Statute Details
- Title: Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Notes) (No. 43) Regulations 2004
- Act Code: SFA2001-S690-2004
- Legislation Type: Subsidiary legislation (SL)
- Authorising Act: Securities and Futures Act (Cap. 289) — powers under section 337(1)
- Commencement: 17 November 2004
- Regulatory Status: Current version as at 27 March 2026
- Key Provisions: Section 2 (Definitions); Section 3 (Exemption)
- Primary Exempted Conduct: Stabilising action in respect of specified notes
- Exemption Window: Within 30 days from the date of issue of the notes
What Is This Legislation About?
The Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Notes) (No. 43) Regulations 2004 (“Stabilising Action Exemption Regulations”) is a targeted regulatory instrument. In plain terms, it creates a specific exemption from certain market conduct rules in the Securities and Futures Act (the “SFA”) for a particular kind of market activity—namely, stabilising action—in relation to a particular issuance of notes.
Stabilising action is a practice used in securities markets to help manage short-term price volatility after a new issue. Typically, stabilisation involves limited buying (or offers to buy) by a market participant to support the market price of the newly issued instrument. However, stabilisation can resemble conduct that market conduct rules seek to prevent—such as manipulation or misleading market activity—so the SFA generally restricts such behaviour.
This subsidiary legislation resolves that tension by carving out a narrow exemption. It does so by identifying (i) the exact notes in question, (ii) the exact stabilising actor, (iii) the timeframe during which stabilisation may occur, and (iv) the categories of counterparties with whom stabilising action may be undertaken. The result is a controlled permission: stabilisation is allowed, but only within tightly defined boundaries.
What Are the Key Provisions?
Section 1 (Citation and commencement) provides the formal name of the Regulations and states that they come into operation on 17 November 2004. For practitioners, this matters when assessing whether stabilising conduct occurred within the regulatory framework applicable at the time.
Section 2 (Definitions) is the heart of the Regulations because it defines the scope of the exemption. Two definitions are crucial:
- “Notes”: The Regulations define “Notes” as the 5-year fixed rate notes due November 2009 issued by CITIC Ka Wah Bank Limited for a principal amount of up to US$400,000,000. This is a highly specific identification. The exemption is not general; it applies only to this particular issuance.
- “stabilising action”: This is defined as 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 legal risk perspective, these definitions mean that the exemption is not available to other issuers, other note series, or other stabilising institutions. Even if the conduct is “stabilising” in a commercial sense, it will not qualify unless it fits the statutory definition and the specified notes and actor.
Section 3 (Exemption) sets out the regulatory relief. It provides that sections 197 and 198 of the Act shall not apply to any stabilising action taken in respect of any of the Notes, within 30 days from the date of issue, with either:
- (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.
Although the extract does not reproduce the text of sections 197, 198, 274, and 275(2), the structure indicates the following practical effect: the SFA’s market conduct prohibitions (in sections 197 and 198) are suspended for qualifying stabilising action, but only when the stabilising transactions are conducted with the permitted counterparty categories.
For practitioners, the counterparty limitation is often where compliance turns. The exemption is not merely time-limited; it is also counterparty-limited. If stabilising purchases (or offers/agreements to buy) are made with a counterparty outside the permitted categories, the exemption may fail, exposing the conduct to the general prohibitions in the SFA.
Time limitation: The stabilising action must occur within 30 days from the date of issue of the Notes. This is a short, post-issuance window, consistent with the market practice of stabilisation during the initial trading period.
Actor limitation: Stabilising action must be taken by HSBC or its related corporations (as defined in section 2). This means that if another entity within a group performs the stabilising trades, counsel must verify whether that entity qualifies as a “related corporation” of HSBC for the purposes of the definition.
How Is This Legislation Structured?
The Regulations are structured in a straightforward, minimal format typical of targeted exemptions:
- Section 1 sets out the citation and commencement.
- Section 2 provides definitions that determine the scope of the exemption—especially the definitions of “Notes” and “stabilising action”.
- Section 3 contains the operative exemption, specifying which SFA provisions are disapplied, the time window, and the permitted counterparty categories.
There are no additional parts or complex schedules in the extract. The legal work therefore focuses on interpreting the defined terms and ensuring that the factual circumstances of the stabilising trades align with the regulatory conditions.
Who Does This Legislation Apply To?
In practical terms, the Regulations apply to parties involved in stabilising action in relation to the specified CITIC Ka Wah Bank Limited notes. The exemption is designed for The Hongkong and Shanghai Banking Corporation Limited and its related corporations, because the definition of “stabilising action” is actor-specific.
However, the exemption also depends on who the stabilising transactions are with. Section 3 permits stabilising action only when the counterparty is either (i) a person within the category referenced in section 274 of the SFA, or (ii) a sophisticated investor under section 275(2) of the SFA. Accordingly, the Regulations indirectly affect issuers, arrangers, and trading desks by setting the compliance boundary for permissible counterparties during the stabilisation period.
Why Is This Legislation Important?
This legislation is important because it provides a legally sanctioned pathway for a market practice that could otherwise be prohibited. Stabilisation can be beneficial to market functioning by reducing abrupt price swings immediately after issuance. Yet, without a clear exemption, stabilisation could be challenged as conduct that undermines fair and orderly markets.
By disapplying sections 197 and 198 for qualifying stabilising action, the Regulations reduce uncertainty for market participants—provided they comply with the conditions. For counsel advising on underwriting, distribution, and post-issuance trading, the exemption is a key piece of the compliance framework for structured note transactions.
From an enforcement and risk perspective, the narrow tailoring is critical. The exemption is limited to a specific note issuance, a specific stabilising institution (HSBC and related corporations), a short timeframe (30 days), and specific counterparty categories. This means that compliance failures—such as trading outside the 30-day window, trading with an impermissible counterparty, or using an entity not covered by the “related corporation” concept—could remove the protection of the exemption and expose the conduct to the underlying market conduct prohibitions.
Related Legislation
- Securities and Futures Act (Cap. 289) — particularly sections 197, 198, 274, 275(2), and the regulation-making power in section 337(1)
- Futures Act (as referenced in the platform metadata)
- Stabilising Act (as referenced in the platform metadata)
- Timeline (legislation versioning reference)
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. 43) Regulations 2004 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.