Those dealing in PNG's capital markets should be aware that the PNG Parliament recently passed a package of legislation to substantially amend and strengthen the regulation of its capital markets. The regime will introduce new licensing requirements for those involved in activities such as securities dealing, funds management, and corporate advice. The role of the PNG Securities Commission will be strengthened and expanded, and the rules relating to offers of securities will be updated. Partner Richard Kriedemann looks at the new regime.
How does it affect you?
- A person in the business of dealing in securities, trading in derivatives, funds management, provision of corporate finance or investment advice, or financial planning will need to hold a capital market licence. (Limited exceptions will apply to entities already licensed under the Banks & Financial Institutions Act 2000, and for activities incidental to the professional practice of people such as accountants, valuers and receivers.)
- Separate licensing requirements will apply to those people acting as representatives of a capital market licence holder.
- The conduct of a capital market business will be affected by substantial compliance obligations relating to maintenance of registers of interest in securities, recommendations to clients, giving priority to client orders, holding client funds separate from other funds, and annual audits.
- The licensing system will impose minimum capital requirements for licence holders, fit and proper person requirements for directors and executives, and the establishment of detailed compliance systems. The lead time and work involved in obtaining a licence should not be underestimated.
- New rules will apply to the operation of a stock exchange, derivatives exchange and the associated clearing and settlement facilities and control transactions will be regulated by a new takeovers code.
- Approval from the Securities Commission will generally be required for:
- listing and quotation of securities of a corporation or other entity (such as a unit trust) on a stock market;
- acquisition or disposal of an asset which involves a significant change in the business direction or policy of a listed entity (in addition to satisfying any stock exchange requirements);
- an amalgamation involving a listed corporation;
- an offer of securities of a listed corporation, to be made outside PNG; or
- an offer of unlisted securities (including foreign securities) in PNG.
- Exceptions will apply to facilitate trading on POMSOX (or an approved foreign exchange), bonus issues, rights issues and employee share schemes.
- The existing requirement to issue a prospectus for an offer of securities to the public will be replaced with a broader obligation that applies to issues generally, with exceptions to facilitate wholesale offers and secondary trading.
- Offers of interests in collective investment schemes (including unit trusts) will be regulated separately for the first time. Where an offer does not require a prospectus, an information memorandum may be required, which will need to be deposited with the Securities Commission. The existing liability regime for misleading statements in, or omissions from, a prospectus is largely the same under the new regime, and is extended to information memoranda.
- Merger transactions by way of scheme of arrangement or amalgamation will continue to be regulated by the Companies Act, but takeover bids are to be regulated by a new takeovers code to be approved by the Minister on recommendation of the Securities Commission under the Capital Market Act 2015. The takeovers code will be administered by the Commission according to a set of principles commonly known as the Eggleston principles, designed to ensure that a control transaction takes place in an efficient, competitive and informed market, and all target shareholders are treated equally (as far as is practicable to do so).
- The power to prevent control transactions which are contrary to PNG's national interest will apply whatever structure is used (rather than being limited to a takeover bid).
- The existing Securities Act provisions which prohibit market rigging, insider trading and similar conduct are substantially replicated under the Capital Market Act. The Securities Commission will be given broad powers to deal with systemic risk in the capital market (such as financial distress of a broker or other capital market participant), and will have powers of investigation to support that role.
- Overall market supervision will be the responsibility of the Securities Commission, which will be an independent statutory entity with a board of commissioners appointed by the Head of State on the recommendation of an appointment committee. The Commission's activities are to be funded from levies imposed on market participants, and appropriations from Parliament.