SECURITIES INDUSTRY (AMENDMENT) BILL

Order for Second Reading read.

5.52 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."

Although this Bill would appear to introduce a large number of amendments to the Act, the bulk of them are merely consequential amendments that arise as a result of three major amendments that are proposed. These amendments appear in clause 2 (dealing with dealer's licences), in clause 19 (repealing Part VIII of the Act which provides for investment of stockbroker's funds) and in clause 23 which makes new provision for the Stock Exchange fidelity fund.

I shall deal with these three topics in numerical order. At the time the Act was drafted persons could carry on the business of dealing in securities as a sole trader, as partner in a member firm or as director of a member company. This is no longer the position. Under the new Stock Exchange rules only persons who are directors of a member company can now be admitted as members of the Stock Exchange. The intention of clause 2 is, therefore, to reflect the position as it exists on the Stock Exchange by providing that a dealer's licence shall be granted only to a corporation. The great merit in this conceptual change is that corporations that deal in securities will be subject not only to the Act itself but also to the detailed provisions of the Companies Act (Cap. 185). This will undoubtedly operate to the advantage of the investing public because of the greater measure of control that can be exercised through the Companies Act. Under the existing provisions stockbrokers are required to take out an individual dealer's licence but under the new proposals they will be required to be licensed as dealers' representatives, that is to say, as representatives of the corporation that employs them or with which they have an arrangement as directors. The position of remisiers will remain unchanged in this regard for they also will be required to take out licences as dealers' representatives.

The amendment to section 14 will have the additional advantage of streamlining the licensing provisions and make the administration of the licensing provisions and the regulations so much the easier. Accordingly, all references in the Act to dealers who are partners in a firm or sole dealers have been deleted, and the Act has been further amended in various respects to give effect to the new concept.

Part VIII of the Act which deals with investment of stockbroker's funds is repealed though this will not affect the obligation of a dealer to maintain a trust account under other provisions of the Act. Experience has shown that the existing Part VIII presents serious practical difficulties to the Stock Exchange if it is to be implemented effectively. As required by the existing section 54, the member company must deposit with a stock exchange an amount that is not less than the prescribed part of the lowest balance in the company's trust account during the relevant period (i.e. 12 months). This formula is difficult to implement since it is not possible for the Stock Exchange to know the lowest balance unless a member company submits daily bank statements or cash books - this would place an unnecessary burden upon member companies and lead to all kinds of practical difficulties. Furthermore, the requirement in this Part that the Stock Exchange has to place its deposits from member companies in interest bearing accounts with banks creates further problems since money so deposited with the Stock Exchange are repayable upon demand. There is, in any event, no need, having regard to the new provision inserted in this Part of the Act dealing with fidelity funds, for interest derived from investment of deposits received by the Exchange to be credited to a fidelity fund.

With regard to the fidelity fund provisions themselves, some significant changes are proposed. At the present time the Fidelity Fund of the Stock Exchange of Singapore stands at over $2 million though section 68 of the Act envisages an amount of $1 million. This large amount of fund money is derived mainly from the transfer from the fidelity fund that was held jointly by the Singapore and Malaysian Stock Exchange and not from contributions to the fund by individual stockbrokers. Having regard to the present state of fidelity fund as well as the proposals for increasing the fund by annual transfers from the Stock Exchange General Fund, Government considers that the requirement in section 67 that stockbrokers should make an annual contribution of $1,000 - which is, in any event, a comparatively small amount bearing in mind the total membership of the Exchange - to the fund, is not necessary as regards the existing Stock Exchange and inadequate if another stock exchange is created; for annual contributions are not likely to be sufficient to meet any liabilities that might arise due to the failure of even one member company. It is essential that a substantial amount of money should already be in a fidelity fund on its establishment. Under the new sections 67 and 68 a fidelity fund will consist of an amount that is not less than $2 million or such other sum as the Minister may by order determine. This fidelity fund will be increased annually by payments into it of a sum that is equal to 10 per cent or more of the net income of a stock exchange. If a fidelity fund falls below $2 million or such other sum as the Minister may determine, the Committee of a stock exchange shall take such steps to make up the deficiency as are provided for in section 68.

If at any time a fidelity fund is not sufficient to meet liabilities, the Committee may impose a levy of such amount as it thinks fit on a member company but this levy must not exceed $100,000 in the aggregate (clause 24).

The only other amendments that call for special mention appear in clause 33 which amends section 95 of the Act and in clause 3 which amends section 7. The amendment to section 95 empowers the Registrar to compound the less serious offences which are punishable only by a fine whether under the Act or under the Regulations. This provision is a standard one and is to be found in many of our Acts.

The amendment proposed in clause 3 is designed to facilitate the administration of the Act in relation to the Minister's approval of amendments proposed to Stock Exchange Rules. The existing provision in section 7 has proved to be inappropriate and inconvenient for it does not allow sufficient time for the Minister to consider the matter, particularly where as in most instances the Securities Industry Council is asked to make its recommendations to the Minister on the proposed amendments. The time element referred to in the existing provision has accordingly been deleted.

Sir, I beg to move.

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; reported without amendment; read a Third time and passed.