SECURITIES INDUSTRY BILL

Order for Second Reading read.

3.48 p.m.

The Minister for Finance (Mr Hon Sui Sen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Members will see from the Long title of the Bill and the Explanatory Statement that this Bill amends and consolidates the law with respect to the securities industry and repeals the Securities Industry Act, 1970 (No. 61 of 1970) which was passed by Parliament on 30th December, 1970, but for reasons which will be given later on, was not brought into operation.

In my Second Reading speech at the time that that legislation was before Members, I dealt in considerable detail with the background to and the reasons for bringing in legislation to control the securities industry and trading in securities. This speech appears in the Hansard, Volume 30, cols. 461-7. I do not need to repeat at any great length what was said at that time for neither the reasons for, nor the background of, the proposed legislation have changed. The need, however, for such legislation being made operative has, if anything, become more pressing with the passing of time. We are continually being made aware from happenings in the market that investors need to be protected, so far as is possible to do so, by legislative intervention from unscrupulous manipulation and share rigging on the Stock Exchange. These are matters which stockbrokers with the best will in the world as a body are unable or not agreeable to control voluntarily. Needless to say, statutory provisions on these matters will not provide the universal panacea. The Government will still look to the Stock Exchange for its co-operation in exposing dishonesty and malpractices in share trading. In this and in other ways we anticipate that the Stock Exchange will justify the Government's policy in relying upon self-regulation on the Stock Exchange rather than imposing the strict forms of control implicit in a statutory body similar to the Securities Exchange Commission in the United States.

In my earlier speech to which I have referred, I reminded Members that Singapore and Malaysia enjoy a common Stock Exchange which over the years has existed to the undoubted economic benefit of both countries. I went on to say that Members would be reassured to learn that it was the intention of both Governments that this common Stock Exchange should continue in existence, and to enable this to be done it was essential that Singapore and Malaysia should have a uniform approach in legislation dealing with the securities industry and share trading. To this end, consultations have taken place between us and the Malaysian Government, and I am most pleased to record that these consultations have come to a happy and fruitful conclusion.

Members are aware that Malaysia introduced a Securities Industry Bill into their Parliament on the 22nd January, 1973. This Bill has been modelled on our earlier Securities Industry Act, but it also contains important additional provisions which were agreed to by the two Governments and which have been incorporated in the present consolidating measure.

Since I last spoke to Members on this subject, I am glad to record that the Committee of the Exchange has implemented new rules to limit excessive speculation. Nevertheless, careful watch will need to be maintained to ensure that a resurgence of market euphoria does not carry speculation beyond reasonable bounds. If speculation becomes excessive, or if for other reasons the market becomes or is likely to become disorderly or unhealthy, appropriate corrective and remedial action will be called for.

The delay in bringing our earlier Securities Industry Act into operation was due to the desire to reach full agreement with the Malaysian Government on this uniform approach. As things have turned out, the delay has been fortuitous for it has given us an opportunity to propose further measures with regard to regulation of dealers in securities and share trading in the context of the existing booming share market. These, like the earlier provisions, are designed to protect the interest of investors to the extent that this is practicable.

The Malaysian Bill corresponds very closely with the Bill now before Members. We decided to introduce a consolidating measure on this subject rather than an amending Bill including the additional provisions I have mentioned since it was considered important that references to Parts and sections in our legislation should, for the convenience of the financial public and the administrators of the legislation, correspond with the same Parts and sections in the Malaysian legislation. The new proposals that distinguish this Bill from the earlier Act are mainly concerned-

(a) with the keeping of records by dealers, investment advisers and their representatives and employees of stockbrokers and financial journalists to show their interest in securities (Part V);

(b) with the conduct of securities business (Part VI);

(c) with the expansion of the provisions dealing with unlawful or dishonest forms of share trading (Part X).

The Explanatory Statement describes in sufficient detail what this Bill seeks to achieve and I need not deal with the provisions in any detail. However, I think it would be useful if I repeated what was said on the Second Reading of the earlier legislation with regard to the objects and scope of this proposed legislation.

While the Bill covers the whole of the securities industry in Singapore, I would like to reiterate that the Bill does not attempt to prevent speculation as such. Some speculation attends every anticipation or expectation of short or long term price trends which induces trading activity on the Exchange. It is and always must remain the responsibility of the individual investor to decide as to the advisability of any particular investment. What the Bill actually does is to attempt to see that the stock market operates in a fair and open way and that people do not manipulate the market by illegal means for their own profit. The Bill, together with the new rules that have recently been passed by members of the Stock Exchange, will, it is considered, go a long way to achieve these objectives. However, I would like to emphasise again that the Bill does not merely pay lip-service to, but acknowledges, the principle of self-regulation of the Exchange by the Committee and is not intended to interfere with the day-to-day control by the Committee of normal share trading on the Exchange, nor with the traditional form, of control that the Committee exercises over members of the Exchange except on such matters as the licensing of dealers in securities, the reduction to statutory form of existing Stock Exchange Rules with regard to the maintenance of brokers' trust funds and the fidelity fund, together with the keeping of records and the conduct of securities business to which I have referred.

The Bill, for the first time in Singapore, proposes to license dealers in securities and their representatives and investment advisers and their employees who are engaged in negotiating investment in securities. The Government believes that a system of control by licensing of dealers in securities is necessary at this time and this is particularly so as regards dealers in securities who are not stockbrokers. For while stockbrokers have always been subject to certain traditional forms of control by the stock exchange, other dealers have not been subject to any real form of control. The provisions in the Bill should ensure that only persons of good character and reputation and in a sound financial position will be permitted to be licensed as dealers in securities under the Act. Licensed dealers will be required to keep trust accounts and have them audited. This will not prove too burdensome to stockbrokers, for under Stock Exchange Rules they have been required to maintain trust accounts. Again, licensed dealers who are not stockbrokers will be required to enter into a fidelity bond. The reason for this is that the fidelity fund provisions in the Bill apply only to stockbrokers who are members of the Stock Exchange. With regard to the latter, they will find little that is unusual about those provisions, for under the existing Stock Exchange Rules a Fidelity Guarantee Fund was created to compensate persons who suffer loss by reason of the default of members. The provisions in the Bill therefore merely give statutory force to the establishment of such a fund. The amount of capital in the existing fund will form the basis of the fund established under this Bill. The existing fund will be merged with the new fund established under this Act.

Another significant feature of the Bill is to be found in Part IX where new offences are created in relation to market dealings. The first offence relates to false trading and markets; the second offence to market rigging activities; the third offence to inducing the sale or purchase of securities by the dissemination of false information; the fourth offence which is drafted in the widest possible terms to deal with inter alia insider trading by officers of a company, their legal and financial advisers and even by any other person who may acquire confidential information. This provision together with the more specific provision in section 132A of the Companies Act should provide an adequate framework to proceed against insiders. The latter offence, like the other offences, carries a maximum penalty of $30,000 or five years' imprisonment or to both. It may not often be necessary for prosecutions to be launched under these sections, as in the United States similar provisions have been used with great effect to inhibit those wrongful practices which do so much to destroy a true market in securities. The Government believes, and I must repeat, that it is important that Parliament should clearly state its abhorrence of such practices, which already appear to have become widespread in the market, and that every effort should be and will be made to stamp them out.

On the subject of insider trading, I should also add that in a new Companies (Amendment) Bill the existing section l32A dealing with trading by officers of a company in their company shares will be considerably expanded and tightened up. Not only will power he sought to enable the Stock Exchange to conduct a full enquiry into these matters but also regulations will be made designed to restrict the dealings of officers of companies, members of their families, their legal and financial advisers, in the shares of their companies during certain periods of the financial year of the company when they are or are likely to be in possession of confidential information likely, if generally known, to affect the prices of their company's shares.

Furthermore, the recently established Securities Industry Council will, amongst its other functions, be operating as a watchdog in market trading and, with the active co-operation oc the Committee of the Stock Exchange, it is anticipated that steps will be taken to punish and publicly expose those persons who indulge in insider trading.

The Malaysian Government's views on insider trading and other dishonest and unfair share trading practices coincide with the Singapore Government's views, and provisions on most, if not all, of these matters appear in the Malaysian Securities Industry Bill in much the same form as in the Bill now before Members. It is expected that further meetings with representatives of the Malaysian Government will shortly take place to discuss matters of common interest relating to the whole field of the securities industry and, inter alia, to decide what further measures should be taken to ensure that the stock market is maintained in a fair and healthy state. In this connection, I would like to draw the attention of Members to the wide powers conferred upon the Minister, in clause 95 of the Bill, to regulate the stock market. Some, if not all, of these regulatory powers appear in the Malaysian Bill.

Sir, I beg to move.

Question proposed.

4.05 p.m.

Mr Ho See Beng: Mr Speaker, Sir, before I make my observation on the Securities Industry Bill, I would like to make a proposal concerning the requirement of investment advisers and stock and share journalists to declare their interests before they can comment on the stock and share market. My proposal is that all Members in this House who wish to make a speech today against this Bill should also declare their interests, otherwise it will give rise to suspicion. In this way we would be fair to the investment advisers and so on. In so far as I am concerned, I speak in support of the Bill. So whether or not I have got any shares is a matter inapplicable to my proposal.

It is my belief that whatever legislation is introduced by the Government, it is always done in the best interests of the people. That is the first consideration. Any proposed legislation that is at variance with the basic interests of the people will never get the support of the people. This means that it will be difficult for us to achieve our desired objective. The introduction of this Securities Industry Bill will, I believe, benefit the people in general, and the investors in stocks and shares in particular.

The introduction of this Bill is timely. As we all know, the present boom in our economy has attracted increasing foreign interest in the local market. Coupled with the success of industrialisation in recent years, this has attracted the massive inflow of foreign capital.

Our Republic is regarded by foreign industrialists and investors as an ideal place for investment. It is against this background that our Stock Exchange has become so active and the market heated up. Current developments, however, have given rise to a misconception among some people that they can reap handsome profits just by dumping their money into the share market; just like a gold mine. Actually, an active and heated share market is not in itself an undesirable phenomenon, but the question is whether this sort of frenzy has been the work of speculators and manipulators and not the result of normal development.

The idea of getting easy money in this way, instead of through normal hard work, has attracted many people to try their luck at the Stock Exchange. If the situation is allowed to continue, unchecked, it will not only weaken the will and spirit of our people to work hard but it will also impede our industrial development. Take Hong Kong, for example. There, the share market is probably more active and more heated than that in Singapore. Professional people, and even domestic servants, have seen fit to abandon their regular jobs and take to share speculation. As a result, Hong Kong industrialists have expressed concern over the industrial future of the colony. This may well be a good lesson for us. In order to protect our people's interests and to encourthem to make bona fide investments, the introduction of this Bill is absolutely necessary.

In order to implement this piece of legislation in accordance with its true spirit, the co-operation and assistance of the responsible officials of the Stock Exchange and the sharebrokers will be necessary. They will play an important part in this respect. If these people were to go their own ways without regard for the true spirit of the Bill, they will do no good to themselves and to the people in general. On the other hand, if they are willing and ready to co-operate and assist in ensuring the smooth implementation of the provisions of the Bill, they will do a good service to the national economy and the interests of the people, including themselves.

As a global city and a prosperous society, Singapore cannot go without an active Stock Exchange in operation. The Stock Exchange provides the vital link in a prosperous and economic society. An economically prosperous country, without a share market in operation, will be just like a modern city without electrical currents. Therefore, while the activities of the share market should be strictly regulated, I believe it can be made even more active and booming through sound and proper administration, so that the people will be able to enjoy a more wholesome atmosphere of investment in stock and shares.

Mr Hwang Soo Jin (Jalan Kayu): Mr Speaker, Sir, the Bill before the House is generally considered to be an enlightened piece of legislation on a very complicated subject. The Minister is to be congratulated for this. However, for the Bill to take effect on implementation, it seems to me that it will be necessary for the Ministry to provide a staff with sufficient knowledge of market operations to assist the Minister and the Registrar of Companies in fulfilling their functions. I should appreciate it if the Minister would inform the House as to what administrative arrangements are being made or will be made in this direction.

The market trends in recent months have very clearly shown that there is perhaps too much money chasing too few stocks. In view of this, I am wondering what steps are being taken to encourage more companies to go public, and whether the Minister would consider directing some of the Government-backed or Government-owned companies to go public. In this connection I have in mind companies such as Singapore Airlines, Sembawang Shipyard, and Jurong Shipyard. All these are capital intensive undertakings, with tremendous group potential. At the present juncture of their development, I should have thought that an injection of fresh capital from the public will help in their expansion programme.

Mr Hon Sui Sen: Mr Speaker, Sir, in view of the fact that there is really nothing but support from the House, I do not think there is very much for me to answer.

Let me first take the enquiry of the Member for Jalan Kayu. He asked whether there were any arrangements made for an effective implementation of the Bill. I hasten to assure him that we will make all the necessary arrangements to ensure that staff will be adequate to deal with the very essential problems of administration. I believe the Registry of Companies will be moving into new premises in the newly erected building behind the City Hall, and the Monetary Authority of Singapore will also have in that same building some of their offices dealing especially with companies. I think the combination should be sufficient to allay any doubts or anxieties about our being serious in implementing the present legislation.

As to the question of more companies going public, I believe I have expressed my views on this matter, in asking as many companies as possible to go public. As far as Government-owned companies are concerned, I think a number of them will be examining the position after the end of the year. It is necessary in order to enable the companies to be floated to prepare the accounts so that public issue prospectuses can be prepared.

I do not think the Member for Bras Basah requires any answer, but I am glad to note that he is for the Bill and it does not matter whether he owns any shares or not. I agree with him that an active Stock Exchange is very necessary for the development of Singapore.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill.-[Mr Hon Sui Sen].

Bill considered in Committee.

[Mr Speaker in the Chair]

4.16 p.m.

The Chairman: In addition to the proposed New Clause which appears in the supplementary Order Paper Supplement, copies of further amendments to the Bill have been handed out to Members.

All the amendments may be moved subject to the consent of the Speaker and the general assent of Members, for notice to be dispensed with. I give my consent. Is it the pleasure of hon. Members that notice of the amendments be dispensed with?

Hon. Members indicated assent.

Clause 1 ordered to stand part of the Bill.

Clause 2 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 2, line 32, to leave out "value" and insert "price".

This amendment is to improve the wording of the clause. The word. "value" is somewhat ambiguous, and the word "price" is more appropriate.

Amendment agreed to.

Mr Hon Sui Sen: May I seek your advice, Sir? Do we go through these amendments clause by clause?

The Chairman: Yes, that is so. There is a note,

In page 3, line 33, to leave out the comma. This will be done.

Amendments made:

In page 4, line 18, after "for", to insert "giving the advice or for". - [Mr Hon Sui Sen].

In page 5, line 1, to leave out "investment". -[Mr Hon Sui Sen].

The Chairman: There is a further note,

In page 5, lines .1 and 2, to reset as follows :-

"(c) a representative's licence, under Part IV;".

This will be done.

Clause .2, as amended, ordered to stand part of the Bill.

Clauses 3 to 6 inclusive ordered to stand part of the Bill.

Clause 7 -

The Chairman: There is a note,

In page 8, marginal note, to leave out "Registrar" and insert "Minister".

This will be done.

Clause 7 ordered to stand part of the Bill.

Clauses 8 to 21 inclusive ordered to stand part of the Bill.

Clause 22 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 12, line 19, to leave out "specifies" and insert "may specify".

This is just an improvement to the wording of the clause.

Amendment agreed to.

The Chairman: There is a note,

In page 12, marginal note, to leave out "court" and insert "Registrar".

This will be done.

Clause 22, as amended, ordered to stand part of the Bill.

Clause 23 -

The Chairman: There is a note,

In page 12, marginal note, to leave out "Appeal" and insert "Appeals".

This will be done.

Clause 23 ordered to stand part of the Bill.

Clauses 24 and 25 ordered to stand part of the Bill.

Clause 26 -

The Chairman: There is a note,

In page 14, line 38, to leave out "this" and insert "his".

This clerical error will be remedied.

Mr Hon Sui Sen: Sir, I beg to move,

In page 15, to leave out lines 9 to 12 and insert

"(4) A person who ceases to be a person to whom this Part applies shall, within fourteen days of his so ceasing, give notice of the fact in the prescribed form to the Registrar.".

Sir, this amendment is merely an improvement to the arrangement of words.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 15, lines 13 and 14, to leave out "If he fails or neglects to give notice as required by this section he" and insert "A person who fails or neglects to give notice as required by this section".

Sir, this is similarly an improvement to the arrangement of words.

Amendment agreed to.

Clause 26, as amended, ordered to stand part of the Bill.

Clause 27 ordered to stand part of the Bill.

Clause 28 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 15, line 40, after "person", to insert "authorised by or under subsection (1)".

Sir, this is just to correspond with subsection (1) which states that the Registrar or any person authorised by him may require any person to produce for inspection the register required to be kept pursuant to section 25.

Amendment agreed to.

Clause 28, as amended, ordered to stand part of the Bill.

Clauses 29 to 41 inclusive ordered to stand part of the Bill.

Clause 42 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 20, line 19, to leave out "constitutes" and insert "may constitute".

The phrase "or constitutes" is inappropriate as at that point it is not an adjudged issue that the matter actually constitutes a breach. Therefore, the phrase "may constitute" is preferred.

Amendment agreed to.

Clause 42, as amended, ordered to stand part of the Bill.

Clause 43 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 20, line 33, to leave out "the authority thinks proper it" and insert "it thinks proper, the relevant authority".

This is just to improve an awkward construction of the sentence.

Amendment agreed to.

Clause 43, as amended, ordered to stand part of the Bill.

Clauses 44 to 47 inclusive ordered to stand part of the Bill.

Clause 48 -

The Chairman: There is a note,

In page 22, line 43, to leave out the comma.

This will be done.

Mr Hon Sui Sea: Sir, I beg to move,

In page 23, line I, after "Minister," to insert "or".

The word "or" is required, because the provisions are for action in the alternative and, therefore, the conjunction "or" is in order.

Amendment agreed to.

Amendment made:

In page 23, line 3 to leave out "and" and insert "or". - [Mr Hon Sui Sen].

Clause 48, as amended, ordered to stand part of the Bill.

4.30 p.m.

Clauses 49 and 50 ordered to stand part of the Bill.

Clause 51 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 24, line 24, after "exchange", to insert "from".

This amendment is to improve the language.

Amendment agreed to.

Clause 51, as amended, ordered to stand part of the Bill.

Clauses 52 to 64 inclusive ordered to stand part of the Bill.

Clause 65 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 29, line 31, to leave out "one at least being" and insert ", at least one of whom is".

This is an improvement in the drafting.

Amendment agreed to.

Clause 65, as amended, ordered to stand part of the Bill.

Clauses 66 to 82 inclusive ordered to stand part of the Bill.

Clause 83 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 40, line 3, after "has", to insert "or have".

Sir, this amendment, together with the next amendment, refer to "an order or orders", and therefore it is necessary to include "or have" after "has".

Amendment agreed to.

Further Amendment made:

In page 40, line 10, after "has", to insert "or have". - [Mr Hon Sui Sen].

Mr Hon Sui Sea: Sir, I beg to move,

In page 40, line 22, to leave out "these" and insert "those".

The substitution of the word "those" for "these' `is a drafting improvement.

Amendment agreed to.

Clause 83, as amended, ordered to stand part of the Bill.

Clause 84 ordered to stand part of the Bill.

Clause 85 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 41, line 20, to leave out "of", where it secondly occurs, and insert "by".

This amendment makes for better reading.

Amendment agreed to.

The Chairman: There is a note,

In page 41, line 14, to leave out the comma, and after "securities" to insert a comma.

This will be done.

Clause 85, as amended, ordered to stand part of the Bill.

Clause 86 -

The Chairman: There is a note,

In page 41, line 25, to leave out "security" and insert "securities".

This will be done.

Clause 86 ordered to stand part of the Bill.

Clauses 87 and 88 ordered to stand part of the Bill.

Clause 89 -

The Chairman: There is a note,

In page 42, marginal note, to leave out "licensee" and insert "licence holder".

This will be done.

Clause 89 ordered to stand part of the Bill.

Clauses 90 to 97 inclusive ordered to stand part of the Bill.

New Clause - `Power (1) In deciding whether a dealer or his of the representative or an investment adviser Registrar or his representative is a fit and to enquire proper person to hold a licence under into share this Act the Registrar may enquire into trans- any transactions involving the purchase actions or sale of securities entered into by that person, whether directly or indirectly, during any period of twelve months preceding the application for a licence or renewal of a licence, as the case may be (referred to in this section as "the relevant period") to ascertain if that person has in such transaction or series of transactions used dishonest, unfair or unethical devices or trading practices, whether such devices or trading practices constitute an offence under this Act or otherwise. (2) For the purposes of subsection (1) the Registrar may, in such form and within such time as he may specify by notice in writing, require a dealer or his representative or an investment adviser or his representative to submit detailed information of all or any transactions involving the purchase or sale of securities, whether such transactions were completed - during the relevant period - before or after the date of the coming into operation of this Act. (3) Any person who fails or refuses to submit information to the Registrar within the time specified in the notice referred to in subsection (2) or who give false or misleading information shall, in addition to any other penalty that may be imposed under this Act, be liable in the case of an application for renewal of a licence to have his licence cancelled under section 22 and in the case of first application for a licence to have his application rejected.' - [Mr. Hon Sui Sen].

Brought up, and read the First time.

Mr Hon Sui Sen: Sir, I beg to move, "That the clause be read a Second time."

The purposes of this amendment is to enable the Registrar, in deciding whether a dealer or his representative or an investment advisor or his representative is fit and proper person to hold a licence under the Act, to enquire whether that person has conducted his business in a fair and proper way and according to accepted business standards. In order to do this, it is considered that the Registrar should have the power to look into any transaction involving the purchase or sale of securities entered into by that person during any period of 12 months preceding the application for a licence or renewal of a licence. If, as a resultof this enquiry, he finds that a person has in the course of his business used dishonest, unfair or unethical devices or trading practices, this would be a point of consideration for the Registrar to bear in mind in deciding whether that person was a fit and proper person to be licensed to carry on his business.

It can, of course, be argued that the inclusion of such a provision is not really necessary, since the Registrar would have an implied power or authority to do what the proposed provision enables him to do in any event. But the way a person has recently carried on his business must be a vital consideration in deciding whether he is a fit and proper person to be allowed to continue to carry on his business. And naturally, there are other considerations; for example, if a person has had a conviction for a criminal offence, or has been declared a bankrupt, he would not on the face of it be considered to he a fit and proper person to hold a licence under the Act. The provision is inserted to facilitate the making of enquiries by the Registrar in this matter and to avoid the raising of doubts as to the exercise of his power.

The new provision is intended to cover an application for a licence, in the first instance, and an application for renewal of a licence. Licences will, under the Bill, be valid for a period of 12 months.

Question put, and agreed to.

Clause read a Second time and added to the Bill

The Chairman: It is intended, that this new clause be inserted immediately after clause 16. Amendments are, therefore, required to be made to re-number the clauses, consequent on the addition of the new clause. These will be done.

Bill reported with amendments; read a Third time and passed.