Statute Details
- Title: Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Preference Shares) (No. 5) Regulations 2006
- Act Code: SFA2001-S670-2006
- Type: Subsidiary Legislation (sl)
- Authorising Act: Securities and Futures Act (Cap. 289)
- Power Used: Section 337(1) of the Securities and Futures Act
- Citation: SL 670/2006
- Commencement: 13 December 2006
- Status: Current version as at 27 March 2026
- Key Provisions (as provided): Section 2 (Definitions); Section 3 (Exemption)
What Is This Legislation About?
The Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Preference Shares) (No. 5) Regulations 2006 (“Stabilising Action (No. 5) Regulations”) create a targeted regulatory exemption from certain market conduct rules in the Securities and Futures Act (“SFA”). In plain language, the Regulations allow a specific kind of market stabilisation activity—carried out by a named stabilising manager—in connection with a particular preference share offering, provided strict conditions are met.
Stabilisation is a common feature of capital markets transactions. During and shortly after an offering, stabilising managers may buy (or offer to buy) securities to help maintain orderly trading and reduce excessive price volatility. However, stabilisation can also raise concerns about market manipulation. The SFA’s general market conduct provisions therefore restrict conduct that could mislead the market or distort prices. These Regulations carve out a controlled exception for stabilising action relating to the specified preference shares.
Although the Regulations are “No. 5” and appear to be one of several stabilisation exemptions, this particular instrument is highly specific: it defines “Dollar Preference Shares” and “Sterling Preference Shares” issued in December 2006 by SMFG Preferred Capital USD 1 Limited and SMFG Preferred Capital GBP 1 Limited, and it identifies the stabilising manager as Goldman Sachs International (and related corporations). The exemption is therefore not general; it is transaction- and issuer-specific.
What Are the Key Provisions?
1. The exemption from SFA sections 197 and 198 (Regulation 3(1)). The core legal effect is set out in Regulation 3(1): Sections 197 and 198 of the SFA shall not apply to stabilising action taken in respect of the “relevant preference shares” described in Regulation 3(2), provided the conditions in Regulations 3(3) to (14) are complied with. In practical terms, this means that stabilising purchases (or offers to buy) that would otherwise fall within the scope of the market conduct restrictions are permitted—if, and only if, the stabilisation is properly authorised, disclosed, time-limited, and conducted within quantitative and procedural limits.
2. Eligibility thresholds and transaction scope (Regulation 3(2)). Stabilising action is only permitted for an offer meeting defined criteria. The offer must be for the relevant preference shares in conjunction with their listing on a securities exchange. The Regulations impose a minimum size threshold: the total value of the relevant preference shares being offered (based on the offer price) must be at least $25 million (or its equivalent). This ensures the exemption is limited to material offerings.
There is also a strict cap on the stabilising manager’s buying activity. The stabilising manager’s total purchases for stabilisation must not exceed 20% of the total nominal value of the relevant preference shares being offered prior to any over-allotment (if applicable). This is a key quantitative safeguard designed to prevent stabilisation from becoming a disguised secondary market intervention.
Further, the offer documentation and public communications must disclose stabilisation. The offer document must state: (i) that stabilising action may be taken; (ii) the maximum period during which it may be taken; (iii) the nominal value subject to any over-allotment option; and (iv) the maximum nominal value the stabilising manager may buy, which must not exceed the 20% cap. In addition, a public announcement must be made through the securities exchange on the business day immediately following the closing date of the offer, containing the same categories of information. These disclosure requirements are central: they aim to ensure that investors and the market are not misled about the existence and limits of stabilisation.
Finally, the offer must be on cash terms and made at a specific price payable in any currency. This ties the exemption to a predictable pricing structure and reduces uncertainty about how stabilisation interacts with pricing mechanics.
3. “Reasonable satisfaction” standards (Regulation 3(3)). The stabilising manager must take and continue stabilising action only after being reasonably satisfied that the price of the relevant preference shares is not false or misleading, and that it has not become false or misleading other than by reason of stabilising action. This is an important compliance standard: it is not enough that stabilisation is permitted in principle; the stabilising manager must actively assess whether the market price is distorted or misleading, and must stop or adjust if that condition fails.
4. Timing restrictions: when stabilisation may start and end (Regulations 3(4) and 3(5)). Stabilising action cannot begin before the date on which the earliest public announcement of the offer stating the offer price is made through the relevant exchange. This prevents stabilisation from occurring before the market has the key pricing information.
Stabilisation also has a hard stop. No stabilising action may be taken after the earlier of: (a) the expiry of 30 calendar days from the date of commencement of trading on the exchange, or 60 calendar days from the date of the earliest public announcement of the offer price (whichever is earlier); or (b) the date on which the stabilising manager has bought the maximum nominal value permitted under the offer document. These dual “earlier of” limits ensure both a time-bound and quantity-bound ceiling.
5. Restrictions on selling orders and permitted exceptions (Regulations 3(6) and 3(7)). The stabilising manager must not effect or cause to be effected any sell order of the relevant preference shares prior to the date of commencement of each stabilising action or during the permitted stabilisation period. This is designed to prevent stabilisation from being paired with selling activity that could artificially support price while offloading risk.
However, Regulation 3(7) provides a limited carve-out. It does not prohibit the stabilising manager (or an associate of the stabilising manager, acting as a dealer) from: (i) executing sell orders for persons who are not associates of the issuer; or (ii) selling the relevant preference shares on behalf of the issuer as part of the offer, including under underwriting commitments. This recognises that normal distribution and underwriting-related selling may be necessary and should not be conflated with stabilisation-driven market manipulation.
6. Record-keeping and exchange requirements (Regulation 3(8) and beyond). The extract indicates that the stabilising manager must keep a register in the form required by the securities exchange and record particulars of each stabilisation-related purchase transaction, including price (the remainder is truncated in the provided text). In practice, such registers are critical for post-transaction supervision, audit trails, and potential enforcement. For practitioners, the existence of a “register” requirement signals that regulators and exchanges expect detailed transaction-level documentation of stabilisation activity.
How Is This Legislation Structured?
The Regulations are structured as a short instrument with an enacting formula and three main provisions. Regulation 1 provides the citation and commencement date (13 December 2006). Regulation 2 sets out definitions used throughout the instrument, including key concepts such as “stabilising action,” “stabilising manager,” “offer,” “offer document,” “over-allotment,” and the specific “Dollar Preference Shares” and “Sterling Preference Shares.” Regulation 3 contains the operative exemption, including the conditions under which stabilising action is permitted and the compliance requirements imposed on the stabilising manager.
Although the extract truncates the later parts of Regulation 3, the numbering indicates that the exemption is conditional on multiple subsections (3(3) to (14)). The structure therefore reflects a typical regulatory technique: define a narrow class of eligible transactions, then impose a layered set of procedural, disclosure, quantitative, timing, and conduct restrictions.
Who Does This Legislation Apply To?
The Regulations apply to stabilising action taken in respect of the specified “relevant preference shares” (the Dollar and Sterling preference shares) in connection with an offer for subscription or purchase and their listing on a securities exchange. The stabilising action must be undertaken by the stabilising manager—defined as Goldman Sachs International or its related corporations—or by a dealer acting on behalf of that stabilising manager.
Accordingly, the primary compliance burden falls on the stabilising manager and its dealing affiliates. However, the Regulations also indirectly affect issuers and offer participants because the offer document and public announcements must include specific stabilisation disclosures and maximum permitted quantities and durations. If the disclosure and announcement conditions are not satisfied, the exemption will not apply, and the stabilising manager may be exposed to the general SFA market conduct restrictions.
Why Is This Legislation Important?
This instrument is important because it operationalises the balance between two competing regulatory goals: allowing legitimate market stabilisation in capital markets transactions, while preventing stabilisation from becoming a vehicle for misleading or manipulative conduct. By exempting stabilising action from SFA sections 197 and 198, the Regulations provide legal certainty to market participants—so long as they comply with the detailed conditions.
For practitioners, the most significant practical implications are the quantitative cap (20% of nominal value prior to over-allotment), the time limits (30/60 calendar-day framework and “earlier of” termination), and the disclosure requirements (offer document and exchange announcement must state the stabilisation possibility, maximum period, over-allotment nominal value, and maximum stabilisation purchase nominal value). These are the areas most likely to be scrutinised in transaction reviews and regulatory inquiries.
Additionally, the “reasonably satisfied” standard regarding whether the price is false or misleading introduces a substantive conduct obligation. It requires active judgment and ongoing monitoring by the stabilising manager. Finally, the register and record-keeping obligations (as indicated by Regulation 3(8) and subsequent subsections) mean that compliance is not merely procedural; it is also evidential. A well-advised stabilising manager will ensure that its trading systems, communications, and documentation can demonstrate adherence to the exemption conditions.
Related Legislation
- Securities and Futures Act (Cap. 289) — in particular, Sections 197 and 198 (market conduct provisions) and Section 337(1) (power to make regulations)
- Futures Act (as referenced in the statute metadata)
- Stabilising Act (as referenced in the statute metadata)
- Timeline (legislation timeline reference for version control)
Source Documents
This article provides an overview of the Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Preference Shares) (No. 5) Regulations 2006 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.