Statute Details
- Title: Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Bonds) (No. 14) Regulations 2004
- Act Code: SFA2001-S461-2004
- Type: Subsidiary Legislation (sl)
- Authorising Act: Securities and Futures Act (Cap. 289)
- Enacting power: Section 337(1) of the Securities and Futures Act
- Commencement: 30 July 2004
- Key provisions: Section 2 (definitions); Section 3 (exemption)
- Regulatory purpose (as reflected in text): Exemption from specified market conduct provisions for stabilising actions in relation to a defined bond issue
- Defined instrument: “Bonds” refers to a specific 5-year zero coupon convertible bond issue by Lite-On Technology Corporation
- Defined stabilising action: Stabilising purchases/offers by Citigroup Global Markets Limited (and related corporations)
- Amendment notes in extract: Definitions amended by S 489/2004 (w.e.f. 16 Aug 2004) and S 554/2004 (w.e.f. 1 Sep 2004)
What Is This Legislation About?
The Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Bonds) (No. 14) Regulations 2004 (“Stabilising Action Exemption Regulations”) is a targeted regulatory instrument. In plain terms, it creates a narrow exemption from certain market conduct rules under the Securities and Futures Act (the “SFA”) for stabilising activities carried out in connection with a particular bond issuance.
Market conduct provisions in the SFA are designed to prevent manipulative or misleading trading practices and to promote fair and orderly markets. However, in certain capital market transactions—especially during issuance—market participants may undertake “stabilising” activities to support liquidity and reduce excessive price volatility. The Regulations recognise that stabilising actions, when properly limited, can serve a legitimate market function.
Accordingly, the Regulations exempt specified stabilising actions from the application of Sections 197 and 198 of the SFA, but only where strict conditions are met: the stabilising action must relate to the defined “Bonds”, must be carried out by or through specified categories of persons, and must occur within a defined time window after issuance. The result is a controlled carve-out that balances investor protection with practical market-making needs.
What Are the Key Provisions?
1. Citation and commencement (Regulation 1)
Regulation 1 provides the short title and commencement date. The Regulations “shall come into operation on 30th July 2004.” This matters for compliance timing: stabilising actions intended to rely on the exemption must fall within the operative period and within the time limits stated in Regulation 3.
2. Definitions (Regulation 2)
Regulation 2 is crucial because the exemption is only as broad as its definitions. Two terms are defined:
(a) “Bonds”
“Bonds” are defined with specificity: they are the “5-year zero coupon convertible bonds due September 2009” issued by Lite-On Technology Corporation. The definition also includes the maximum principal amount (up to US$300 million) and the conversion feature (convertible into new common shares of Lite-On Technology Corporation with a par value of NT$10 each). This precision limits the exemption to that particular issuance and prevents the exemption from being used for other bond series or similarly structured instruments.
(b) “stabilising action”
The term “stabilising action” is defined as an action taken in Singapore or elsewhere by Citigroup Global Markets Limited (or any of its related corporations) to buy, or to offer or agree to buy, any of the Bonds in order to stabilise or maintain the market price of the Bonds in Singapore or elsewhere. The definition is notable for three reasons:
- It is person-specific (Citigroup Global Markets Limited and related corporations).
- It covers not only actual purchases but also offers or agreements to buy, which may capture pre-trade commitments.
- It is purpose-specific—the action must be taken to stabilise or maintain market price.
3. The exemption from Sections 197 and 198 of the SFA (Regulation 3)
The core operative provision is Regulation 3. It states that Sections 197 and 198 of the SFA shall not apply to any stabilising action taken in respect of any of the Bonds, within 30 days from the date of issue, with two alternative qualifying categories of persons:
- (a) a person referred to in section 274 of the Act; or
- (b) a sophisticated investor as defined in section 275(2) of the Act.
In practical terms, Regulation 3 provides a time-limited and participant-limited carve-out. Even if a stabilising trade is conducted by the defined stabiliser (Citigroup Global Markets Limited or related corporations), the exemption only applies if the stabilising action is taken “with” a person falling within section 274 or with a sophisticated investor under section 275(2). This means that the exemption is not simply about the stabiliser’s identity; it is also about the counterparty or dealing context as contemplated by the SFA framework.
4. The “within 30 days” constraint
A further compliance point is the temporal limitation: the stabilising action must be taken “within 30 days from the date of issue of the Bonds.” This is a common feature of stabilisation regimes globally—stabilisation is permitted only during an initial period when price discovery is most volatile. For practitioners, this creates a clear monitoring requirement: firms must track the issue date, calculate the 30-day window, and ensure that any stabilising activity after the window cannot rely on this exemption.
How Is This Legislation Structured?
The Regulations are short and structured around three provisions:
- Regulation 1 (Citation and commencement): identifies the instrument and when it takes effect.
- Regulation 2 (Definitions): defines the specific bond issue (“Bonds”) and the stabilising conduct (“stabilising action”).
- Regulation 3 (Exemption): provides the exemption from Sections 197 and 198 of the SFA, subject to the 30-day period and the qualifying dealing counterparties (section 274 persons or sophisticated investors under section 275(2)).
Notably, the Regulations do not create standalone compliance procedures (such as reporting, disclosure, or limits on volume) within the extract provided. Instead, they operate as a legal carve-out from the SFA’s general market conduct provisions, leaving the broader SFA framework to govern what is otherwise required.
Who Does This Legislation Apply To?
The Regulations apply to stabilising actions in respect of the defined “Bonds” that are taken by Citigroup Global Markets Limited (or its related corporations) and that are carried out within the specified time period and dealing context. While the stabiliser is defined in Regulation 2, the exemption in Regulation 3 is conditional on the stabilising action being taken “with” persons falling within section 274 of the SFA or with sophisticated investors under section 275(2).
For legal practitioners, this means the exemption’s applicability is best assessed by looking at the transaction structure and counterparty category. A stabilising trade that otherwise matches the definition of “stabilising action” may still fall outside the exemption if the dealing does not involve a qualifying section 274 person or a sophisticated investor as defined by the SFA.
Why Is This Legislation Important?
This legislation is important because it provides a narrow legal pathway for stabilisation activity in a specific bond issuance—activity that would otherwise risk contravening market conduct restrictions under the SFA. In capital markets practice, stabilisation can be commercially significant: it may support orderly trading conditions and reduce abrupt price movements during the early life of a new issue.
From an enforcement and compliance perspective, the Regulations reduce uncertainty by clarifying that Sections 197 and 198 of the SFA will not apply to qualifying stabilising actions. However, the exemption is not a blanket permission. It is constrained by: (i) the precise definition of the Bonds; (ii) the identity of the stabiliser (Citigroup Global Markets Limited and related corporations); (iii) the purpose of the action (stabilise or maintain market price); (iv) the time limit (within 30 days from issue); and (v) the dealing context (with section 274 persons or sophisticated investors under section 275(2)).
For practitioners advising issuers, arrangers, or dealing firms, the key practical impact is that compliance teams must implement controls to ensure stabilisation activities remain within the exemption’s boundaries. This typically involves documenting the bond issue details, confirming the stabiliser’s role, tracking the issue date and 30-day window, and verifying counterparty status under the SFA definitions. Where stabilisation is contemplated, counsel should also consider whether other regulatory obligations (for example, disclosure or general market conduct requirements not displaced by the exemption) apply under the SFA or related regulatory guidance.
Related Legislation
- Securities and Futures Act (Cap. 289) — in particular:
- Sections 197 and 198 (market conduct provisions exempted by Regulation 3)
- Section 274 (persons referred to in Regulation 3(a))
- Section 275(2) (definition of “sophisticated investor” referenced in Regulation 3(b))
- Section 337(1) (authorising power for the making of these Regulations)
- Stabilising Act (as referenced in the provided metadata)
- Futures Act (as referenced in the provided metadata)
Source Documents
This article provides an overview of the Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Bonds) (No. 14) Regulations 2004 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.