The new Securities Industry Act, 2011 (the "New Act") was passed in the House of Assembly on 18 April 2011 and was approved by the Senate. The date of assent for the New Act was 1 June 2011, and an appointed day should be specified within the upcoming months. The Securities Industry Regulations, 2011 (the "Regulations") have also been published and are expected to be signed by the Minister simultaneously with the coming into force of the New Act.
The New Act will allow The Bahamas to position itself to attract more securities business by becoming a Signatory 'A' member of the International Organization of Securities Commissions ("IOSCO"), the global body for securities regulators. Among other innovative changes, the New Act modernizes the regulation of the securities industry in a manner consistent with international best practices, enhancing the powers of the Securities Commission of The Bahamas (the "Securities Commission"), and resolving the deficiencies in the former Securities Industry Act, 1999 (the "Old Act") identified by the International Monetary Fund. The result is intended to safeguard investors from fraudulent, unfair, or improper practices and to promote fair and efficient capital markets and confidence in the capital markets in The Bahamas. The defined purposes of the New Act are investor protection, fair and efficient markets, systemic stability, fostering investor education, and reducing the misuse of regulated businesses for financial crime.
Importantly, the New Act clarifies the definition of securities and the activities that would mandate registration with the Securities Commission. The New Act is a more comprehensive legislative framework, where the principal legal obligations are embodied in the Act itself, and detailed requirements are prescribed by the Regulations or the Rules of the Securities Commission. This is particularly important as the securities industry involves active changes, which require the Securities Commission to respond rapidly.
Outlined below are key changes to the Old Act effectuated by the New Act.
The obligation to register with the Securities Commission will now arise in respect of the carrying on of "securities business" in or from within The Bahamas. The categories of activities which constitute securities business are the following:-
- dealing in securities;
- arranging deals in securities;
- managing securities, and
- advising on securities.
Entities incorporated in The Bahamas whose sole securities business is the provision of advisory or management services to one or more investment funds licensed or registered with the Securities Commission as standard, professional or SMART funds and entities engaged in carrying on securities business exclusively for one or more affiliated companies will not be subject to register under the New Act.
Firms will be registered to carry on one or more of the categories of securities business and will no longer be classified as Class I, II, IIII or IV broker dealer or a securities investment advisor. Class I broker dealers registered under the Old Act will be authorized to carry on all categories of securities business. Class II broker dealers registered under the Old Act will be authorized to carry out all categories of securities business, other than buying, selling, subscribing for or underwriting securities as principal. Securities Investment advisors registered under the Old Act will be authorized to engage in managing and advising on securities. Securities investment advisors and broker dealers registered under the Old Act will not need to re-register with the Securities Commission.
Under the Old Act, international business companies were not eligible to apply for registration as a broker dealer. These companies will now be eligible to apply for registration to conduct securities business.
Categories of Registration for Individuals
Individuals will no longer be registered as principal, broker, stock-broker, or securities investment advisor. The new categories of registration for individuals are chief executive officer, compliance officer, trading representative, discretionary management representative, or advising representative. All individuals wishing to be registered under the New Act must be employed by a registered firm.
Prospectus Disclosure Regime
The New Act provides for key changes to the prospectus disclosure regime. The New Act requires the filing of both a preliminary prospectus and a prospectus with the Securities Commission where a trade in a security would be a "distribution" of that security, unless an exemption from the requirement to file applies. "Distribution" is defined under the New Act as including a trade in the security of an issuer that has not previously been issued or a trade in a previously issued security of that issuer that has been redeemed, purchased or donated by that Issuer. Once the Securities Commission has issued a receipt for the preliminary prospectus, the issuer can solicit expressions of interests and distribute the preliminary prospectus. No binding agreement can be entered into for the purchase of securities until the Securities Commission has issued a receipt for the prospectus.
The following offerings are exempted from the requirement to file a preliminary prospectus and a prospectus:-
- offerings to employees;
- offerings by approved foreign issuers; and
- "private placement" offerings by operating companies to accredited investors only ("private placement offerings").
Abbreviated filing requirements will apply in the case of offerings by approved foreign issuers and private placement offerings.
The Old Act failed to contain any regulations relating to take over bids, and the New Act cures this absence by providing that take over bids by public issuers must be conducted in accordance with the prescribed Regulations or Rules of the Securities Commission. The Securities Commission has indicated that the draft rules relating to take over bids will be circulated for consultation once the New Act comes into force.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.