Statute Details
- Title: Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Notes) (No. 12) Regulations 2004
- Act Code: SFA2001-S211-2004
- Type: Subsidiary Legislation (SL)
- Authorising Act: Securities and Futures Act (SFA) (Cap. 289)
- Power Used: Section 337(1) of the Securities and Futures Act
- Commencement: 20 April 2004
- Enacting Date: 19 April 2004
- Key Provisions: Section 2 (Definitions); Section 3 (Exemption)
- Regulatory Focus: Exemption from market conduct prohibitions for stabilising actions in relation to specified notes
- Specified Instruments: 10-year guaranteed fixed rate notes due April 2014 issued by The Hongkong Land Finance (Cayman Islands) Company Limited (up to US$500 million), guaranteed by The Hongkong Land Company, Limited
What Is This Legislation About?
The Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Notes) (No. 12) Regulations 2004 (“Stabilising Action Exemption Regulations”) is a targeted regulatory instrument. In essence, it creates a narrow exemption from certain market conduct provisions in the Securities and Futures Act for “stabilising action” taken in connection with a specific bond issuance.
In plain language, the Regulations recognise that, during the initial trading period of a newly issued note, market participants may undertake limited buying activity to help stabilise or maintain the trading price. Such activity can be commercially useful—particularly where liquidity is thin immediately after issuance. However, stabilising conduct can resemble prohibited market manipulation if it is not carefully bounded. The Regulations therefore carve out an exemption, but only for stabilising actions that meet strict conditions.
The scope is deliberately narrow: it applies to stabilising actions relating to a defined set of notes (the “Notes” as defined in the Regulations) and to stabilising actions carried out by specified persons (as part of the definition of “stabilising action”). It also imposes a time limit—no stabilising action after 30 calendar days from the date of issuance.
What Are the Key Provisions?
Section 1 (Citation and commencement) provides the short title and confirms that the Regulations came into operation on 20 April 2004. This matters for practitioners assessing whether any stabilising conduct occurred within the legal framework created by these Regulations.
Section 2 (Definitions) is central because the exemption is only as broad as its defined terms. Two definitions drive the operation of the Regulations:
- “Notes” means the 10-year guaranteed fixed rate notes due April 2014 issued by The Hongkong Land Finance (Cayman Islands) Company Limited for a principal amount of up to US$500 million, guaranteed by The Hongkong Land Company, Limited.
- “stabilising action” means an action taken in Singapore or elsewhere by The Hongkong and Shanghai Banking Corporation Limited (or any of its related corporations) to buy, or to offer or agree to buy, any of the Notes in order to stabilise or maintain the market price of the Notes in Singapore or elsewhere.
From a compliance perspective, these definitions mean that the exemption is not a general “stabilisation” licence. It is tied to a particular bond issue and to a particular stabilising actor (HSBC and its related corporations). If a different issuer, different instrument, or different stabilising entity is involved, the exemption may not apply.
Section 3 (Exemption) is the operative provision. It provides that, subject to paragraph (2), sections 197 and 198 of the Securities and Futures Act shall not apply to stabilising action carried out in respect of any of the Notes, with respect to stabilising action carried out:
- for a person referred to in section 274 of the Act; or
- for a sophisticated investor as defined in section 275(2) of the Act.
While the extract does not reproduce sections 197, 198, 274, or 275, the structure indicates that the SFA contains market conduct prohibitions that would otherwise capture stabilising trades. The Regulations remove that risk by exempting stabilising action from those prohibitions, but only when the stabilising action is carried out in relation to the specified categories of counterparties—either the persons identified in section 274 or sophisticated investors under section 275(2).
Section 3(2) (Time limit) imposes a further constraint: the exemption does not apply to stabilising action carried out at any time after the expiry of the 30 calendar days from the date of issuance of the Notes. This is a key compliance checkpoint. Even if the stabilising trades are otherwise within the definition and involve permitted counterparties, stabilisation beyond the 30-day window would fall outside the exemption and could expose the conduct to the underlying market conduct prohibitions.
Practitioners should therefore treat the 30-day limit as a hard boundary for exempt conduct. In practice, this requires careful trade-date controls, documentation of the issuance date, and monitoring of any stabilising orders or commitments that might extend beyond the permitted period.
How Is This Legislation Structured?
The Regulations are short and structured around three provisions:
- Section 1 sets out the citation and commencement.
- Section 2 provides definitions that narrow the exemption to specific notes and specific stabilising conduct by specified persons.
- Section 3 contains the exemption itself, including (i) the categories of persons to whom the exemption applies and (ii) the 30 calendar day time limitation.
There are no additional parts or complex schedules in the extract. The legislative technique is to use a subsidiary regulation to create a targeted exemption from the SFA’s general market conduct regime, rather than to amend the SFA itself.
Who Does This Legislation Apply To?
Although the Regulations are made under the Securities and Futures Act, they do not apply to “the public” in a broad sense. Instead, they apply to stabilising action taken in relation to the defined Notes. The definition of stabilising action restricts the relevant actor to HSBC (and its related corporations) taking specified steps—buying, offering to buy, or agreeing to buy—to stabilise or maintain the market price.
In addition, the exemption in section 3 is conditional on the stabilising action being carried out with respect to a person referred to in section 274 of the SFA or a sophisticated investor under section 275(2). This means that even within the stabilising actor’s activities, the exemption depends on the counterparty category or the legal characterisation of the relevant investor or person.
Accordingly, the Regulations are most relevant to: (i) the stabilising dealer or its compliance function; (ii) legal counsel advising on bond issuance and post-issuance trading; and (iii) counterparties who may be sophisticated investors or fall within the section 274 category.
Why Is This Legislation Important?
This Regulations matters because it addresses a recurring tension in securities markets: stabilising trades can support orderly price formation, but they can also be perceived as manipulative if not constrained. By exempting stabilising action from specific SFA prohibitions (sections 197 and 198), the Regulations provide legal certainty for limited stabilisation activity—provided that the conditions are met.
For practitioners, the practical value lies in the combination of instrument specificity and behavioural/time constraints. The exemption is not a blanket permission to stabilise any security at any time. It is tied to a particular bond issue and a particular stabilising participant, and it is limited to a defined period after issuance. This structure reduces regulatory ambiguity and helps market participants design stabilisation programmes that are defensible under Singapore law.
From an enforcement perspective, the time limit in section 3(2) is particularly significant. If stabilising activity continues beyond 30 calendar days from issuance, the exemption ceases to apply, and the underlying prohibitions in the SFA may be engaged. Lawyers advising on stabilisation programmes should therefore ensure that trading systems, documentation, and internal approvals reflect the exemption’s expiry date.
Finally, the counterparty condition (section 3(1)) means that counsel should not only review the trading strategy but also the legal status of the relevant persons involved. Where counterparties are not clearly within the section 274 category or do not qualify as sophisticated investors under section 275(2), the exemption may not be available.
Related Legislation
- Securities and Futures Act (Cap. 289) — in particular sections 197, 198, 274, 275(2), and the regulation-making power in section 337(1)
- Futures Act (as referenced in the legislation metadata)
- Stabilising Act (as referenced in the legislation metadata)
- Legislation Timeline (for version control and amendment history)
Source Documents
This article provides an overview of the Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Notes) (No. 12) Regulations 2004 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.