Overview of Securities and
Corporate Bond Market
Development &
Review of the related Law and
Sub-decrees
Prof. Shigehito Inukai, Waseda University
with Matthias Schmidt
ADB Consultants
Thursday, 30th May 2013
1
Presentation for Securities and Exchange Commission
Cambodia
V.6Issues to be taken into account
Uncertain and cumbersome rules should
be eliminated as much as possible
Inconsistency between related laws and
regulations should be eliminated
The financial services (include securities)
markets and their infrastructures including
regulatory framework should reveal a high
integrity in themselves
1. What are Securities / Financial
Instruments for Investments?
3
Securities related Law
(Company Law / Law on I&T-NGS, etc.)
“Corporate Bond” has not yet been defined in the
company law (Law on Commercial Enterprises) and any
other laws
Law on Negotiable Instruments and Payment
Transactions exists, but does not include definition(s) of
“Securities”
“Non - government Securities” & “Debt Securities” are
defined in the Glossary of Law on Issuance & Trading of
Non-Government Securities (I&T-NGS)
First of all, the existence of a clear definition of
Securities as financial instruments for investments
is quite important
Example: Test regarding Investment Contract(*)
(Securities in wider meaning) to be regulated by
financial services market regulator
General Criteria of the Investment Contract
1 Existence of “Investment of money by investors” and
“Distribution to investors of business interests”
2 Existence of "Joint venture or operation based on the
investments from multiple investors"
3 Separation of operators and investors
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A) In the investment contract, “ Transfer of Cash Flow from
the present time to the future ” should be existing.
B) As a result, Liquidity Concept is not important.
(*) includes Securities (Shares and Bonds), CIS (Collective Investment Scheme) and many kinds of derivatives, etc.
2. What is Financial Services
Market?
Financial Services Market
7
Banking
business Insurance
business
Financial Services Market should
be regulated with integrity
Securities Market
and
Securities Business
Source: ADB Consultants, for purpose of CA Knowledge Support
3. What Financial Services Market
Regulator should regulate
What should be governed/regulated?
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Trading rule or
Rule for Transactions
(Rules relate to
requirements/conditions and the effect)
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)
[Disclosure rules / Unfair trading prohibition / SRO rules]
(Regulator should oversee a fair price formation
in the market)
Transactions Market Participants
Market
Source: ADB Consultants, for purpose of CA Knowledge Support
4. Current Financial Services
Market related Regulations
Government Securities related Law
(Law and Sub-decree: Law on Government
Securities (GS) / Draft Prakas on Operation of GS)
Both “Law on GS” and “Draft Prakas on
Operation of GS” only stipulate supply side
(issuing) of the GS
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Non-Government Securities (NGS) related Law
(Law and Sub-decree)
Law on the Issuance & Trading (I&T) of Non-Government
Securities (NGS) (2007)
Anukret on the implementation of the Law on I&T of NGS
(2009)
Second Draft Prakas on Issuance of Debt Securities (2013)
This law and sub-decrees govern/regulate the following:
securities exchange, clearing and settlement
facilities, securities depositories
other operators in the securities markets who trade
or provide financial services
public limited companies or registered legal entities
that issue securities
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Other Financial Market related Law
Law on Banking and Financial Institutions
(1999)
Law on Insurance (2000)
Law on Financial Lease (2009)
5. Areas and Items to be
governed/regulated in Financial
Services Market
Area to be governed/regulated
Generally, Law and Sub-decrees should govern/regulate:
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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 code 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 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 Company Act and Securities regulation.
16 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
Component of Financial Services Market
16Self-Regulatory Organizations (SROs)
Investors / Financial services
consumers
Investors / Financial services
consumers
6. Discussion Points
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Discussion Points
•
Understanding of Cambodia Approach
•
Legislative Coverage of Securities Market (examples)
•
Review of Legislation
• Law
• Anukret
• (Draft) Prakas
•
Investor Types/Market Participants as evident in Legislation
•
Discussion on Professional Market Segment
Public Offer / Private or Personal Offer / Private Placement / Exempt Offer
•
Questions from studying Legislation
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1
stStep: Law on the Trading and Issuance of non-
government Securities
• General Principles: public offer, securities firms
• Introduced the concept of an Exempt Offer (Article 16 + Glossary)
• Introduced the concept of Private or Personal Offer (Glossary)
2
ndStep: Anukret on the Implementation of the Law on the
Issuance and Trading of non-government Securities
• Basic rules and process, timelines
• Explained the concept of Exempt Offer (Article 6)
• Definition of Collective Investment Scheme (CIS)
3
rdStep: (Draft) Prakas on Corporate Bond Issuance
• Specific provisions for disclosure/documentation
• Private placement (Article 4), reference to intermediaries
• Offering to QII (Qualified Institutional Investors)
• Small number private offering (less than 30)
Understanding of Cambodia Approach
Central Bank Law
Market Participants
Government Bonds
Basic law
Corporate Bonds
Company law
Legislation Coverage of Securities Market
[for illustration purposes only]
Approach 1 Main, comprehensive
law describing securities market, its
institutions and participants Based on general law
provisions, e.g. company law
Examples:
e.g. Malaysia, Singapore
Approach 1 Selection of laws or regulations for
specific purposes, e.g. to
issue securities, licensing of participants, market activities Refers to general
law provisions. Example: Cambodia (?)
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Review of Law on the Trading and Issuance
of non-government Securities
•
SECC Plenary approval vs. timeframe
•
Mention of secondary market (Art 29; no details)
•
‘Securities Dealer’ and ‘Securities Firm’; distinction?
•
Significant mention of Corporate Governance (Ch 6)
•
Terminology:
• Disclosure Document (issuance documentation)
• Proposal (issuance application)
• Registered (accepted issuance application?)
• Private or Personal Offer (Glossary)
• Exempt Offer (Art 16-2 + glossary)
• Exempt Dealer (not in glossary)
• Exempt Transaction
• Exempt Securities (and ‘operation of…’)
Review of Anukret on the Implementation of
the Law on the Issuance and Trading
of non-government Securities
•
Objective (foreign investment) vs. “…members of the public in
Cambodia…”
•
Listing, pricing approval before issuance application, 6 months
approval timeframe (Art 7)
•
Suggestion that other languages may be possible (Art 11)
•
Publishing of historical prices by market operator…
•
Terminology:
• Exempt Offer (Art 6)
• Exempt Dealer (not in glossary)
• Exempt Transaction (sovereign guarantee only?)
• Custody – ‘physical possession and control’ (Annex/Glossary)
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Review of (Draft) Prakas on Corporate Bond
Issuance
•
Introduction and detailed definition of Private Placement (Art 4)
•
Provision for one or more bond trustees (Art 5/9)
•
Mentions some new terms only in passing (see Terminology)
•
Significant focus on disclosure/continuous disclosure
•
Terminology:
• Private Placement
• Exempt offer
• Bondholders meeting
• Paying agent
• Securities registrar
• Securities transfer agent
• Institutional Investor (Art 4, no definition)
Table 1: AMBIF Investor Types as currently evident in ASEAN+3
Economies and their Legislation; Cambodia based on viewed Legislation
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
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} Bapepam-
LK 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
Malaysia Sophisticated Investors Law u u u u u u u u u u u u u
Philippines Qualified Buyer, QIB Law, SEC 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
Cambodia
Table 2: Proposed AMBIF Market(s) or Segment(s) For Illustration only
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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
Example of a Possible AMBIF Approach
AMBIF Concept LCY Issuance Instruments Investor Issuer
Documentation
= AMBIF Market
Available in Market LCY Issuances
Straight Bonds etc. Licensed Investors, FII Acceptable Issuers Market Practice
Prerequisites in place?
Possible Approach Regulatory Guideline
~ AMBIF Market?!
✔
✔
✔
✔
✔
•
To what extent can banks participate in securities market
(primary / secondary)?
•
Is that governed in separate regulations?
•
Are Foreign Institutional Investors able to participate?
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Questions from studying Legislation
Prof. Shigehito Inukai
Faculty of Law - Waseda University 1-6-1 Nishiwaseda, Shinjuku-ku Tokyo 169-8050
Office +81 3 3202 2472 Mobile +81 80 3360 7551 shige.inukai@me.com
Matthias Schmidt ADB Consultant
Office +61 3 95571314 Mobile +61 423 708910 macschmidt@me.com
