Newsletter
REGULATIONS GOVERNING SECURITIES INVESTMENT TRUST FUNDS REVISED
On 30 May 1999, the Securities and Futures Commission (SFC) announced revisions to the Administrative Regulations Governing Securities Investment Trust Funds. The revisions are summarized as follows:
Clarifying application procedures for securities investment trust enterprises (SITEs) to establish securities investment trust funds and the SFC's examination time limits, examination guidelines, and standards for approval, rejection and cancellation.
Adding a requirement that applications for establishing funds include check lists completed by SITEs and reviewed by legal or accounting professionals. This requirement is intended to increase the quality of documentation used to establish funds and further the liberalization and internationalization of SITEs by drawing upon the foreign practice of reviewing application documents by attorneys and accountants.
Based on the past experience in fund raising, to simplify and revise plans for issuance of securities investment trust funds, the trust contracts, and contents of the fund beneficiary certificates to be filed by SITEs on their application for establishing new funds or raise additional funds according to the important nature of each application documents.
Adding a requirement that securities investment trust funds must start to raise capital within a certain period of time following approval of the funds.
Revising the investment scope of securities investment trust funds to include securities and securities-related products. The revision is necessary to conform to Article 2 of the Regulations for Securities Investment Trust Enterprises regarding the scope of operations of securities investment trust enterprises.
Revising the prohibition that a fund may not invest in more than a certain percentage of "shares" of a listed or over-the-counter company to read "shares and corporate bonds". The change is intended to spread the investment risk of funds. In addition, a provision was added to the regulations stating that investments in a company's unsecured corporate bonds may not exceed a certain percentage of the total debt. The scope of interested parties was also revised in the regulations to prevent conflicts of interest and protect the rights of the investing public.
Revising the qualifications of fund custodians. Bank that have a certain interested relationship with a SITE may not be fund custodians. The change was made to prevent conflicts of interest and ensure the safety of fund capital.
Extending the fund dividend distribution period from three months following the end of the accounting year to six months thereafter. The change was made to prevent the distribution of dividend by the fund from creating selling pressure in the market. In addition, a provision was added requiring that dates for fund dividend distributions be provided in securities investment trust contracts. The requirement was added to avoid SITEs from concentrating distributions in June of each year.