MAY 2014 - LAW AND REGULATIONS GOVERNING FINANCIAL MARKETS

  Some candidates did not perform well in the following questions:

Question No. 5
in which candidates were unable to discuss three principles of cooperation in regulation of securities markets as enumerated in the International Organization of Securities Commission (IOSCO) principles. Candidates were also unable to explain three common characteristics of breaches of securities law.

In answering the question, the following was expected from candidates as a minimum.

• Three principles of cooperation in regulation of the securities markets as enumerated in the IOSCO principles.

–– The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.
–– Regulators should establish information sharing mechanisms that set out when and how they will share both public and non public information with their domestic and foreign counterparts.
–– The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

• Common characteristics of breaches of securities law.
–– Shifting/transferring proceeds of crime to foreign jurisdictions.
–– Wrong doers fleeing to a foreign country.
–– Routing transactions through foreign jurisdiction to disguise the identity of parties or the flow of funds.
–– Use of foreign accounts to hide beneficial ownership of shares.
–– Facilitation of cross border breaches through the use of international communications media including the internet.

• The scope of cooperation of such an arrangement.
–– Identification of the circumstances under which assistance may be sought.
–– Identification of the types of information and assistance that can be provided.
–– Safeguards of the confidentiality of information transmitted.
–– A description of the permitted uses of the information.

Question No. 6
In which candidates were unable to explain two circumstances when securities exchange, with the approval of the regulator might grant a request for the voluntary suspension of any listed security. Candidates were also unable to summarize the issuer’s obligations when its securities are suspended. In addition, candidates were unable to describe the five steps to be followed where the lifting of suspension is required by the issuer.

The suggested responses are presented below:

• Circumstances when the exchange might with the approval of the Authority grant a request for the voluntary suspension of any listed security.

–– Where a decision has been made that will lead to the placing of the issuer of the securities under statutory management, liquidation or voluntary winding up.
–– In the event of a significant restructuring involving the listed securities such as in the process of acquisition mergers or takeovers approved by the Authority.
–– Where a recommendation has been made by the directors to the shareholders to have the securities suspended through a special resolution at which at least 75% of such security holders are represented.

• Issuer’s obligations when its securities are suspended it shall:

–– Continue to comply with all the continuous listing obligations unless expressly exempted from doing so by the exchange or Authority in writing.
–– Submit to the exchange and the Authority a progress report pertaining to the prevailing state of the affairs of the issuer and any proposed action by the issuer.
–– If the issuer is suspended for more than three months, advise its shareholders on a quarterly basis concerning the prevailing status of the affairs of the issuer and any proposed action by the issuer including the expected date on which the suspension is to be lifted.

• Procedure to be followed where the lifting of suspension is required by the issuer.

–– The issuer shall apply to the Exchange and the Authority demonstrating that it has complied with the conditions for lifting of the suspension.
–– The listing committee shall review the request of the issuer and determine whether the suspension should be lifted and make a recommendation to the Board.
–– The Chief Executive of the Exchange shall then inform the Authority of the recommendation of the Exchange.
–– The issuer shall then be informed of the lifting of the suspension after the approval of the Authority.
–– The Exchange shall then issue a public statement of the lifting of suspension and restoration of the securities of the issuer to listing and trading stating the approval of the Authority.