The new Financial Markets Bill
The Security Services Act will soon be relegated to history books when the Financial Markets Bill is made law. The Financial Markets Bill is intended to align South African legislation and regulatory framework with developments and standards in other jurisdictions to enable integration and to open the market to local and foreign market players.
The Bill aims to provide for the licensing and regulation of exchanges, central securities depositories and clearing houses. The Bill further aims to regulate and control securities trading and the custody and administration of securities. The law will prohibit insider trading, will provide for the approval of holders of securities on behalf of others and will provide codes of conduct for the South African market.
With the recent allegations of high profile securities traders engaging in risky or rogue trading practices, the Bill was anticipated. The Bill has been introduced to address the global financial crisis as recommended by the G20 of which South Africa is a member. The Bill has also been introduced to bring the security services industry in line with the new legislative developments, the Companies Act, 2008, the Competition Amendment Act, 2009, the Financial Institutions (Protection of Funds) Act, 2001 and the Financial Services Board Act, 1990. To align the Bill with the Companies Act, the Bill will regulate listed and unlisted securities. The Consumer Protection Act will not apply to any person, function, act, transaction, goods or services that are subject to the Bill.
The Registrar of the Financial Services Board is the guardian of the law, in that the registrar must be in agreement with decisions taken by other supervisory bodies in respect of matters falling within its scope.
On market abuse, new defences and offences have been introduced and removed to deal with insider trading. The defence that a person may deal with inside information because it was in pursuit of an affected transaction has been removed because the defence is unfair to uninformed sellers before a mandatory offer is made. The defence available to a public sector body in pursuit of monetary policy has also been removed. A person who implements an offending transaction on behalf of another person, suspecting or having a reason to suspect that the person was an insider can be found liable. A new defence has been included for a good faith commercial transaction amongst insiders that is not designed to benefit from the price sensitive information. The defence available to an authorised user, who is an insider, but who acted on specific instructions from a client has been extended to require the authorised user not to execute such a transaction if he has reason to suspect that the client is also an insider.
The Bill introduces new definitions to include international market players. The Bill takes into account external and internal users ie the authorisation of remote members without a physical presence (foreign incorporated and no local office) in South Africa. This is to enable the local markets to have foreign regulated authorised users. External (foreign) central securities depository (CSD) is introduced to perform similar functions as those of local CSDs in terms of the rules of the local depositories. External participants are remote participants without physical presence (foreign incorporated and no local office) in South Africa.
The Bill recognises self-regulatory organisations not only of the stock exchanges and CSDs but independent clearing houses, too. The self-regulatory organisations’ directors and senior management will be required to meet the fit and proper requirements prescribed by the registrar. The fit and proper requirements will be aligned with the directors’ duties in terms of the Companies Act, 2008 and the common law fiduciary duties applicable to directors.
Change is to be expected in the Bill as it is debated and considered by both local and international experts. According to the Bill and what it aims to achieve, it seems that the future regulation of the markets is directed on the right path.
