OVERVIEW OF THE REGULATORY FRAMEWORK OF SCPNGSCPNG Securities Commission of Papua New Guinea

 

LEGISLATIVE HISTORY OF SCPNG

  • The Securities Commission of Papua New Guinea (SCPNG) was established in 1997 after the enactment of the Securities Act 1997.
  • During those formative days, the Securities Commission of Papua New Guinea was a division of the Investment Promotion Authority (IPA).
  • Under the Securities Act 1997, the SCPNG was chaired by the Registrar of Companies, and was not an independent organization and was essentially, a filing repository.
  • During those days the Port Moresby Stock Exchange was owned and controlled by two stock brokers. They also controlled who was given a stock broking licences to operate as a stockbroker and also to enter into other market intermediaries.
  • The Port Moresby Stock Exchange had an initial primary listing of about 20 corporations, which over the years decreased to 13 corporations.
  • There was limited activity taking place within the Port Moresby Stock Exchange within the same period, with no increases in the number of stockbrokers, no new investment advisors, fund administrators and so on.
  • During those years, reforms in the banking sector in Papua New Guinea grew from strength to strength, however the capital market did not improve and without much movement, the Port Moresby Stock Exchange remained stagnant.
  • Significant changes took place in the regulation of capital markets around the world as the result of the 2008 global financial crisis.
  • As a result of the foregoing issues, the Securities Act 1997 was repealed in 2015, and in its place, three new legislation were introduced: The Securities Commission Act, the Capital Markets Act 2015 and the Central Depositories Act 2015. The legislation came into operation in December 2017, when certified by the Speaker of Parliament.
  • The purpose of introducing the three aforementioned legislation was to build the securities

regulatory regimes up to modern standards. The changes in global securities regulatory regimes and the capital market infrastructure were changing at breakneck speeds, and PNGPNG Papua New Guinea’s legislation needed to be updated to accord with developments across the globe.

 

OVERVIEW OF THE CURRENT LEGISLATIVE FRAMEWORK OF SCPNG

Securities Commission Act 2015

  • Under the previous Securities Act 1997, there was no proper establishment structure of the Securities Commission while it was operating as a division of IPA, and as such SCPNG received no funding and resources of its own for 17 years of its establishment.
  • The Securities Commission Act 2015 (the new Act) established the Security Commission of Papua New Guinea as an independent and fully pledged office, independent of IPA.
  • The Securities Commission Act, established the Board of the Commission, the Office of the Chairman and the provision for staff to be recruited.
  • The new Act provided specific powers of the Securities Commission to seek information. For instance, the previous Act did not provide powers to the Commission to seek or retrieve information  from the commercial  banks on details  of transactions,  bank accounts, and related information.
  • The new Act provides specific provisions whereby the Commission can request information from the banks, and if the banks fail to provide such information,  the bank and the officer to whom the request was sent to will be guilty of obstructing the work of the Commission and therefore will be liable to prosecution.
  • More importantly, the new Act gives investigative powers to the Commission. The previous Act, did not provide in clear language the powers of the Commission.
  • The new Act also provides powers for the Commission to investigate and if it is satisfied that persons are found to have breached the Securities Commission Act and other related legislation the Securities Commission is able to prosecute those found to have been in breach.
  • Once the Securities Commission is fully established it will ensure the capital market in Papua New Guinea especially the Port Moresby Stock Market and the Unit trust industry, the derivative market and over the counter transactions are properly monitored and regulated.
  • The new Act also enabled the Commission to license all  stock  brokers, dealers, fund members, trustees, investments advisors and other market intermediaries.
  • The new Act enables the growth of the capital market in Papua New Guinea at a new level. The market allows Papua New Guineans to have access to alternative sources of investments and long term funding for capital raising.

Capital Markets Act 2015

  • The Capital Market Act 2015, provide for the following matters:
    • Licensing of market intermediaries; and
    • Regulation of the stock market; and
    • Setting out clear trading rules; and
    • Effective and transparent reporting and disclosure rules; and
    • A link between the law and IOSCO principles; and
    • A clear link between the regulator, the market and players.
  • The new Act establishes the approval process of stock exchange in Papua New Guinea. The previous Securities Act of 1997 did not provide the procedures and process in the  approval of the  stock  exchange,  the  approval  processes  include  fit and  a proper person’s test of the proposed directors, the establishment of a market infrastructure,  which is the Port Moresby Stock Exchange and its governance and regulations,  establishment of the approval process of a derivative exchange and market in Papua New Guinea.
  • The previous Securities Act did not provide provisions for the establishment of a derivative exchange in Papua New Guinea. The new Act provides the avenue for the establishment of a derivative exchange and market. Derivative in the form of warrants and options have already been  issued  on the  Port Moresby Exchange  by  a few companies, however,  Port  Moresby  Stock  Exchange  is  not  the  right  exchange  to  issue  and  lease derivative therefore it is only better to have the necessary provisions under law that will enable the licensing and establishment of a derivative exchange.  This will further grow the capital market in Papua New Guinea licensing of Market Intermediaries.
  • The previous law did not provide for the licensing of market intermediaries such as  stock  brokers  and  dealers,   investment  advisors,   fund  managers, trustees, underwriters and credit rating agencies by the commission.
  • The previous practice was that  the  Port  Moresby  Stock  Exchange  licensed  the stock  brokers  under  its  listing  rules  and  as  a result  the POMSox  has  been  a  very  closed market.  The  new Act  allows  the  commission  to  issue  licenses  to  all  market intermediaries including the Port Moresby Stock Exchange and regulate their conduct.  This will allow the market to be open to many new market entrants.

 Screening process for approval of initial public offering or issue of shares to the public

  • The new Act provides clear procedures and processes of screening and approval  for prospectors so that whatever the financial products that is issued to the public through an (IPO) is a genuine product and will add value to the capital market in PNG.

Approval of sale of assets by companies

  • Under the previous Act there is no provision where approvals can be given where the listed company decides to sale  its assets.  The new Act provides for the entity to provide notification to the  commission, in respect of any  sale  of assets  of a  company  that  would significantly affect the company’s business operations and its sovereignties.

Unit trust and manage security investment schemes:

  • The provisions in respect of Unit Trusts in the new Act were crafted as  a  result  of the  experiences  of the   infamous   Investment Corporation Fund of PNG or the now Pacific Balance Fund. 

Take-over and Mergers:

  • The new Act provides clear processes on take-over and measures  of companies and empowers the commission to preside over take-over process.
  • Under the previous Act, the processes were not clear and provided for the formulation and approval take-overs and mergers code. The provisions in the new Act also provides for the commission to apply principles of national interest in any take-over, mergers or sale of assets of a company.

The Compensation Fund:

  • The new Act provides for a compensation fund to be established and maintained by the stock exchange to compensate investors who may become victims of negligence, neglect of a license-holder, the fund comprises of levies paid by the license-holders as a condition of license.

Disclosure by chief executive officers:

  • The new Act provides clear processes whereby CEO’s  and senior managers of listed companies are to declare and disclose their interest in the securities of shares of listed companies to the commission. This is to avoid fraud instead of trading and market manipulation by company’s insiders.

Capital Development Fund:

  • The new Act provides for the establishment  of a capital market  development  fund  which  is  intended  to  educate  Papua  New  Guineans  about  the capital market and its business. This allows for the commission to work closely with the universities and other educational institutions and with the provinces to educate Papua New Guineans on the procedures and processes to have access to the capital or stock market and participate  in the buying and selling of shares and other securities that are on offer  on the market.
  • The previous law did not provide for  clear provisions  where penalties could be imposed  against breaches of the law.  The new Act provides  for clear penalties that will impose on persons who breach the provisions of the law.
  • The primary purpose of the new Act is to establish a proper stock and deliveries market infrastructure  in PNG.  The market infrastructure includes licencing  and regulating  of the  stock  exchange,   stock  brokers,  affiliates,   investment   advisors,   fund managers, trustees, underwriters, credit rating agencies and other market intermediaries.
  • The new Act allow for the growth of the capital market in Papua New  Guinea to a new height. The markets will allow ordinary Papua New Guineans to have access to alternative sources  of investments  and long term funding for capital raising for Papua New Guinea investors  and companies. This will also enable ordinary Papua New Guineans to participate to buy and sell shares freely and competitively on the stock market or dirivitives market.

CENTRAL DEPOSITORY ACT 2015

  • The Central Securities Depository Act 2015 is intended  to improve the overall efficiency and transparency of the market structure at the Port Moresby Stock Exchange.
  • The Act establishes a central depository for the first time in Papua New Guinea.
  • The previous Securities Act 1997 did not provide the procedures and process for the establishment of a  central    The new Act  allows  for  the  approval  and establishment  of a  Central  Depository.  The  establishment  of a  Central  Depository  complements the establishment of the Port Moresby Stock Exchange.  It provides a clear and transparent essential  security depository for deposits to clear the settlement of trade of shares on the Port Moresby Stock Exchange.  The previous Act did not allow share certificates to be used to trade on the Port Moresby Stock Exchange.
  • The Companies Act of 1997 allows for the issuance of certificates to shareholders, however, the previous law did not allow those certificates to be used to trade on the Port Moresby Stock Exchange.
  • The new Act and the central depository established under the new Act provides provisions where fiscal share certificates are deposited with the central depository and the depository will control shares as credible securities on the market.
  • The new Act also provides for processes where a person can also reconvert the trade coupon or receipt back to certificates. The new Act also provides for the security provisions for unauthorised access to commercially sensitive market information  by third parties.
  • The provisions of the new Act also provides for the powers of the commission to conduct investigations into alleged breaches of the provisions  Act.  The primary purpose of the new Act is to  establish a proper  central securities depository to complement the Port Moresby Stock Exchange to provide depository clearing and settlement services on all the securities and stocks traded on the Port Moresby Stock Exchange.

The Securities Commission Act 2015

Securities Commission Act 2015 establishes the Securities Commission of PNG.

You can download the Securities Commission Act 2015 here

The Capital Markets Act 2015

Capital Markets Act 2015 establishes capital market infrastructures, provisions to issue licenses to market intermediaries, and regulates issuances of securities, bonds, and derivatives to the public.

You can download the Capital Markets Act 2015 here

The Central Depositories Act 2015

Central Depositories Act 2015 ensures to improve efficiency and transparency of the capital market infrastructures in PNG.

You can download the Central Depositories Act 2015 here

The Securities Act 1997 (repealed)

Securities Act 1997 was repealed and the establishes the three (3) securities legislations in 2017.

You can download the Securities Act 1997 (repealed) here