Statute Details
- Title: Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Preference Shares) Regulations 2007
- Act Code: SFA2001-S11-2007
- Type: Subsidiary Legislation (SL)
- Enacting / Authorising Act: Securities and Futures Act (Cap. 289), specifically section 337(1)
- Regulation Number: SL 11/2007
- Citation: These Regulations may be cited as the Securities and Futures (Market Conduct) (Exemption for Stabilising Action in respect of Dealings in Preference Shares) Regulations 2007
- Commencement: 12 January 2007
- Status (as provided): Current version as at 27 March 2026
- Key Provisions (from extract): 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) Regulations 2007 (“Stabilising Exemption Regulations”) create a targeted exemption from certain market conduct provisions in the Securities and Futures Act (“SFA”). In practical terms, the Regulations allow a “stabilising manager” (and dealers acting on its behalf) to take limited “stabilising action” in connection with a specific type of securities offering—namely, the listing of certain preference shares—without breaching the SFA provisions that would otherwise restrict such conduct.
Stabilisation is a common capital markets practice. When a new issue is launched, market liquidity and investor demand can cause price volatility. A stabilising manager may buy (or offer to buy) shares during a defined period to help maintain orderly trading and reduce extreme price swings. However, stabilisation can also create risks of misleading the market if it is not tightly controlled. These Regulations therefore permit stabilising action only if strict conditions are met, including limits on size, timing, disclosure, and ongoing safeguards to ensure the stabilised price is not false or misleading.
Importantly, the exemption is not general. It is structured as a narrow carve-out for stabilising action “in respect of the relevant preference shares” described in the Regulations. The definitions identify specific instruments issued in January 2007 by MUFG Capital Finance 4 Limited and MUFG Capital Finance 5 Limited, and the stabilising manager is identified as Mitsubishi UFJ Securities International plc (and related corporations). This makes the Regulations best understood as a bespoke regulatory instrument for a particular offering and listing event, rather than a framework intended for all future issues.
What Are the Key Provisions?
1. The exemption from SFA market conduct rules (Regulation 3(1)). The core legal effect is in Regulation 3(1), which provides that specified sections of the SFA—namely sections 197, 198, 218(2) and 219(2)—do not apply to stabilising action taken in respect of the relevant preference shares. The exemption applies only where stabilising action is undertaken by the stabilising manager or by a dealer acting on behalf of the stabilising manager, and only if the conditions in Regulations 3(3) to (14) are satisfied.
Although the extract does not reproduce the full text of sections 197, 198, 218(2) and 219(2), these provisions are generally associated with prohibitions on market manipulation and misleading conduct, including restrictions on certain trading behaviours and false or misleading price effects. The exemption therefore functions as a controlled permission: stabilisation is allowed, but only within a regulatory “box” designed to prevent the exemption from becoming a loophole for improper market conduct.
2. Scope: what stabilising action can cover and the quantitative thresholds (Regulation 3(2)). Regulation 3(2) limits the exemption to stabilising action undertaken in respect of an offer of the relevant preference shares where multiple conditions are met. Key conditions include:
- Minimum offer size: the total value of the relevant preference shares being offered (based on the offer price) must be at least $25 million (or equivalent).
- Cap on stabilising purchases: the stabilising manager’s purchases must not exceed 20% of the total number of relevant preference shares being offered prior to any over-allotment (if applicable).
- Disclosure in the offer document: the offer document must state that stabilising action may be taken, the maximum stabilisation period, the over-allotment option details (if applicable), and the maximum number of shares the stabilising manager may buy (not exceeding the 20% cap).
- Public announcement after the closing date: a public announcement must be made through the relevant securities exchange on the business day immediately following the closing date, repeating the key stabilisation disclosures (including the maximum period and maximum number of shares).
- Cash terms and specific price: the offer must be on cash terms and made at a specific price payable in any currency.
For practitioners, these conditions are critical because they link the exemption to documentary and disclosure compliance. If the offer document or exchange announcement fails to include required stabilisation information, the exemption may not apply, exposing the stabilising manager and/or dealers to SFA market conduct liability.
3. Price integrity and ongoing monitoring (Regulation 3(3)). Regulation 3(3) imposes a “reasonable satisfaction” standard on the stabilising manager. The stabilising manager must:
- take stabilising action only after being reasonably satisfied that the price of the relevant preference shares is not false or misleading; and
- continue stabilising action only after being reasonably satisfied that the price has not become false or misleading, except where any false/misleading effect arises because of stabilising action itself.
This is a substantive safeguard. It requires more than mechanical compliance with timing and volume limits; it requires active judgment and monitoring to ensure stabilisation does not create or perpetuate misleading market conditions.
4. Timing restrictions: “no stabilisation before” and “no stabilisation after” (Regulations 3(4) and 3(5)). The Regulations impose strict temporal boundaries:
- No stabilising action before the earliest public announcement of the offer price made through the exchange.
- No stabilising action after the earlier of two dates:whichever is earlier; and also subject to a separate “cap reached” stop date (Regulation 3(5)(b))—the date on which the stabilising manager has bought the maximum number of shares it is permitted to buy under the offer document.
- expiry of 30 calendar days from the date of commencement of trading; or
- expiry of 60 calendar days from the date of the earliest public announcement of the offer price through the exchange; or
These provisions are designed to ensure stabilisation is temporary and proportionate. For enforcement and compliance planning, the key is that the stabilising manager must track both calendar-based deadlines and volume-based exhaustion of the permitted stabilising quantity.
5. Trading conduct restrictions: sell-order prohibition with limited carve-outs (Regulations 3(6) and 3(7)). Regulation 3(6) generally prohibits the stabilising manager from effecting (or causing 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 reduces the risk that stabilisation is used as part of a broader trading strategy that could manipulate price.
Regulation 3(7) provides limited exceptions. It does not prohibit:
- the stabilising manager or an associate of the stabilising manager, acting in the associate’s capacity as a dealer, from executing sell orders for persons who are not associates of the issuer; or
- selling the relevant preference shares on behalf of the issuer as part of the offer, including under underwriting commitments.
6. Record-keeping (Regulation 3(8)). The extract shows that the stabilising manager must keep a register in the form required by the listing exchange and record particulars of each stabilising transaction, including price, quantity, and dealer name, before the end of the day of the transaction. While the extract truncates the remainder of Regulation 3(8), the principle is clear: stabilisation must be auditable and capable of regulatory review.
Note: The provided extract truncates the remainder of Regulation 3(8) and does not include Regulations 3(9) to (14). In practice, those later paragraphs often contain additional procedural requirements (e.g., further disclosure, restrictions on offers to buy, reporting timelines, and compliance with exchange rules). A practitioner should obtain the full consolidated text for complete compliance mapping.
How Is This Legislation Structured?
The Regulations are short and structured as follows:
- Regulation 1 (Citation and commencement): sets the name of the Regulations and provides that they come into operation on 12 January 2007.
- Regulation 2 (Definitions): defines key terms such as “closing date”, “dealer”, “Euro Preference Shares”, “Sterling Preference Shares”, “offer”, “offer document”, “offer price”, “over-allotment”, “stabilising action”, and “stabilising manager”. The definitions are central because they identify the specific instruments and the specific stabilising manager to which the exemption applies.
- Regulation 3 (Exemption): contains the operative provisions. It sets out the exemption from specified SFA sections and then enumerates the conditions that must be satisfied for the exemption to apply, including disclosure, timing, trading restrictions, and record-keeping.
Who Does This Legislation Apply To?
The Regulations apply to the stabilising manager—defined as Mitsubishi UFJ Securities International plc and its related corporations—and to dealers acting on behalf of the stabilising manager. The exemption is triggered only when stabilising action is taken in respect of the relevant preference shares (the Euro and Sterling preference shares issued in January 2007 by the specified MUFG entities) and in connection with an offer for subscription or purchase that is made in conjunction with listing on a securities exchange.
In addition, the Regulations indirectly affect the issuer and offer documentation process because the exemption depends on what is stated in the offer document and what is announced through the securities exchange after the closing date. While the exemption is framed as a carve-out from SFA provisions for stabilising action, the issuer’s disclosure obligations and the stabilising manager’s compliance with those disclosures are intertwined.
Why Is This Legislation Important?
For market participants, the Regulations provide a legally workable pathway to conduct stabilisation while managing regulatory risk. Without an exemption, stabilising purchases or related conduct could potentially fall within prohibitions on market manipulation or misleading conduct under the SFA. By carving out stabilisation—subject to strict conditions—the Regulations support orderly market functioning during new listings while preserving investor protection.
From a compliance perspective, the most significant practical impact is that the stabilising manager must implement a control framework covering:
- eligibility (the specific instruments and the specific stabilising manager);
- offer-size and volume caps (minimum offer value and 20% maximum stabilising purchases);
- disclosure (offer document statements and exchange announcements);
- timing (no stabilisation before the offer price announcement; no stabilisation after the earlier of the defined deadlines or when the permitted quantity is exhausted);
- trading restrictions (not placing sell orders during stabilisation, subject to limited exceptions); and
- auditability (register and transaction recording requirements).
For enforcement and litigation risk, the disclosure and timing conditions are often where failures occur. If the offer document or exchange announcement omits required stabilisation information, or if stabilisation continues beyond the permitted period or permitted quantity, the exemption may not apply. That could expose the stabilising manager and any relevant dealers to allegations of market conduct breaches under the SFA sections that the exemption otherwise displaces.
Related Legislation
- Securities and Futures Act (Cap. 289): in particular sections 197, 198, 218(2), and 219(2) (as referenced by the exemption)
- Stabilising Act / Stabilising framework: referenced in the statute metadata (contextual linkage to stabilisation concepts)
- Futures Act: referenced in the statute metadata (contextual linkage)
- Listing exchange rules and market conduct requirements: relevant because the Regulations require announcements and registers through the securities exchange
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) Regulations 2007 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.