NO 234 – AUGUST 2012
Getting ready for the 52nd Annual Meeting

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WFE Focus August 2012
Regulation

Alberta Securities Commission and FINRA sign MoU

The Alberta Securities Commission and the US Financial Industry Regulatory Authority have entered into a Memorandum of Understanding to promote and support greater cooperation between the two regulators. It establishes a strong framework for enhancing the ability of the ASC and FINRA to oversee securities firms and markets. The agreement will facilitate the exchange of information on firms and individuals under common supervision, support collaboration on investigations and enforcement matters, and allow further sharing of regulatory techniques.

Australian Securities Exchange issues new listing rules for SMEs

The Australian Securities Exchange has finalized new listing rules to help make it easier for small to medium size companies to raise capital for investment. The new capital raising rules came into effect on 1 August 2012. The key elements of the new capital raising rules are that companies outside the S&P/ASX 300, having a market capitalization of AUD 300 m or less can issue a further 10% of share capital in 12 months. The additional 10% requires a special resolution to be passed by shareholders at an annual general meeting. In addition, there is a maximum discount of 25% to market price at which the additional 10% can be issued.

European Union publishes EMIR regulation

On 27 July 2012, the European Union published the European Market Infrastructure Regulation (EMIR) on OTC derivatives, central counterparties and trade repositories, responding to the G20 leaders commitment to improve transparency and regulatory oversight of OTC derivatives. EMIR came into force on 16 August 2012. However, it is yet to be completed by technical standards proposed by ESMA. EMIR takes the form of a regulation rather than a directive. It covers all areas of the OTC derivatives market, including equity, credit, interest rates, and most foreign exchange and commodities contracts. It adopts a three stage approach to achieve effective regulatory oversight of the OTC derivatives market: increasing transparency, reducing counterparty risks, and reducing operational risks. It establishes the principle of the obligation to clear all OTC derivatives considered eligible by ESMA in clearing houses authorized to this effect. It also stimulates that counterparties to derivatives not cleared by a CCP must put procedures and arrangements in place to measure, monitor and mitigate operational and counterparty risks. These procedures and arrangements include notably: confirmation of the terms of the contract, robust, resilient processes that are auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, timely, accurate and appropriately segregated exchange of collateral. The regulation provides that counterparties and clearing houses ensure that contracts that are concluded, modified or terminated are reported to a trade repository that is registered or recognized by ESMA. The entry into force of this reporting obligation is subject to the registration or prior recognition of a trade repository, and in any case, will only take place from 1 July 2013.

Hong Kong Exchanges enhances regulation of listed structured products

Hong Kong Exchanges and Clearing published its Guide on Enhancing Regulation of the listed structured products market. It serves to foster high standards across structured products issuers, enhance service levels of liquidity providers and promote the healthy long-term development of Hong Kong’s listed structured products market.

Osaka Securities Exchange amends rules of strategy trading

In order to increase convenience for investors, the Osaka Securities Exchange has decided to improve a function of strategy trading, such as allowing order placement before the opening of the trading session. Orders for strategy trading can be placed during the opening auction in addition to during the regular session. The revised rules will be enforced on 26 November 2012.

SEC approves new rule requiring consolidated audit trail to monitor and analyze trading activity

The US Securities and Exchange Commission voted to require the national securities exchanges and the Financial Industry Regulatory Authority to establish a market-wide consolidated audit trail that will significantly enhance regulators’ ability to monitor and analyze trading activity. The new rule adopted by the SEC requires the exchanges and FINRA to jointly submit a comprehensive plan detailing how they would develop, implement, and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all US markets. Currently, there is no single database of comprehensive and readily accessible data regarding orders and executions. Each SRO instead uses its own separate audit trail system to track information relating to orders in its respective markets. A consolidated audit trail will increase the data available to regulators investigating illegal activities such as insider trading and market manipulation, and it will significantly improve the ability to reconstruct broad-based market events in an accurate and timely manner. A consolidated audit trail also will significantly increase the ability of regulators to monitor overall market structure and assess how SEC rules are affecting the markets.

Shanghai Stock Exchange releases guidelines to develop fund products

In order to promote fund companies and fund products, the Shanghai Securities Exchange has recently published and implemented the “SSE Guidelines for Development and Innovation of Fund Products”. These guidelines will ease the current restriction on the development of only one ETF product for one index. They define basic requirements and procedures for fund companies developing SSE-listed regular and innovative products to encourage and support them in product development and business innovation.

Singapore Exchange introduces new admission criteria for Mainboard

Singapore Exchange introduced higher Mainboard admission criteria. The new standards extend the quality of the primary (IPO) market, making it attractive for larger companies seeking to list. SGX will also look to increase the proportion of IPO tranches allocated to retail investors, particularly for listings which draw high retail subscription. Companies intending to join SGX’s Mainboard must now meet one of the following quantitative requirements: have a market capitalization at IPO of not less than SGD 150 m if they were profitable in the last financial year and have an operating track record of at least three years; have a market capitalization at IPO of not less than SGD 300 m if they only had operating revenue in the latest completed financial year; have minimum consolidated pre-tax profit of at least SGD 30 m for the latest financial year and have operating track record of at least three years. In addition, the IPO shares issued must be at least SGD 0.50 each. The new criteria are effective 10 August 2012.

Singapore Exchange enhances default management framework of derivatives market

The Singapore Exchange enhanced the rules to strengthen its default management framework to protect its derivatives market against systemically destabilizing events, which include the possibility of multiple member defaults. Clearing houses globally have been called upon to provide greater clarity and transparency in their default management practices. The rule enhancements became effective on 7 August 2012.

Stock Exchange of Thailand revises trading rules

The Stock Exchange of Thailand has revised its trading rules to comply with practices of leading international stock exchanges in order to boost trading choices and make the exchange ready to cope with trading innovations, new products, and regional connections. Key revised trading rules include ceiling and floor adjustment, improvement in calculating opening and closing prices, increasing categories of market orders, and order amendment.

Tel-Aviv Stock Exchange adds new rules for ETN underlying indices and leveraged ETNs

The Tel-Aviv Stock Exchange approved additional regulations for ETNs designed to better address investor needs while maintaining fair and orderly trade. Key additions to the regulations include criteria for indices eligible to serve as ETN underlying assets. Listing rules governing ETNs will also apply to exchange-traded depository notes as well. In addition, restrictions on the maximum leverage used in leveraged “without rebalancing” ETNs have been added.