7 July, 2015
The Monetary Authority of Singapore (“MAS”) has observed that prospectuses have become lengthy and are often drafted in a technical, convoluted or legalistic manner. As a result, even though prospectuses may contain comprehensive disclosures, retail investors often find them challenging to read and understand. MAS has issued consultation papers with proposed guidelines for simplification of prospectuses, discussing the below key measures.
Extension Of The Requirements For A Product Highlights Sheet
A product highlights sheet (“PHS”) is a simplified disclosure document highlighting the key features and risks of an investment. Previously, the PHS was required only for offers of investment products that are considered more complex in nature, such as asset-backed securities, structured notes, unlisted collective investment schemes and exchange traded funds. The PHS requirement will now be extended to debt securities, hybrid instruments and equity securities, as it would facilitate clearer and more effective disclosures to help investors make informed investment decisions. To smoothen the adoption of the PHS proposals by market practitioners and issuers, MAS has implemented the proposals through a set of guidelines applicable to offers of debt securities, hybrid instruments and equity securities (“PHS Guidelines”) . Key points to note in the PHS Guidelines are:
- Appendices to the guidelines set out different PHS templates for debt securities, hybrid instruments and equity securities;
- The use of diagrams and illustrations, such as graphs, charts, flowcharts and tables, to present information in the PHS is encouraged;
- Information in the PHS should be set out in a clear and simple language, and technical terms should not be used; and
- The guidelines set out maximum page limits for the PHS.
The PHS Guidelines will apply to offers of debt securities, hybrid instruments and equity securities for which prospectuses or offer information statements (where applicable) are submitted or lodged with MAS on or after July 1, 2015.
Incorporation Of Information By Reference Into The Prospectus
Section 239(2) of the Securities and Futures Act (“SFA”) deems information stated in a report or memorandum that is referenced in the prospectus to be part of the prospectus, and such information would be subject to prospectus liabilities. The SFA does not permit information not contained in the prospectus to be incorporated in the prospectus by reference. Due to the growing thickness of prospectuses, MAS plans to expand the type of information that may be incorporated by reference. This would include the list of directorships held by executive officers of the issuer in other corporations, expert reports and information on relevant laws or regulations applicable to the issuer. As this will require amendments to the SFA, MAS will be consulting on the draft amendments prior to its implementation.
Regulatory Guide To Highlight Common Drafting Problems
The MAS invited comments and feedback on its proposed guidelines on good drafting practices for prospectuses until March 13, 2015. The proposed guidelines provide for adherence to the following when drafting a prospectus:
Use Of Plain English: The use of plain English is setting out information in a clear, concise and effective manner so that investors would be able to understand the information at their first reading. General practices for the use of plain English include, among others:
- using the active voice;
- using plain, everyday words;
- avoiding the use of legal, financial or technical business jargons;
- using short sentences; and
- not “cutting and pasting” contractual terms in their entirety from legal documents.
Present Information In A Clear, Concise And Logical Manner: Clear, concise and logical presentation enhances the effectiveness of plain English, allowing investors to navigate and grasp information disclosed in the prospectuses quickly and easily. Examples for achieving this include:
- depicting information visually in the form of diagrams and charts;
- using bullet points;
- using examples to illustrate complicated information and concepts;
- using an effective layout;
- using descriptive headings and sub-headings;
- presenting information in a logical order; and
- presenting information in a balanced manner.
Keeping The Length Of The Prospectus As Short As Necessarily Possible: Prospectuses that are shorter in length are generally easier to read all the way through. To this end, redundant information should be removed from the prospectus and cross-references should be used for information contained elsewhere in order to reduce repetition.
For further information, please contact:
Krishna Ramachandra, Partner, Duane Morris & Selvam
kramachandra@duanemorrisselvam.com
