA for passenger transportation are eligible to avail of ECB for working capital;
   
2. ECB will be allowed to the airline companies based on the cash flow, foreign exchange earnings and its capability to service the debt;
   
3. The ECB for working capital should be raised within 12 months from the date of issue of the circular;
   
4. The ECB can be raised with a minimum average maturity period of three years; and
   
5. The overall ECB ceiling for the entire civil aviation sector would be USD one billion and the maximum permissible ECB that can be availed by an individual airline company will be USD 300 million. This limit can be utilized for working capital as well as refinancing of the outstanding working capital Rupee loan(s) availed of from the domestic banking system. Airline companies desirous of availing of such ECBs for refinancing their working capital Rupee loans may submit the necessary certification from the domestic lender/s regarding the outstanding Rupee loan/s.
   

ECB availed for working capital/refinancing of working capital as above will not be allowed to be rolled over.

The application for such ECB should be accompanied by a certificate from a chartered accountant confirming the requirement of the working capital loan and the projected foreign exchange cash flows/earnings which would be used for servicing the loan. Authorised Dealer should ensure that the foreign exchange for repayment of ECB is not accessed from Indian markets and the liability is extinguished only out of the foreign exchange earnings of the borrowing company.

The modifications to the ECB policy will come into force from the date of this circular. All other aspects of the ECB policy shall remain unchanged.

Japanese Regulator Extends Temporary Measures Regarding Restrictions on Short Selling and Purchase of Own Stocks by Listed Companies

Financial Services Agency (FSA), Japan laid down regulatory measures related to Regarding Restrictions on Short Selling and Purchase of Own Stocks by Listed Companies.

The following regulatory measures on short selling are currently in place, with regard to all listed stocks in Japan:

1) An "uptick rule requirement" which prohibits, in principle, short selling at the same as or prices lower than the latest market price

2) Requirements for traders to verify and flag whether or not the transactions in question are short selling; and

3) Request the exchanges to make daily announcements on their aggregate price of short selling regarding all securities and aggregate price of short selling by sector (The announcements have been made sequentially since October 14, 2008). (See the FSA press release on October 14, 2008.) 

In addition, the Financial Services Agency (FSA) has put in force the following measures, as temporary measures effective until April 30,2012 (See the FSA press release on October 24, 2011.):

1) Naked short selling (short selling in which stocks are not borrowed at the time of selling) is prohibited (effective since October 30, 2008); and

2) Holders of a short position of a certain level or more (in principle, 0.25 percent or more of outstanding issued stocks) are required to report to exchanges through securities firms. Exchanges are required to publicly disclose such information (effective since November 7, 2008). 

Regarding the purchase of own stocks by listed companies, taking into consideration the of situation Japan's capital markets, the following restrictions have been temporarily relaxed over the period from October 14, 2008, to April 30,2012. (See the FSA press release on October 24, 2011.)

1) Upper limit on the daily purchase volume: The limit will be raised from the current 25% to 100% of average daily trading volume during the four weeks immediately preceding the repurchase.

2) Timing of purchase: Companies are currently required to repurchase their own stocks during hours other than the 30 minutes immediately before the close of trading. This restriction will be lifted.

The FSA decided to further extend these temporary measures until October 31, 2012. To this end, the Cabinet Office Ordinances and FSA Regulatory Notices necessary for these extensions will be promulgated before expiry of these measures by the end of April, 2012.