1. PRESENTATION BY FINANCIAL SERVICES BOARD TO PCOF THE SECURITIES SERVICES BILL, 2004

2. TOPICS TO BE ADDRESSED Background Ambit Objects Application
Prohibitions
Structure
Conclusion

3. BACKGROUND Policy Board reviewed regulatory framework in 1998
Legislation outdated
Legislation does not comply with best international practice
FSB established drafting team in 1998 consisting of representatives of:

4. BACKGROUND FSB Licensed Exchanges Banking Council (South Africa) CSD’s
Other stakeholders

5. BACKGROUND
Cognisance was taken of IOSCO’s objectives and principles of securities regulation and other regulatory practices
Foreign legislation - UK, Australia, European Directive, etc.

6. BACKGROUND
Various drafts of the SSB were submitted to the FMAB in 2000 & The FMAB approved the Bill in principle at its meeting of 9 March 2001
On 4 May 2001 the Policy Board for Financial Services and Regulation approved the Bill

7. BACKGROUND
Bill was submitted to Cabinet in May 2002, but subsequently withdrawn from the process by the Minister and revised by National Treasury and the FSB
Bill was resubmitted and approved by Cabinet on 23 June 2004

8. BACKGROUND We consulted with all interested parties
None of the parties was opposed to the Bill
Most of the comments were accepted and incorporated
Bill was displayed for a considerable time on the FSB’s website
The list of persons & institutions consulted is available

9. AMBIT Will consolidate the - Stock Exchanges Control Act, 1985: JSE
Financial Markets Control Act, 1989: BESA & JSE
Custody and Administration of Securities Act, 1992: STRATE Ltd
Insider Trading Act, 1998
Will repeal these Acts
Also adds new provisions to those Acts

10. AMBIT
Since the repealed Acts were approved by Parliament, it is unnecessary to refer to or explain those clauses of the Bill that essentially reiterate the provisions of the repealed Acts

11. OBJECTS Increase confidence in the SA financial markets by:
requiring that securities services are provided in a fair, efficient and transparent manner
contributing to the maintenance of a stable financial market environment

12. OBJECTS Promote protection of regulated persons and clients
Reduce systemic risk
Promote international competitiveness of securities services in the RSA

13. APPLICATION Exchange and authorised users (members)
CSD and participants
Clearing house
Person trading unlisted securities
Issuers of securities
Clients of authorised users and participants
Market abuse - insider trading and market manipulation

14. PROHIBITIONS Exchange needs to be licensed: Renew
CSD needs to be licensed: Renew
Clearing house needs to be licensed: Renew
Authorised user needs to be authorised by the exchange i.t.o. exchange rules
Participant must be accepted by CSD
Business of trading listed and unlisted securities - must comply with Bill

15. PROHIBITIONS
Authorised user must comply with exchange rules to manage securities
Management of investments by non-authorised users is regulated by the Financial Advisory and Intermediary Services (FAIS) Act

16. STRUCTURE The Bill confers the status of a SRO on exchanges and CSD’s
The Bill is structured in 9 chapters
Emphasis is placed on significant legislative changes and new principles

17. CHAPTER 1: PRELIMINARY PROVISIONS
Objects and application of Bill and prohibited activities
Concepts common to the whole Bill are defined
Following definitions warrant special attention:

18. DEFINITION OF EXCHANGE
Person who constitutes, maintains and provides an infrastructure:
For bringing together buyers and sellers of securities;
for matching the orders for securities of multiple buyers and sellers; and
whereby a matched order for securities constitutes a transaction

19. DEFINITION OF SECURITIES
Definitions of “securities” and “financial instruments” in the SECA and FMCA respectively, have been consolidated into one definition of “securities”
The definition excludes money market instruments (except for purposes of Chapter 4)

20. DEFINITION OF SECURITIES
The Registrar may declare a security; and
may also declare a security included in the definition of securities not to be a security

21. DEFINITION OF REGULATED PERSON
A SRO or any other person who provides securities services

22. DEFINITION OF SECURITIES SERVICES
Services provided in respect of –
Buying and selling of securities
Custody and administration of securities
Management of listed securities by an authorised user
Clearing & settlement of transactions in listed securities

23. CHAPTER 2: REGULATION & SUPERVISION OF SECURITIES SERVICES
* Functions of the Registrar/Deputy Registrar of Securities Services
- In performing those functions, the Registrar must have regard to a number of issues

24. CHAPTER 2: REGULATION & SUPERVISION OF SECURITIES SERVICES
Financial Markets Advisory Board
- May on its own initiative, and must, at the request of the Min. or Registrar, investigate and report or advise on matters re regulated persons or the provision of securities services

25. CHAPTER 3: EXCHANGES Licensing
Any person may apply for an exchange licence, not only an association
Exchanges are subject to the same basic requirements
However, the registrar may determine to what extent an applicant must comply with those requirements
Provision is not made for different tiers of markets, each with its own separate set of requirements

26. CHAPTER 3: EXCHANGES
Applicant must have insurance, a guarantee or compensation fund or other warranty to enable it to provide compensation to clients of authorised users

27. FUNCTIONS OF AN EXCHANGE
Registrar may assume responsibility for certain exchange functions
The provisions on the listing of securities have become more onerous, e.g. the listing requirements are binding not only on an issuer and an authorised user, but also on their directors, officers, employees and agents
Bill provides for the closure of a board

28. RULES OF THE EXCHANGE Approval of a nominee of an authorised user
Contrary to current requirements, the Bill requires exchanges to make rules for:
Approval of a nominee of an authorised user
Settlement of disputes between authorised users and between them and their clients
Manner in which complaints against an authorised user must be investigated

29. RULES OF THE EXCHANGE
To provide for the supervision by an exchange of compliance with the duties imposed on it and its authorised users by the Financial Intelligence Centre Act, 2001.

30. OFF-MARKET TRANSACTIONS IN LISTED SECURITIES
This is allowed between financial institutions, on condition that they transact with each other as principals. “Financial institution” is defined for this purpose.

31. REPORTING OF OFF-MARKET TRANSACTIONS IN LISTED SECURITIES
Must be reported to the Registrar
Registrar must disclose the information to the exchange on which the securities are listed
Registrar must also disclose the information to the public, unless the Registrar is satisfied that such disclosure will be contrary to the objects of the Bill

32. TRADING OF UNLISTED SECURITIES
It is not required for people who carry on the business of buying & selling unlisted securities to be approved or licensed.
However, the Registrar may prohibit a person from carrying on such business, or may impose or prescribe conditions in respect of such business

33. UNDESIRABLE ADVERTISING AND CANVASSING RELATING TO SECURITIES
No person, other than an authorised user or its officer or employee who is so permitted in terms of exchange rules, may advertise or canvass for the business of an authorised user

34. CHAPTER 4: CUSTODY & ADMINISTRATION OF SECURITIES
Licensing of a CSD
CSDs will not be registered in future, but will be licensed and its licences will be renewed annually
Acceptance of participants
To prevent unnecessary duplication, it will no longer be a requirement for the registrar to approve a participant of a CSD as a depositary institution before the CSD may accept that institution as a participant

35. CHAPTER 4: CUSTODY & ADMINISTRATION OF SECURITIES
Approval of nominees
The Bill provides for the approval of nominees that act as the registered holders of securities on behalf of other persons
A nominee not approved In terms of exchange/CSD rules, must be approved by the Registrar

36. CHAPTER 4: CUSTODY & ADMINISTRATION OF SECURITIES
Uncertificated securities
- The Bill enables the conversion of all types of certificated securities (not only equity securities) to uncertificated securities, as well as the issuing of uncertificated securities

37. CHAPTER 5 : GENERAL PROVISIONS APPLICABLE TO SROs
SRO is defined as an exchange or a CSD
Renewal of licences
Licence of CSD needs to be renewed annually in line with the approach applicable to exchanges

38. DEMUTUALISATION OF SROs
The Bill provides for the demutualisation of SROs and the amalgamation of two or more exchanges or two or more CSDs – the Registrar must prescribe conditions
Most of the members of the World Federation of Exchanges are in the process of demutualisation

39. APPOINTMENT OF MEMBERS OF CONTROLLING BODY OF SRO
Duty of care and skill owed by directors and executive officers to SRO
No person who does not qualify ito the SSB, may be appointed as a member of the controlling body of a SRO

40. APPOINTMENT OF MEMBERS OF CONTROLLING BODY OF SRO
SRO must within 14 days of the appointment of a new member to its controlling body, inform the Registrar and furnish the Registrar with the required information
The Registrar may under certain circumstances instruct the SRO to remove that member from its controlling body

41. LIMITATION ON CONTROL IN SROs
The Registrar’s approval is required for the acquisition of shares in a SRO (company or close corporation) –
if the aggregate nominal value of those acquired shares will amount to more than 15% of the total nominal value of all the issued shares of the SRO
If that person holds shares which entitle him to exercise more than 15% of the voting rights attached to the issued shares

42. LIMITATION ON CONTROL IN SROs
If that person has the power to determine the appointment of more than 15% of the directors of the SRO
Purpose – to prevent disreputable people from controlling a SRO and thereby introducing systemic risks into our securities markets

43. AMENDMENT OF RULES
A SRO will have to provide the Registrar with explanations and reasons for proposed rule amendments
The period for objections has been reduced from 30 to 14 days to expedite the approval of rule amendments

44. CHAPTER 6: CLEARING HOUSE
Clearing houses need to be licensed (annually renewed) if this function is not performed in-house by an exchange
Currently the FMCA provides for the recognition of a clearing house
Amalgamation or transfer of clearing house – two or more clearing houses may amalgamate or merge with one another or with any SRO

45. CHAPTER 7: CODE OF CONDUCT
The Bill requires the Registrar to prescribe a code of conduct
The Bill prescribes the basic principles for the Code
The Code is binding on authorised users, their officers, employees and clients

46. CHAPTER 8: MARKET ABUSE
Insider trading can now be committed by any person.
Person defined to include a trust.

47. MARKET ABUSE
A sub-section has been allocated for each prohibition together with the defences that relate to the specific prohibition.

48. MARKET ABUSE
The defence that an insider “would have acted in the same manner even without the inside information” has been removed.

49. MARKET ABUSE
New defence introduced namely “the insider only became an insider after he/she had given the instruction to deal to an authorised user, and the instruction was not changed in any manner after he/she became an insider.

50. MARKET ABUSE
The defence that an insider was acting on specific instructions from a client is now available only to authorised users.

51. MARKET ABUSE
Manipulative, improper, false or deceptive practices of trading
The wording is now more clear
We have added certain examples of what would constitute or what would be deemed to be market manipulation

52. MARKET ABUSE
False, misleading or deceptive statements, promises and forecasts
- We have expanded on this provision and prohibited the publication iro listed securities as well as iro the past or future performance of a public company of any statement, promise and forecast by any person, which is false, misleading or deceptive

53. MARKET ABUSE
As in the case of insider trading, these abuses will henceforth fall under the supervision of the Directorate of Market Abuse, formerly known as the Insider Trading Directorate.
The penalties for these prohibited practices as well as for insider trading have been substantially increased, i.e. a fine not exceeding R50m or imprisonment for a period not exceeding 10 years, or both a fine and imprisonment.

54. MARKET ABUSE
Minister to appoint Chairperson of the Directorate of Market Abuse.
The Directorate of Market Abuse must report quarterly to the Minister on its activities.

55. MARKET ABUSE
A member of the Directorate of Market Abuse shall be appointed for a period not exceeding three years subject to reappointment at the discretion of the Minister

56. MARKET ABUSE
The following stakeholders may now nominate members to the Directorate of Market Abuse:
The Fund Management industry
Shareholders’ Association
South African Reserve Bank

57. CHAPTER 9: GENERAL PROVISIONS
Auditing
Powers of the Registrar and court

58. ESTABLISHMENT OF ENFORCEMENT COMMITTEE
Establishment, composition, functions, proceedings, etc. of an independent EC
With the power to impose an administrative penalty on, or to require the payment of compensation (only iro insider trading) by a person who contravenes, or fails to comply with the Bill
It is expected that the EC will give the FSB more effective and expeditious enforcement powers

59. ESTABLISHMENT OF ENFORCEMENT COMMITTEE
Registrar or Directorate can refer a matter to the EC
Must submit an annual report to FSB
Each matter referred to the EC will be assigned to a panel (chair & not less than 2 other members)
Proceedings of panel are open to public

60. ESTABLISHMENT OF ENFORCEMENT COMMITTEE
Referral of matter must be accompanied by an inspection report or report on investigation done under Chapter 8
Panel may summon a person to appear before the panel
A legal representative may assist such person
If respondent admits contravention, Panel may impose penalty

61. ESTABLISHMENT OF ENFORCEMENT COMMITTEE
If respondent did not admit contravention, EC may deliver to respondent a notice contained the details in clause 104
Respondent may appeal against the penalty
If the respondent fails to comply with the requirements of the notice, the registrar may file with any competent court a statement, which will have all the effects of a civil judgment lawfully given in that court in favour of the FSB

62. ESTABLISHMENT OF ENFORCEMENT COMMITTEE
If panel is satisfied that respondent has contravened section 73 (insider trading), the panel may require the respondent to pay to the FSB a compensatory amount
However, no civil proceedings iro the same set of facts may be instituted under section 77 against a respondent if the respondent has paid the compensatory amount
Registrar must make public the decision of the EC

63. CHAPTER 9: GENERAL PROVISIONS
Winding-up, judicial management and curatorship
Right of appeal
Offences and penalties
Regulations

64. SCHEDULE - AMENDMENTS TO THE FSB ACT, COMPANIES ACT AND INSOLVENCY ACT
The amendments to these Acts are of a consequential nature

65. CONCLUSION
SSB will bring SA’s securities legislation on a par with best international practice
SSB takes cognisance of important developments within the local and foreign securities markets industry
SSB will further promote confidence and the maintenance of a stable SA securities market environment

66. CONCLUSION
The SSB strives to maintain a healthy balance between investor protection and the enhancement of international competitiveness of securities services in the Republic

67. ANY QUESTIONS?