Legal and Regulatory
Framework for developing
Domestic Bond Markets
towards facilitating joining
ABMF AMBIF Market
Prof. Shigehito Inukai
with Matthias Schmidt
ADB Consultants
Myanmar Bond Market Seminar
Naypyidaw, 9 th October 2013 1
V.11 as at 03 October 2013
Agenda
1. Introductory Remarks (p.3)
2. Definition of Securities (p.11)
3. What comprises the Financial Services (which includes
Securities) Market (p.21)
4. What Financial Services Market Regulator(s) should
regulate (p.27)
5. Analysis of Debt Instruments related rules (p.31)
6. What Market Participants look for (p.41)
7. Discussion Points and Clarifications (p.43)
8. Information for Reference (p.48)
9. Questions & Answers (p.50)
1. Introductory Remarks
3
Introductory Remarks
• The research for this presentation was done on the basis of laws
and regulations known to ADB Secretariat and material available
in the public domain
• This includes unofficial English translation of the Securities Exchange Certificate
Transaction Law (2013)
• This presentation and the market visit discussions are aimed at
identifying the market situation, confirming the preliminary
findings for further developing domestic bond market towards
facilitating the joining of the AMBIF* Professional Market in the
future
• Since ADB Secretariat and the ABMF members from Myanmar
intend to compile a Myanmar Bond Market Guide as part of
ABMF Phase 3 output, the market information should be
validated to the extent possible
* ABMF is now proposing the establishment of the ASEAN+3 Multi-Currency Bond Issuance Framework, or AMBIF, as 4
a measure to support local currency bond issuance and investment in the domestic markets of ASEAN+3.
5
Economy Type of Market Candidate Market Professional Market as
a result of Participation of Market
governed by SRO
Accessible to Foreign Institutional Investors
PR China
Issuing & Secondary
Inter-Bank Bond
Market (IBBM) Access/Participation Institutional
Investors PBOC NAFMII via QFII
(Issuing & Secondary)
(Qualified Foreign
Institutional Investor) (Regulation) (QFIIs, B/Ds) (CSRC) (SSE) (YES)
Hong Kong
Issuing HKEx Market Practice Professional
Investors SFC, HKEx HKEx YES
Issuing &
Secondary OTC Market Practice Professional
Investors SFC, HKMA - YES
Indonesia MTN Issuing (Private Placement) Market Practice Market
Participants - - YES
Japan Issuing Tokyo PRO-BOND Law (FIEA) Specified
Investors FSA, TSE TSE, JSDA YES
Korea
SME + SME Foreign Issuers
Issuances
QIB Market Decree to FSCMA
Qualified Institiutional
Buyers
KOFIA (FSS) KOFIA Not at the moment
Issuing
Private Placement FSCMA defines this
market
Market Practice Professional
Investors (KOFIA) (KOFIA) YES
Malaysia
Issuing &
Secondary Excluded Offers Law (CMSA) Sophisticated
Investors SC Malaysia - YES
Issuing Exempt Regime
(Listings only) Membership Institutional
Investors Bursa Malaysia - YES
Philippines Issuing & Secondary
Qualified Investor / Qualified Buyer
Market
Participation
Qualified Investors / Qualified Buyers
SEC PDEx YES
Singapore Issuing &
Secondary OTC Market Practice Institutional
Investors SGX - YES
Thailand Issuing & Secondary
Private Placement under AI Regime /
OTC
Thai SEC Regulation
Accredited Investors (AI,
includes II & HNW))
SEC ThaiBMA YES
Viet Nam Issuing &
Secondary (Private Placement) Law Professional
Investors SSC (VBMA) YES
Candidates for Proposed AMBIF Professional Market(s) or Segment(s)
Source: ADB Consultants
6
Idea of how a Professional Market can be defined
if all Components are already evident in a Market
Component
LCY Issuance
Instruments
Investor
Issuer
Documentation
6
Available in Market
LCY Issuances
Straight Bonds etc.
Licensed Investors, FII
Acceptable Issuers
Market Practice
Prerequisites in place?
Possible Approach
Regulatory Guideline
= Professional Market
✔
✔
✔
✔
✔
Points to be considered
• Uncertain and cumbersome rules should be eliminated as
much as possible
• Inconsistency between related laws and regulations should
be eliminated
• The Financial Services (which include the Securities)
Market and its infrastructures, including regulatory
framework, should reveal a high integrity in themselves
• Key Words
• Certainty
• Clarity
• Consistency
• Integrity
7
The Goal/Objective
• A construction of Financial and Capital Markets
(Financial Services Market) including professional
bond market with high quality in which a fair price
formation is continuously performed.
• Protection of general investors and other
customers/users of financial services.
In particular, in developing markets, (1) the
existence of appropriate regulations for “Financial
Sector / Market Participants & Intermediaries and
their (cross-organizational) Activities” and (2) their
strict compliance, are of vital importance.
9
Objectives of the Securities Exchange
Certificate Transaction Law* (2013)
Chapter 2 Article 3. The Objectives
(a) To promote the development of a market-oriented system;
(b) Systematic appearance of capital and investment in the securities exchange
certificate market for the development of national economy;
(c) To raise state and private monetary business efficiently and to develop
economic sectors widely;
(d) To supervise the smooth running of securities exchange certificate business
so that it is carried out in an honest way;
(e) To safeguard the participants who take part in the securities exchange
certificate market according to the law;
(f) To encourage the public in order to increase the public's financial investment
and to support the state's monetary policy.
The new Law emphasizes on:
Effective supervision, safeguarding participants, national
development of a market-oriented system
* Official English title to be confirmed
10
10
Market as the place or space for trade
Stock Exchange, off-exchange (OTC)
market, and trade execution system, etc.
Ĭ Financial products
/ instruments / services
Financial services
provider Intermediary
and corresponding
system
Safety net Regulatory agency Conflict resolution agency /
mechanism (Financial ADR system)
Financial service market laws, regulations and company laws and regulations and related soft law
Į Market system infrastructure ( social capital)
Electronic platform, which integrates a series of operational process of securities investment into the “e-commerce”
Securities
clearing/
settlement
system
Disclosure
Profiling
/Registration
system
Asset
Administration
fiduciary
service
system
Various types of IT
communications
system
Various types of IT
communications
system
Cash management
system
ĭ Public institutional infrastructure such as market related laws and regulations (
social capital)
į Taxation system
İ Financial expert and educational system
Fund-raiser, issuer
company, industry
group, organization
Financial services
provider Intermediary
and corresponding
system
Components of Financial Services Market 10
Self-Regulatory
Organizations (SROs)
Investors /
Financial services
consumers
Investors /
Financial services
consumers
2. Definition of “Securities”
- Characteristics of Securities in the current laws
- Existence of Scripless Securities are important for the
creation of Professional (AMBIF) Market in the future
11
Securities as mentioned in Law
• Bonds in Myanmar Companies Act 1913,
Financial Institutions of Myanmar Law (1990) , and
Securities Exchange Certificate Transaction Law (2013)
• Commercial papers in Financial Institutions of Myanmar Law (1990)
• Credit bonds(*) in Securities Exchange Certificate Transaction Law (2013)
•
(*) “Credit bonds” seems to be “Secured bonds.” This may be a matter of unofficial English translation.
• Debentures in Myanmar Companies Act 1913,
Financial Institutions of Myanmar Law (1990) , and
Securities Exchange Certificate Transaction Law (2013)
• Securities in Myanmar Companies Act 1913,
Financial Institutions of Myanmar Law (1990), and
Securities Exchange Certificate Transaction Law (2013)
• Other securities exchange certificates and instruments in Securities
Exchange Certificate Transaction Law (2013)
No mention of “corporate bonds” as term or asset class
No definition of “securities” as such across the examined legislation
13
Securities as found in Law
• It appears as if reviewed laws assume that a definition
has been made elsewhere, but no reference was found
The existence of a clear definition of securities as
financial instruments for investments and issuances is
quite important
There is room for a comparative review of the definition
and characteristics of “Securities” in Myanmar home
country language and English as well
14
Jurisdiction Existence of a Clear Definition of Securities (Bonds) People’s
Republic of China
Securities concepts may differ by industry or by competent authority in China. The Corporation Law and Enterprise Law co-exist and, hence, either may set rules for issuance of securities, depending on the industry, issuer, and type of security. The official definition of securities is
provided in the Securities Law of PRC, which was revised in 2005. The present law shall be applied to the issuance of and transactions in stocks, corporate bonds, as well as any other securities lawfully recognized by the State Council within the territory of the PRC. However, some bonds do not fall under the Securities Law. In case where there is no such provision in the present law, the provisions of the Corporation Law and other relevant laws and administrative regulations shall be applied.
Hong Kong, China
For bonds to be listed on the Hong Kong Stock Exchange or cleared through the Central Moneymarkets Unit (CMU), they must satisfy the criteria as set out in, among others, the Listing Rules and CMU Service Reference Manual (which is accessible to CMU members only), respectively. Also, a definition of securities is laid down in the Securities and Futures Ordinance (SFO) of the Securities and Futures Commission (SFC). Indonesia The definition of securities is not confined to a single law. Original relevant definitions found in the commercial code left by the Dutch, and
remaining in force are the following: Promissory note (PN), cheque, and bill of exchange. There is no mention of corporate bonds and debt instruments in the Company Law; however, they are often described or covered in the Articles of Association of companies. The clearest
definition of securities can be found in the Capital Market Law No. 8 (1995). Pursuant to the Capital Market Law, securities are classified as PNs, commercial paper (CP), shares, bonds, evidences of indebtedness, participation units of collective investment contracts, futures contracts related to securities, and all derivatives of securities. Today, the distinction of debt instruments can be divided into the capital market and the money market: (1) the capital market covers bonds, (2) the money market covers PN, medium-term notes (MTN), CP, Certificate of Central Bank (SBI, Sertifikat Bank Indonesia); most instruments have been introduced by foreign bank participants in recent years. MTN and CP are synonymous for all intents and purposes; legal treatises exist but there are no statutory definitions of these instruments.
Japan The Companies Act defines corporate bonds. A uniform legal framework for all types of securities exists. Distinctions between dematerialization or immobilization and physical securities are clear. Legal ownership structure of dematerialized or immobilized securities is clearly stipulated. Republic of
Korea
The revised Commercial Act (to take effect in 2012) provides a basis for corporate bonds diversity. This should resolve the discrepancy in the definition of securities between the Commercial Act and the Financial Investment Services and Capital Markets Act (FSCMA).
Malaysia Under section 2(1) of the Capital Markets and Services Act 2007, securities are defined as: (a) debentures, stocks or bonds issued or proposed to be issued by any government; (b) shares in or debentures of, a body corporate or an unincorporated body; or (c) unit trusts or prescribed
investments, and includes any right, option or interest in respect thereof, but does not include futures contracts. Debentures are also stipulated in article 125 of the Companies Act 1965.
Philippines Under section 3 of the Securities Regulation Code (SRC), securities are shares; participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate; contract; or instrument, whether written or electronic in character. The Philippine Dealing and Exchange (PDEx) Rules for the Fixed Income Securities Market, as amended (PDEX Rules), define securities as fixed- income securities, including government securities.
Singapore Securities are defined in the Securities and Futures Act (SFA) in sections 2(1), 196A, 214, and 239. Thailand Section 4 of the Securities and Exchange Act B.E. 2535 stipulates the definition of securities.
Viet Nam Pursuant to article 3 of the amended and supplemented Securities Law No. 62/2010/QH12 and article 6 of Securities Law No. 70/2006/QHll, securities mean evidence from an issuing organization certifying the lawful rights and interest of an owner with respect to assets or capital portion. Securities may take the form of certificates, book entries or electronic data, and shall comprise the following types: 1) shares, bonds and
investment fund certificates; 2) share purchase rights (rights issue), warrants, call options, put options, future contracts, groups of securities and securities indices; 3) investment capital contribution contracts; and 4) other types of securities stipulated by the Ministry of Finance.
Table 1.2 Existence of a Clear Definition of Securities (Bonds)
Source: ASEAN+3 Bond Market Guide, ADB, April, 2012
15
Jurisdiction Existence of Scripless Securities
System
People’s
Republic of
China
Yes
Hong Kong,
China
Yes
Indonesia Yes
Japan Yes
Republic of
Korea
Yes
Malaysia Yes
Philippines Yes
Singapore Yes
Thailand Yes
Viet Nam Yes
Table 1.3 Existence of Scripless
Securities System
Jurisdiction Exchangeability of Scripless
Bonds to Physical Bonds
People’s
Republic of
China
No
Hong Kong,
China
Yes
Indonesia Yes
Japan No
Republic of
Korea
Yes
Malaysia Yes
Philippines Yes
Singapore Yes
Thailand Yes
Viet Nam Yes
Table 1.5 Exchangeability of
Scripless Bonds to Physical Bonds
Source: ASEAN+3 Bond Market Guide, ADB, April, 2012
16
Jurisdictio n
Form of the Bonds (Settlement Method)
Status (Bearer / Registered) People’s
Republic of China
Book-entry Registered.
(Bonds are generally getting scripless in a central register and registered in an account holder’s or bondholder’s name; some older bearer bonds may still exist. As for China Central Depository and Clearing (CCDC)-settled bonds in the China Inter-bank Bond Market, CDCC centralized the management of the bearer bond library in 1998, and 2001 saw the end of bearer bonds in this market.) Hong Kong,
China
Book-entry form (dematerialized) for Exchange Fund paper, and
Global note form for corporate bonds
Bearer / Registered
Indonesia Book entry (from 2000)
Physical certificate still exist (issued prior to 2000)
Bearer / Registered
Japan Book-entry (Completely dematerialized, except for a few non- central securities depository [CSD] settled private placed notes)
Registered
Republic of Korea
Book-entry
Dematerialized securities: Securities which are not issued in paper form and where ownership is held and is transferable by book entry in a ledger maintained by a CSD or account management
institution. Immobilized securities: Physical securities and non- certificated securities held and transferred by book entry in a ledger maintained by a CSD or account management institution.
Bearer / Registered
Malaysia Listed bonds: Book entry at Bursa Malaysia Depository
Unlisted debt securities: Book entry at Bank Negara Malaysia (BNM)
Basically, registered. Cagamas papers are unsecured bearer bonds issued by Cagamas, the national mortgage corporation established in 1986 to promote the secondary mortgage market in Malaysia.
Philippines Government Securities: Book entry in the Registry of Scripless Securities (RoSS) or in the Philippine Depository and Trust Corporation (PDTC)
Scripless Corporate Bonds: Book entry in PDTC
Physical Corporate Bonds: Endorsement and actual delivery of physical certificates with duly notarized Deed of Assignment
Bearer / Registered. Dematerialization/immobilization versus physical securities: both equities and debt securities are legally recognized in physical and dematerialized forms. In the organized market for debt securities, however, debt securities must be in dematerialized form and cannot be listed if the same are still in physical form, even if immobilized.
Singapore Book entry for government bonds
The Central Depository Pte. (CDP) holds universal certificates for physical bonds
Bearer / Registered. A foreign issuer is normally required to appoint a paying agent in Singapore while debt securities are quoted on the Exchange and upon the issue of debt securities in definitive form. The Exchange may accept other arrangements to enable definitive certificate holders of the bearer debt securities in Singapore to be paid promptly.
Table 1.4 Forms and Status of Bonds across Economies
Source: ASEAN+3 Bond Market Guide, ADB, April, 2012
Legislation for reference-I
I. The Government Securities Act 1920
(Old Paper-based rule with no book-entry
structure)
• Securities or Issuance of Securities ?
• Mention of promissory notes (including treasury bills), bearer bonds
• Reference to Negotiable Instruments Act
• Mentions ‘renewal’ of securities (promissory notes)
• Significant mention of replacement and dispute procedures
17
Article 2. Definitions (extracted part)
(a) "Government security" means promissory notes (including treasury bills), stock-certificates,
bearer bonds and all other securities issued … by the Governor in respect of any loan, but does not
include a currency-note;
Article 8.
Distinction of securities from negotiable instruments (in that they are not to be repaid by holder of
bearer securities)
Legislation for reference-II
II. The Myanmar Companies Act 1913 (revised
by Act XXIII 1955)
• Companies
•
Foreign companies are able to do business in Myanmar
•
Need ‘Permit to Trade’ = business licence, renewable every 2 years
•
Minimum capital applies (approx. USD 50,000)
•
Constituent documents in both Myanmar language and English
•
Comprehensive bankruptcy / insolvency provisions (Part V: Winding Up)
• Securities or Issuance of Securities
•
Reference to prospectus, share(s) under Definitions
•
Provisions, reference to debentures, underwriters in Prospectus section (Art 92 ff)
•
Prospectus section (Art 92-100) stipulates only issuing and filing of prospectus (Art 92)
•
Additional disclosure requirements mentioned in Prospectus section (Art 93 (1A))
•
Provisions for subscription of company issues appears to refer to both shares and bonds
•
Art 96 Proviso (b) implies securities can be privately placed without a prospectus (non public
offering)
•
Every document indicating offer for sale to public deemed prospectus (Art 98A)
•
Reference to the need to issue certificates (Art 108), including for debentures
•
Specific provisions for the issue of debentures (Art 126ff)
Legislation for reference-III
III. Financial Institutions of Myanmar Law (1990)
• Issuance of debentures and other debt securities (Art 25 (c))
• “purchasing and selling of bonds or other forms of securities on
behalf of customers;” (Art 25 (g))
• “receiving securities or valuables for safe custody;” (Art 25 (h))
• “collecting and transmitting money and securities;” (Art 25 (i))
• “undertaking other financial services activities;” (Art 25 (o))
• Foreign bank branches mentioned
• Includes establishment of State-Owned Financial Institutions
19
Legislation for reference-IV
IV. Securities Exchange Certificate Transaction
Law (2013)
Article 2.(a) Definitions of Securities Exchange Certificate
Securities Exchange Certificate contains the following meanings:
• (1) Treasury certificates, treasury bonds, credit bonds(*) and debentures issued, or about
to be issued, by the government or any government organization;
• (2) Treasury certificates, treasury bonds, credit bonds (*) and debentures issued by
international organizations or foreign governments and its organizations;
• (3) Shares, stocks, credit bonds (*) and debentures issued, or about to be issued, by
public companies, related privileges, option rights and share warrants;
• (4) Other securities exchange certificates and instruments (**) prescribed as securities
exchange certificate by notifications issued by the supervisory commission for the
securities exchange certificate business.
(*) “Credit bonds” seems to be “Secured bonds.” This may be a matter of unofficial English translation.
(**) Scripless securities may be included here
(At a glance, it seems like paper-based rule with no book-entry structure)
21
3. What comprises the Financial
Services (which includes
Securities) Market?
Financial Services Market
22
Banking
business Insurance
business
Financial Services Market should
be regulated with Integrity
Securities Market
and
Securities business
Source: ADB Consultants, for purpose of Myanmar Knowledge Support
23
Securities Business in Banking / Financial
Institution Legislation
I. Myanmar Companies Act 1913
• Provisions for “Banking Companies” (Part XA, Art 277F-)
• Identified as those in business of e.g. issuing debentures, bonds…
• Identified as those conducting promotion, underwriting of
securities (including bonds) for both public and private
• Banking company can form or hold share of subsidiary for the purpose of
undertaking and executing trusts, trustee, etc. set forth in Art 277F (Art 277M)
II. Financial Institutions of Myanmar Law (1990)
• Appears as very modern and practical legislation
• Describes roles for banks relative to securities that are very much in line
with typical roles of banks across ASEAN+3
• Issue debt securities
• Buy and sell bonds etc. for clients and self
• Promote, sell and underwrite issuances
• Conduct settlement and custody functions
• No apparent need for the creation/use of subsidiaries to engage in
securities business
(On the other hand, Companies Act stipulates that bank can form a
subsidiary to do so) (Art 277M)
• Non-bank FI include finance companies, credit societies
Roles or functions akin to universal banking concept
N.B.: Securities Exchange Certificate Transaction Law
can extend roles of financial institution in transitional
period (Art 67)
How to differentiate Business of
Banks and Securities Companies?
• In many economies, commercial banks can
underwrite and distribute debt and equity
securities
• Securities companies can also underwrite and
distribute debt and equity securities
Is Myanmar applying Universal Banking System?
OR
Is there a distinction who can participate in the
(bond) markets
25
Scope of Application/Relations
among Laws on Securities Business
Scope of application/relations in Securities
business is not clear between Banks and
Securities Companies among;
Myanmar Companies Act 1913
(ref: Art 277F,M)
Financial Institutions of Myanmar Law (1990)
(ref: Art 25 (o))
Securities Exchange Certificate Transaction
Law* (2013)
27
4. What Financial Services Market
Regulator(s) should regulate?
What Financial Services Market
Regulator(s) should regulate?
i. Financial & Capital Market Transactions
ii. Financial Sector Market Operators,
Traders & Intermediaries, and their (cross-
organizational) Activities
And
iii. Market itself and All other Market
Participants
29
What should be governed/regulated?
29
Trading rule or
Rule for Transactions
(Rules relate to
requirements/conditions and the
effect) (For instance, rules for
retail investors and professional
investors no need to be the same)
Operators rule, Traders rule
or Rule for Intermediaries
Rule for certain financial
Business Industries
(Code of Conduct / Fit and proper
rule) (This rule should be cross-
organizational)
Financial Services (Securities) Market rule
(Primary market + Secondary market)
(Exchange Market / OTC Market)
[Disclosure rules / Unfair trading prohibition / Insider rules]
(This rule should be adopted to everybody. Regulator should
oversee a fair price formation in the market)
i. Financial Transactions
ii. Financial Sector /
Market Participants
iii. Market and All other Participants
Source: ADB Consultants, for purpose of
Myanmar Knowledge Support
Areas to be governed/regulated
Generally, Law and Decrees should govern/regulate:
Financial Services and Financial instruments for investments, including
securities
Transactions and trading of Government and Non-government Securities
and other investment contracts
Financial Services businesses and those business providers (operators,
traders and intermediaries, including brokers, underwriters, etc.) with
their codes of conduct and fit and proper rule perspective
Market place and market system(s) providers including the securities
exchange(*), clearing and settlement system/facilities, securities
depositories
(*) Securities exchange may having two dimensions / functions (market
place provider + listing authority (SRO) -- should avoid “conflict of interest”)
Market (Exchange Market / OTC Market) itself including Disclosure
Rules, Unfair Trading Prohibition and formation of fair market prices
Generally, Issuing of Securities of Business Corporations and Enterprises may be
governed by Law on Enterprises / Company Act and securities regulations.
31
5. Analysis of Debt Instruments
related Rules
Debt Instruments related Rules - Government
1. Government Debt Instruments
• The Government Securities Act 1920
• Establishes government securities as a concept
• No specific provisions on issuance of government bonds, or participants
• Securities Exchange Certificate Transaction Law (2013)
mentions
• Art 2.(a) treasury certificates, treasury bonds, credit bonds and debentures issued, or
about to be issued, by the government or any government organization
It appears that no detailed regulations exist for
government bonds
Debt Instruments related Rules - Banks
2. Bank Bills
Financial Institutions of Myanmar Law (1990), Chapter V. Art
25, states
• (c) drawing, making, accepting, discounting, buying, selling, collecting
and dealing in bills of exchange, promissory notes, drafts, bills of
lading, railway receipts, debentures, and other documents of title and
debt securities, whether negotiable or not;
It appears that these provisions include the
Central Bank of Myanmar
33
3. Corporate Bonds
The Myanmar Companies Act 1913 provides for the issuance
of debentures by companies.
The Financial Institutions of Myanmar Law (1990) provides for
the issuance of debt (bank debentures and other) securities by
financial institutions.
Government passed the Securities Exchange Certificate
Transaction Law in July 2013.
The Law contains mentions of different types of bonds, but not
the term of asset class of corporate bonds, and no treatment
specific to bonds in further detail.
It appears that no detailed regulations exist for
Corporate Bonds
34
Debt Instruments related Rules - Corporate
35
35
Issuance of Securities and Public Offering /
Private Placement in Securities Law
Securities Exchange Certificate Transaction Law
(2013)
Mention of issuance of securities limited to Chapter 6
Distribution of Securities Exchange Certificates
• Art 35. (b) “when selling to the public, announce the prospectus
consisting of the company's memorandum of association, articles
of association, and the company's important salient facts.”
Meanings derived from law text (Art 35):
Public offering is possible
Wording implies that offerings other than public (private
placement) may also be possible
No distinction who can distribute, only reference to license holders
Developing the Legal and Regulatory
Framework for Corporate Bonds - I
• No public limited company, has so far issued and sold corporate bonds at least
through public offering [to be confirmed].
• The Myanmar Companies Act 1913 broadly stipulates that only a public limited
company may issue and sell corporate securities such as shares, debentures
and bonds to the public with a prospectus. This means that public limited
companies including full or quasi-SOEs may be able to issue corporate bonds.
• However, the Companies Act and Securities Exchange Certificate Transaction
Law as well as other laws do not contain procedures nor criteria for a public
limited company to issue corporate bonds. [to be confirmed; "Securities and
Exchange Rule" and other regulations draft under Securities law].
• At the same time, the Financial Institutions of Myanmar Law (1990) allows
banks to issue bank debentures and other debt securities.
At the early stage of bond market development when both issuers and
investors are not familiar with corporate securities, it is recommended
that the relevant regulator approves who can issue corporate bonds
and how much.
Developing the Legal and Regulatory
Framework for Corporate Bonds - II
• Even with no corporate bond market currently in place in Myanmar,
public limited companies are likely to be interested in issuing
corporate bonds for investment projects and working capital needs.
• The government therefore needs to further develop the legal and
regulatory framework for corporate bonds with considering and
maintaining consistency with other laws and regulations.
More concretely, it needs to:
i) elaborate regulations on application and issuance
procedures as well as approval criteria;
ii) anchor information disclosure / continuous disclosure in
the law(s).
[to be confirmed; "Securities and Exchange Rule" and other regulations
draft under law].
37
Developing the Securities (Bond) Business with
regards to over-the-counter (OTC) market
• As bonds are mostly traded on over-the-counter (OTC) market or
quote-driven markets generally, rather than at an exchange or auction
markets, the development of well-trained dealers becomes essential
especially to develop the bond market.
• At this stage in the market development in Myanmar, allowing and
encouraging bank dealers to trade bonds among themselves would be
practical and reasonable.
This would require the suitable identification in law and corresponding
licensing of market participants.
In this context, the intended role of the Over-The-Counter
Market, as outlined in the Securities Exchange Certificate
Transaction Law, should be further clarified.
38
Financial Sector / Market Participants related Laws and Decrees
39
Jurisdiction Name of Legal Document Enacting
Authority
Date Enacted
and
Latest
Amendment
Remarks
Central Bank of
Myanmar
Financial Institutions of Myanmar Law (1990) Chairman Council 4 July 1990
Commercial Banks Myanmar Companies Act 1913
Financial Institutions of Myanmar Law (1990)
President
Chairman Council
1 April 1914
4 July 1990
Insurance Business The Insurance Business Law (1996) Chairman Council 24 June 1996
NBFI (Non-Bank
Financial Institutions)
Financial Institutions of Myanmar Law (1990) Chairman Council 4 July 1990
SEC, MSX, Public
Offering & Listing
Securities Companies
Operation of Securities
Activities
Disclosure/Continuous
Disclosure
Etc.
Security Exchange Certificates Transaction
Law* (2013)
Myanmar Companies Act 1913
(Draft regulation of MSX**)
(Draft Securities & Exchange Rule*/**)
President
President
30 July 2013
1 April 1914
Oct 2013*
*Currently
no official
English
translation
available.
**Currently
unavailabl
e
NBFI = Non-Bank Financial Institution; here: finance companies, credit societies;
SEC = Securities and Exchange Commission
Sources: public domain, incl. http://www.dica.gov.mm (Directorate of Investment and Company Administration);
http://mm.myanmars.net/laws *Titles and timeframe to be confirmed
To be updated/confirmed for MM if info available
Financial Transactions related Rules
Financial Transactions
Name of Legal Document Enacting
Authority
Enacted Date and Latest Amendment
Remarks
Banking Financial Institutions of Myanmar Law (1990) Chairman Council 4 July 1990
Cheque Negotiable Instruments Law (To be confirmed) (To be confirmed)
Secured Transactions
Insurance Insurance Business Law (1996) – (to be confirmed) Foreign Currency
Exchange
SEC
Myanmar Exchange
To be investigated
To be updated for MM if info available
41
6. What Market Participants look for
(in Legal/Regulatory Framework)
Typical (General) Due Diligence
Considerations include
• Can FII (Foreign Institutional Investors) participate
in the domestic market?
• Permitted by law?
• Access requirements (e.g. investor registration)
• Are foreign intermediaries (banks, brokers) able to
participate in bond market (affiliate, JV, or
branch)?
• Account holding structure
• Finality of transaction(s)
• Bankruptcy / Insolvency provisions
7. Discussion Points and
Clarifications
43
With regards to Clarifications
• Knowing that the Myanmar policy bodies are now in the
process of creating supplementary legislation and
regulations starting from “Securities & Exchange Rule*,”
it is well understood that these future regulations could
very well already address or resolve the discussion
points mentioned in the following slides.
• At the same time, much of the research was/will be
conducted on English translations of the respective laws;
hence, understanding and the use of terminology
could/may differ from the original intentions of the
stakeholders.
*Official English title to be confirmed
45
Discussion Points and Clarifications
• Understanding Myanmar Approach (Showing Items only)
A) Confirm “Planned Legal Framework”
B) Meaning of the Over-The-Counter Market
C) Current bond market vs. Over-The-Counter Market
D) Over-The-Counter Market vs. Exchange
E) Licenses and Market Participants
F) Disclosure / Continuous Disclosure
G) Policy Direction
H) Terminology & Convention
• Some Clarifications may be desirable
I) Relative to ABMF Topics (See next page)
• Typical Market Challenges (Showing Items only)
J) Foreign Institutional Investors (FII)
K) Taxation
L) Financial Reporting
I) Relative to ABMF Topics (Shown as examples)
Professional Investor
•
Intended to be included in future/supplementary legislation?
Professional Market
•
The future Exchange market is professional by participants but will likely be accessible by individual
investors through securities firms
•
Would proposed OTC market be earmarked as professional market/platform?
Private Placement / Exempt (exempted) Market segment
•
Private Placement is not directly mentioned in Securities Exchange Certificate Transaction Law
(2013)
•
However , Art 35. (b) ‘when selling to public’ could be interpreted that non-public offers (Private
Placement) may also be possible (in future)
Listing / Listing Place
•
Planned Exchange intended for listing of bonds?
•
Listing Place requires SRO-type status
•
Securities Exchange Certificate Transaction Law (2013) does not seem to indicate SRO status
•
Art 38. “shall be under the management, monitoring and control of the Commission”
Roles of Listing Place
•
For shares, listing equals trading
•
In case of bonds, listing is typically for profiling (only)
•
But, it performs an important function, as Place of Disclosure
•
Key role as Listing Authority may present conflicts of interest
•
Hence, important to balance well business activities vs. supervision role
46
47
Importance of clear Terminology
• Example: Securities Exchange Certificate
Term suggests paper and physical handling, and exchange traded nature
• ‘Securities exchange’ may imply stock exchange for listing and trading
• ‘Certificate’ or ‘Exchange certificate’ may imply only paper securities (but
limited to paper?)
• Implications
• Meaning that legal title (or ownership) has to be transferred separately (e.g.
transfer deed or deed of assignment)
• Risk angle: observers drawn to think of chance of fraud, theft
• Operational aspects include need for vault, counting, larger staff
• Could mean that book-entry concept would require a change of law?
Myanmar language term or definition will always remain absolute
But, should consider most representative English term
Preferably, this should be determined at the outset
8. Information for Reference
• ASEAN+3 Professional Investor Matrix
AMBIF Investor Types as currently evident in ASEAN+3 Economies
and their Legislation; Information on Myanmar not yet conclusive.
49
Economy Investor Term
As stated
by
Investor Term in each Economy represents the following Types of Investors (expressed as Categories mentioned in Laws, Regulations or Market Practice)
Banks Broker/Dealers Insurance Companies Mutual Funds Provident Funds Government Funds Central Banks Closed-ended Funds Corporates Deposit Protection Agency Derivatives Businesses Development Funds Exchanges Foreign Institutional Investors Finance Companies Fund Managers High Net Worth Individuals Individuals as Fund Managers Supra Fin. Institutions Institutional Investors Other (to be specified) Private Funds Statutory Companies/Boards Subsidiaries of Inv. Types Trust Companies Trustee
Cambodia Institutional Investors Anukret u u u
PR China
'IBBM Investors' PBOC u u u u u u u u u u u
Qualified Foreign
Institutional Investor CSRC u u u u u
Hong Kong
Professional Investor Law u u u u u u u u u u u u
'Offer to Prof.
Investors' HKEx u u u u u u u u u u u u u
Indonesia {Professional Investor} IFSA u
Japan Specified Investors Law u u u u u u u u u u u u u u u u
Korea
Professional Investors Law u u u u u u u u u u u u u u u u u u
Qualified Institiutional
Buyers Law u u u u u u u u u u u u u
Lao PDR (Institutional Investors) (Law) u u u u
Malaysia Sophisticated Investors Law u u u u u u u u u u u u u
Philippines Qualified Investor, Qualified Buyer
Law,
SEC u u u u u u u u u u u u u u u
Singapore Institutional Investors Law u u u u u u u u u u u u u u u u
Thailand Accredited Investors SEC u u u u u u u u u u u u u u u u u u u u u u
Viet Nam Professional Investors Law u u u u u u
