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WFE Focus April 2011

BM&FBOVESPA initiates Market Arbitration Chamber rulebook changes

BM&FBOVESPA has begun the process of changing the Market Arbitration Chamber (CAM) rulebook. The proposed revision has already been put before all of the companies listed on the Novo Mercado and Level 2, which are differentiated corporate governance levels that require, among other things, conflict resolution via CAM. The final adoption should come into effect in the middle of August 2011, after approval by the BM&FBOVESPA Board of Directors. CAM was founded in July 2001 as a special environment to resolve corporate, contractual or capital market conflicts, generally among companies listed on the Novo Mercado and Level 2.

EU Parliament decides stance on derivatives, short selling, and investor compensation

Three proposals making derivatives trading less fragile, reducing speculative practices linked to short selling and reducing the time for the setting up of investor compensation schemes received Parliament’s backing on 5 July 2011 ahead of negotiations with Member States. On the compensation schemes legislation, the EU Parliament voted to add protection to private investors against fraudulent and defaulting investment firms, particularly by adding “bad advice” as a case for claiming compensation. The report on short selling contains two major innovations. Firstly, it requires traders to settle their uncovered short positions by the end of each trading day. Secondly, it restricts purchases of credit default swap contracts to owners of related government bonds or stakes whose performance is dependent on these bonds. The report on OTC derivatives, central clearing parties and trade repositories aims to bring greater safety, transparency and stability to the OTC derivatives market. Information on OTC derivative contracts would have to be reported to ‘trade repositories’ and be accessible to supervisory authorities. OTC derivative contracts would need to be cleared through central counterparties, thus reducing counterparty credit risk. A key supervisory role is also envisaged for the new European Securities and Markets Authority (ESMA).

FSA publishes paper on FCA’s approach to regulation

On 27 June 2011, the UK Financial Services Authority published a paper on the regulatory approach of the new Financial Conduct Authority (FCA), which will be one of two regulatory agencies scheduled to replace the FSA in 2013, the other being the Prudential Regulation Authority (PRA). The paper sets out the FSA’s initial thinking on how the FCA will approach the delivery of its statutory objectives. It covers the FCA’s: scope, and the number of firms it is expected to regulate; objectives and powers, including its approach to its new competition role and how it will coordinate with the PRA and other regulators; regulatory approach, and regulatory activities. It also considers how the FCA will supervise markets and its approach to wholesale business.

Russian government abolishes tax on foreign investors’ income

The Federal law repealing the tax on foreign investors’ income from the sale of shares traded in the on-exchange market has been recently signed by Russian President Dmitry Medvedev. The adoption of this law significantly improves the attractiveness of the Russian on-exchange share market for non-resident investors and simplifies the performance of the tax agent’s duties by Russian brokers with regard to foreign investors. The abolition of the tax applies to legal relations arising from 1 January 2011. However, these changes do not apply to bonds, shares of investment funds and RDRs traded on Russian exchanges.

Singapore Exchange improves product disclosure

The Singapore Exchange introduced new product disclosure templates to enhance the readability of term sheets for structured warrants, debentures and funds. A consistent presentation of product features and risks will facilitate a clear comparison of competing product offerings by market participants. These disclosure templates will apply to the term sheets for debentures, exchange traded notes, funds (including collective investment schemes and ETFs), and structured warrants.

Singapore Exchange introduces sustainability reporting guide

The Singapore Exchange introduced a Sustainability Reporting Guide for its listed companies. Within the Guide, the Policy Statement sets out the principles listed companies should follow in extending their reporting beyond financial governance to sustainability aspects.

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