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), section 337(1)
- Regulations Number: SL 670/2006
- Commencement: 13 December 2006
- Status: Current version as at 27 March 2026 (per provided extract)
- Key Provisions: Section 1 (Citation and commencement), 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 Exemption Regulations”) creates a targeted exemption from certain market conduct rules in the Securities and Futures Act (“SFA”) for a specific type of market activity: stabilising action in relation to a particular issuance of preference shares.
In plain terms, the Regulations recognise that, in some public offerings, the stabilising manager (typically an investment bank) may buy shares after launch to help prevent the market price from falling sharply due to initial supply/demand imbalances. However, stabilising activity can also be misused to create an artificial market or mislead investors. The SFA therefore generally restricts stabilising conduct. These Regulations carve out a carefully bounded exception, but only if strict conditions are met.
Importantly, the exemption is not general. It is tied to defined “relevant preference shares” issued in December 2006 by specified issuers and stabilised by a specified stabilising manager (Goldman Sachs International and related corporations). The Regulations also impose disclosure, timing, volume limits, and record-keeping obligations to ensure transparency and to reduce the risk of market manipulation.
What Are the Key Provisions?
1. The exemption mechanism (Section 3(1))
Section 3(1) provides that Sections 197 and 198 of the SFA do not apply to stabilising action taken in respect of the “relevant preference shares” described in Section 3(2), provided the stabilising action is undertaken by the stabilising manager (Goldman Sachs International or its related corporations) or by a dealer acting on behalf of the stabilising manager, and provided that paragraphs (3) to (14) are complied with.
Practically, this means that the stabilising manager may conduct stabilising purchases (and related conduct) without breaching the SFA’s general prohibitions—but only within the regulatory “box” set out in the Regulations.
2. Scope: which securities and which offer (Section 3(2))
The exemption applies only to stabilising action in connection with an offer of the defined “relevant preference shares”, which are either:
- “Dollar Preference Shares”: fixed to floating rate non-cumulative perpetual preferred securities issued in December 2006 by SMFG Preferred Capital USD 1 Limited (principal amount up to US$3,000,000,000); or
- “Sterling Preference Shares”: fixed to floating rate non-cumulative perpetual preferred securities issued in December 2006 by SMFG Preferred Capital GBP 1 Limited (principal amount up to £1,500,000,000).
Section 3(2) also restricts the exemption to offers where multiple conditions are satisfied, including:
- Minimum offer size: the total value of the relevant preference shares offered (based on the offer price) must be not less than $25 million (or equivalent).
- Stabilising purchase cap: the stabilising manager’s total nominal value purchases for stabilising action must not exceed 20% of the total nominal value offered prior to any over-allotment (if applicable).
- Offer document disclosure: the offer document must state that stabilising action may be taken; the maximum period; the over-allotment option nominal value (if applicable); and the maximum nominal value the stabilising manager may buy (not exceeding the 20% cap).
- Public announcement disclosure: a public announcement must be made through the relevant securities exchange on the business day immediately following the offer closing date, containing the same key information (stabilising may occur; maximum period; over-allotment option nominal value if applicable; and the stabilising purchase cap).
- Cash terms and fixed price: the offer must be on cash terms and made at a specific price payable in any currency.
3. Price integrity and ongoing eligibility (Section 3(3))
Even where the exemption is available, the stabilising manager must act with reasonable satisfaction regarding price integrity:
- Before taking stabilising action, the stabilising manager must be reasonably satisfied that the price of the preference shares is not false or misleading.
- The stabilising manager must continue stabilising action only while reasonably satisfied that the price has not become false or misleading, except where the false/misleading element arises by reason of stabilising action itself.
This is a key compliance standard: it links the exemption to a continuing assessment of market information and pricing conditions.
4. Timing restrictions (Sections 3(4) and 3(5))
Section 3(4) prohibits stabilising action before the date on which the earliest public announcement of the offer that states the offer price is made through the relevant exchange.
Section 3(5) then sets an outer limit on stabilising activity. Stabilising action must not be taken after the earlier of:
- 30 calendar days from the date trading commences on the exchange; or
- 60 calendar days from the date of the earliest public announcement stating the offer price (whichever is earlier).
- Additionally, stabilising action must stop if the stabilising manager has already bought the maximum nominal value permitted under the offer document (the cap specified in Section 3(2)(c)).
5. Order restrictions: no pre- or improper selling (Sections 3(6) and 3(7))
Section 3(6) generally prohibits the stabilising manager from effecting (directly or indirectly) any sell order of the relevant preference shares:
- prior to the date of commencement of each stabilising action; and
- during the period in which stabilising action is permitted.
However, Section 3(7) provides a narrow carve-out. It does not prohibit:
- the stabilising manager; or
- an associate of the stabilising manager, in the associate’s capacity as a dealer,
from executing sell orders for persons who are not associates of the issuer, or selling the preference shares on behalf of the issuer as part of the offer (including underwriting commitments). This helps distinguish stabilising purchases from unrelated secondary selling or underwriting-related activity.
6. Record-keeping and transparency (Section 3(8) and beyond)
The extract shows Section 3(8) requiring the stabilising manager to:
- keep a register in the form required by the securities exchange; and
- record particulars of each stabilising purchase transaction, including the price (the extract truncates the remainder, but the intent is clear: detailed transaction logging).
Although the provided text is truncated after “including the price, qu…”, the structure of these Regulations typically includes further obligations such as reporting to the exchange, retention of records, and ensuring that the stabilising activity is auditable. For practitioners, the key point is that the exemption is not merely behavioural; it is also procedural—with documentation and traceability requirements.
How Is This Legislation Structured?
The Regulations are concise and structured around three core provisions:
- Section 1 (Citation and commencement): sets the name and the date the Regulations come into operation (13 December 2006).
- Section 2 (Definitions): defines key terms used in the exemption, including “closing date”, “dealer”, “offer”, “offer document”, “offer price”, “over-allotment”, “relevant preference shares”, “stabilising action”, and “stabilising manager”. It also defines the specific preference share instruments by reference to the December 2006 issuances and maximum principal amounts.
- Section 3 (Exemption): contains the operative exemption and the detailed conditions (volume caps, disclosure requirements, timing limits, order restrictions, and record-keeping obligations).
From a practitioner’s perspective, Section 3 is the entire compliance “engine”: it determines when the SFA’s general market conduct prohibitions are displaced and what must be done to remain within the exemption.
Who Does This Legislation Apply To?
The Regulations apply to the stabilising manager—defined as Goldman Sachs International and its related corporations—and to dealers acting on behalf of the stabilising manager. “Dealer” is defined broadly to include persons licensed or otherwise regulated in foreign jurisdictions to deal in securities.
They apply only in the context of a qualifying offer for subscription or purchase of the defined “relevant preference shares” (the Dollar Preference Shares and/or Sterling Preference Shares) in conjunction with listing on a securities exchange. If the stabilising activity relates to different securities, different issuers, or a different stabilising manager, the exemption would not be available.
Why Is This Legislation Important?
Stabilising action sits at the intersection of legitimate market-making practices and the risk of market manipulation. The SFA’s market conduct provisions aim to prevent misleading price formation. This Regulations package acknowledges that stabilisation can be a normal feature of certain capital markets transactions, but it conditions the exemption on strict limits and transparency.
For practitioners—legal counsel, compliance officers, and transaction teams—the Regulations provide a clear checklist of requirements that must be satisfied to obtain regulatory comfort. Key practical implications include:
- Disclosure discipline: the offer document and exchange announcements must include specified information (including maximum stabilising period and stabilising purchase cap).
- Quantitative limits: stabilising purchases are capped at 20% of the offered nominal value (subject to the defined calculation and any over-allotment mechanics).
- Timing controls: stabilising cannot begin before the offer price is publicly announced through the exchange, and must end by the earlier of defined calendar periods or when the purchase cap is reached.
- Behavioural constraints: the stabilising manager is generally barred from placing sell orders during stabilisation, subject to narrow underwriting/third-party carve-outs.
- Auditability: the stabilising manager must keep and maintain a register of stabilising transactions in the required form.
In enforcement terms, the exemption is conditional. If any element is missed—such as failing to disclose the stabilising period or exceeding the purchase cap—the stabilising activity could fall back within the scope of the SFA’s market conduct prohibitions, exposing the stabilising manager and potentially related parties to regulatory and civil consequences.
Related Legislation
- Securities and Futures Act (Cap. 289): in particular Sections 197 and 198 (market conduct provisions from which the exemption is carved out) and Section 337(1) (power to make the Regulations).
- Stabilising Act (as referenced in the provided metadata/timeline context).
- Futures Act (as referenced in the provided metadata/timeline context).
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.