regulations & governance

The Securities Act 2005 has come into force on September 28, 2007 by proclamation. The new Act seeks to enhance and upgrade the existing securities legislation in Mauritius. It provides a wider and deeper coverage of the securities market and is based on standards recommended by the International Organisation of Securities Commissions (IOSCO). The main object of the Securities Act 2005 is to ensure a fair, efficient and transparent securities market and most importantly, to strike an appropriate balance between the protection of investors and the interest of the securities market. It establishes a framework for adequate regulation of securities market, market participants, self-regulatory organisations and for the offering and trading of securities. The Securities Act 2005, which replaces the Stock Exchange Act 1988, draws on modern legislation in other jurisdictions and is based on up-to-date regulatory and supervisory standards. The Securities Act is complemented by a number of regulations and rules on various aspects of securities market operations.

A review of all the existing rules of the SEM has been undertaken to ensure consistency with the new legal and regulatory requirements. Section 158 of the Securities Act states that: “Rules made by the SEM under the Stock Exchange Act and in force immediately before the commencement of this Act, shall remain in force until new rules as approved by the Commission are issued.” The SEM has adopted a Compliance Manual which sets out the regulatory obligations of the SEM as a licensed securities exchange to ensure full compliance with the new legal and regulatory requirements.

The scope of the SEM’s regulatory responsibilities has been extended under the new Act, as compared to those under the previous legislation. Consequently, SEM is required to play a more important role as a front-line regulator of the market and eventually as a self-regulatory organization, if so declared by the regulator. One of the main priorities of the SEM after the coming into force of the legislation is reviewing the resourcing requirements and re-organisation of some of some of its key departments. The SEM has also set up new structures e.g., a new Listing Executive Committee and Disciplinary Committee as well as procedures in order to properly discharge its responsibilities and obligations under the new legal and regulatory framework efficiently.

The regulatory functions of the SEM include:

Issuer Regulation

Review of listing applications and monitoring on-going compliance of listed issuers with the listing requirements of the Exchange.

Supervision of Market Participants

In addition to monitoring the trading activities of Market Participants, SEM also conducts on-site inspections of Market Participants to ensure their compliance with the rules and requirements of the exchange. The SEM may inspect the books, records and accounts of Market Participants and to take such action as it deems appropriate after such inspections.

Where it appears that a Market Participant may have failed to comply with any of the provisions of the law or the Rules of the Exchange, the Compliance Department of the SEM shall immediately notify the Market Participant concerned of such failure and request an explanation. Depending on the seriousness of the breach, SEM may require the Participant to take remedial action within a specified delay or take such disciplinary action as permitted under the rules.

SEM also monitors on an on-going basis the financial health of Market Participants to ensure that they have adequate capital for their operations in accordance with the Stock Exchange (Financial Reporting of Investment Dealers) Rules 2010 (Rules on Capital Adequacy). Participants must file financial reports with the SEM periodically. In addition, they are also required to lodge with the SEM, their annual audited accounts.

Market Participants

Section 13(2)(d) of the Securities Act 2005 provides that a securities exchange may make rules, not inconsistent with the Act, any regulations made under the Act or any FSC Rules, with regard to enforcement and disciplinary procedures and sanctions to be applied.

Where the SEM suspects a breach of the rules of the Exchange by a Market Participant or any of its directors, employees or ATS Operators, SEM shall enquire into the alleged misconduct. The breaching party may be requested to take appropriate remedial action or disciplinary action may be initiated depending on the seriousness of the breach. The matter will also be reported by SEM to the FSC.

Listed Issuers

If the SEM considers that an issuer has contravened the Listing Rules it may do one or more of the following:

• censure the issuer, which may include a formal written notice of censure being served upon the issuer and the requirement that the issuer provide a written explanation of its actions to the SEM and an undertaking to rectify the breach immediately;
• publish the fact that the issuer has been censured for failing to comply with the Listing Rules;
• refer the matter to the FSC for appropriate action; and
• where applicable, suspend or withdraw a company from the Official List of the SEM.

Similar sanctions apply to DEM companies for contravention of the Rules for the Development & Enterprise Market (DEM Rules).