On 26 Sep 2024, the HKMA revised SPM module CR-L-4 to align underwriting exposure rules with the Basel Framework, repealing the previous exemption that allowed underwriting commitments to bypass Part 7 of the BELR's 25% single-counterparty limit. Banks must now monitor all underwriting exposures against statutory limits and implement board-approved policies, with strict criteria for extending the seven-working day exemption period for securities disposal.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
Market Misconduct Tribunal: A Guide to Penalties and Other Consequences for Misuse of Insider Information
Market Misconduct Tribunal proceedings for mishandling of insider information can result in fines and disgorgement orders
SFO, s. 300: Fraudulent & Deceptive Conduct Provisions to Combat Insider Dealing and Other Misconduct
The Court of Appeal decision in Securities and Futures Commission v. Young Bik Fung confirmed that insider dealing as well as other market misconduct could be r
SPOTLIGHT ON
FAMILY OFFICES
Introduction
On 26 Sep 2024, the Hong Kong Monetary Authority (HKMA) issued revised Supervisory Policy Manual (SPM) module CR-L-4 'Underwriting of Securities' (V.3), superseding previous guidelines dated 1991, 2001, and 2019. The revision updates regulatory treatment of underwriting activities to align with the Basel Framework and clarifies exposure limits for banking institutions.
Key Regulatory Changes
The revised guidelines repeal the local exemption under rule 48(1)(f) of the previous Banking (Exposure Limits) Rules (BELR), requiring all underwriting and subunderwriting exposures to comply with Part 7 of the BELR. Consequently, aggregate exposures to single counterparties or linked groups must not exceed 25% of Tier 1 capital (15% for local G-SIBs), with no exemption for securities acquired under underwriting contracts.
Underwriting Policy Requirements
Banks must establish a board-approved underwriting policy covering: (1) approved transaction types; (2) individual/aggregate limits considering existing exposures; (3) case-by-case approval criteria; (4) subunderwriting commitment arrangements; and (5) disposal mechanisms to avoid concentration limit breaches post-exemption period. The HKMA will review these policies during risk-based supervision.
Exemption Period and Extensions
The seven-working day exemption period for securities acquired under underwriting contracts remains, but extensions beyond this period are strictly limited to exceptional circumstances (e.g., natural disasters, extreme market conditions causing fire sales). Extensions, approved by the HKMA, typically do not exceed three months and require written application.
View the full article:Source
