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- As a result of the foregoing issues, the Securities Act 1997 was repealed in 2015, and in its place, three new legislation were introduced: The Securities Commission Act, the Capital Markets Act 2015 and the Central Depositories Act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 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.