In this regulatory round-up, US regulator the Securities and Exchange Commission (SEC) comes down on firms over market manipulation and securities fraud, while work is underway across Asia Pacific (APAC) to shore up corporate governance code in Hong Kong, and admit a Bitcoin ETF in Oz. Elsewhere, EU regulator ESMA has appointed new members to its securities and markets stakeholder group.
- SEC charges Meta Materials with market manipulation, fraud
- CFTC approves capital comparability determinations for non-US nonbank swap dealers
- Terraform and founder Kwon to pay $4.5bn in securities fraud case
- Stock Exchange of Hong Kong enhances corporate governance code
- ASX admits first Bitcoin ETF
- Laser Digital completes Abu Dhabi licensing process
- ESMA appoints new members to its securities and markets stakeholder group
- ESAs propose improvements to the sustainable finance disclosure regulation
- FIA and Acuiti release report on European listed derivatives markets
- AFME stresses jurisdictional coordination amid EU implementation of Basel III standards
- GDF, ANNA and DTIF collaborate to establish digital asset standards
Americas
SEC charges Meta Materials with market manipulation, fraud
The US Securities and Exchange Commission has filed charges against Meta Materials and its former CEOs, John Brda and George Palikaras, over a concerted market manipulation scheme, which raised US$137.5 million from investors in an at-the-market (ATM) offering in June 2021 immediately prior to the merger of Brda’s Torchlight Energy Resources and Palikaras’ Metamaterial that formed Meta Materials.
The SEC’s complaint alleges that Brda and Palikaras conducted the manipulative scheme that included, among other things, issuing a preferred stock dividend immediately before the merger. The complaint alleges that Brda and Palikaras told certain investors and consultants that the dividend would force short sellers to exit their positions and trigger a “short squeeze” that would artificially raise the price of the company’s common stock.
While investors held or bought the company’s common stock to receive the dividend, the complaint alleges, the company was cashing in by selling US$137.5 million in an ATM offering at prices that the company, Brda, and Palikaras knew were temporarily inflated by their manipulative scheme.
“The conduct we allege was a sophisticated, yet brazen plan by a public company and its former CEOs to purposely mislead investors in the company’s stock,” said Eric Werner, director of the SEC’s Fort Worth regional office. “This conduct is particularly alarming because it involves public company CEOs who were more concerned with ‘burning the shorts’ than creating long-term value for shareholders.”
The SEC’s complaint charges Brda and Palikaras with violating the antifraud and proxy disclosure provisions of the federal securities laws, and charges Brda with aiding and abetting Meta Materials’s violations of the reporting, internal accounting controls, and books and records provisions. Meta Materials was ordered to cease and desist from violations of the relevant provisions of the federal securities laws and to pay a US$1,000,000 penalty.
CFTC approves capital comparability determinations for non-US nonbank swap dealers
The Commodity Futures Trading Commission (CFTC) announced today it has approved four comparability determinations and related comparability orders granting conditional substituted compliance in connection with the CFTC’s capital and financial reporting requirements to certain CFTC-registered nonbank swap dealers domiciled in Japan, Mexico, the European Union (France and Germany), or the United Kingdom.
Pursuant to the orders, non-US nonbank swap dealers subject to prudential regulation by the Financial Services Agency of Japan, the National Banking and Securities Commission of Mexico and the Mexican Central Bank, the European Central Bank, or the United Kingdom Prudential Regulation Authority may satisfy certain Commodity Exchange Act capital and financial reporting requirements by being subject to comparable capital and financial reporting requirements under the respective foreign jurisdiction’s laws and regulations, subject to specified conditions.
To rely on a comparability order, an eligible non-US nonbank swap dealer must notify the CFTC of its intention to satisfy the CFTC’s capital and financial requirements by substituted compliance.
Terraform and founder Kwon to pay $4.5bn in securities fraud case
The US SEC has fined crypto firm Terraform and CEO Do Kwon more than $4.5 billion over “one of the largest securities frauds in U.S. history”.
Kwon and his firm Terraform orchestrated a years-long fraud involving crypto asset securities that led to “devastating” investor losses when the scheme unravelled.
SEC chair Gary Gensler said: “The economic realities of a product—not the labels, the spin, or the hype—determine whether it is a security under the securities laws.
“Terraform and Do Kwon’s fraudulent activities caused devastating losses for investors, in some cases wiping out entire life savings. Their fraud serves as a reminder that, when firms fail to comply with the law, investors get hurt,” Gensler added.
APAC
Stock Exchange of Hong Kong enhances corporate governance code
The Stock Exchange of Hong Kong, a subsidiary of Hong Kong Exchanges and Clearing (HKEX), has published a consultation paper outlining proposed enhancements to the Corporate Governance Code (Code) and related Listing Rules.
HKEX head of listing, Katherine Ng, said: “At HKEX, we are committed to driving the long-term growth and attractiveness of our markets by further elevating the quality of our issuers, and promoting strong corporate governance practices is a key part of our approach. We are therefore pleased to be presenting for consultation the latest proposed enhancements to the Corporate Governance Code. This will ride on the success of our efforts to ban single-gender boards – which will take full effect from the end of 2024 – further helping issuers to create a more diverse boardroom and strengthen risk management and internal controls.”
Key proposals include: Board effectiveness improvements; promoting diversity; enhancing risk management and internal controls; and better capital management.
The proposed amendments will apply to corporate governance reports from 1 January 2025.
ASX admits first Bitcoin ETF
The Australian Securities Exchange (ASX) has authorised its first spot Bitcoin exchange-traded fund (ETF).
The admission of the VanEck Bitcoin ETF (ASX:VBTC) comes as crypto assets, such as Bitcoin and Ether, increasingly move into the investment mainstream, supported by increased regulatory guidance around the product category and growing consumer demand, the exchange said.
Andrew Campion, general manager, investment products and strategy, said: “At ASX, a key part of our role is to ensure that investors can have confidence in trading securities and have certainty in the structure of their holdings. To achieve this, we’ve been working on bringing a crypto asset ETF to market for a number of years, including establishing a new category of permissible underlying assets for ETFs in August 2022 which includes Bitcoin and Ether.
“As the demand for digital assets continues to grow, we are proud to offer a regulated avenue for Australian investors to access the crypto asset market,” Campion said.
EMEA
Laser Digital completes Abu Dhabi licensing process
Digital asset business Laser Digital has been granted a Financial Services Permission (FSP) by the Regulatory Authority of Abu Dhabi. This completes its licensing process with Abu Dhabi Global Market (ADGM).
With this approval, Laser Digital can provide broker-dealer, asset and fund management services for both virtual and traditional assets in and from ADGM. The firm’s UAE business is led by Jez Mohideen, with Ramin Shayesteh serving as head of distribution.
Backed by Nomura, Laser Digital provides scalable opportunities in trading, solutions, asset management and ventures.
ESMA appoints new members to its securities and markets stakeholder group
The European Securities and Markets Authority (ESMA), has appointed new members to its Securities and Markets Stakeholder Group (SMSG). On 1 July 2024 the new members will start their four-year term, during which they will provide ESMA with advice on its policy work and will be consulted on technical standards and guidelines.
ESMA chair Verena Ross said: “ESMA works to enhance investor protection, build more effective and attractive capital markets in the European Union and safeguard financial stability.
“This is why I look forward to hearing the SMSG members’ perspectives on market developments and to receiving valuable advice on numerous files under ESMA’s remit.”
ESAs propose improvements to the sustainable finance disclosure regulation
The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have called for a coherent sustainable finance framework that caters for both the green transition and enhanced consumer protection, taking into account the lessons learned from the functioning of the Sustainable Finance Disclosure Regulation (SFDR).
The ESAs focus on ways to introduce simple and clear categories for financial products. The simplifications consist of two voluntary product categories, “sustainable” and “transition”, that financial market participants should use to ensure consumers understand the purpose of the products. The rules for the categories should have a clear objective and criteria to reduce greenwashing risks.
The ESAs recommend that the European Commission consider the introduction of a sustainability indicator that would grade financial products such as investment funds, life insurance and pension products.
FIA and Acuiti release report on European listed derivatives markets
FIA has released a report on the challenges and opportunities facing the European listed derivatives markets. The report is based on responses to a survey conducted recently by Acuiti, a market intelligence firm, that gauged industry sentiment regarding the key trends, opportunities and challenges facing the industry in Europe.
Acuiti surveyed more than 100 individuals at a variety of firms active in Europe, including clearing brokers, asset managers, hedge funds, principal trading firms, exchanges and software vendors. The survey asked for opinions on current trends as well as the outlook for the next five years.
The survey found that the industry is optimistic about the potential for growth and innovation in Europe, but also aware that other parts of the world may offer better growth prospects. The survey also found a high level of concern about existing and prospective regulations as well as the aftereffects of Brexit.
Walt Lukken, FIA president and CEO, said: “To better serve the exchange-traded and cleared derivatives markets, FIA is keenly interested in understanding the dynamics of growth and innovation at both the regional and global level. Many of our most important members are based in Europe, and we are delighted to partner with Acuiti on this initiative to understand how the industry sees the outlook for this region.”
AFME stresses jurisdictional coordination amid EU implementation of Basel III standards
The Association for Financial Markets in Europe (AFME) has welcomed the publication of the CRR3 and CRD6 proposals in the Official Journal of the EU (OJEU) and its upcoming entry into force in early July, which marks the implementation of the final Basel III rules in Europe.
AFME supports the EU Commission’s decision to activate the delegated act for the Fundamental Review of the Trading Book (FRTB), which it considers “highly relevant” in ensuring a more consistent timeline for the FRTB implementation across the world.
Caroline Liesegang, head of capital and risk management at AFME, said: “This package strengthens banks’ resilience and recognises their role in financing the economy. European banks are much better capitalised already, and the increased resilience was effectively demonstrated in 2023 following some stress events in the global banking system.
“AFME therefore calls on decision makers to resist further increases in capital requirements in the coming years as the banking sector goes through an important implementation phase. In fact, while the industry pools its capacity to finance, in particular, the digital and green transition, we encourage regulators to begin thinking of targeted adjustments to the regulatory framework that would also future proof the real economy,” Liesegang added.
World
GDF, ANNA and DTIF collaborate to establish digital asset standards
Global Digital Finance (GDF) has partnered with the Association of National Numbering Agencies (ANNA) and the Digital Token Identifier Foundation (DTIF) to establish standardised identification data and best practices within the digital asset industry.
Through the partnership, GDF, which provides a platform for digital asset innovation in financial services, stated that it aims to improve awareness and adoption of market standards that support stronger, transparent and more efficient bridges between TradFi and the digital asset ecosystem.
This partnership follows the ANNA-DTIF Task Force, established in 2021, which aims to ensure a complementary relationship between the International Securities Identification Number (ISIN) and Digital Token Identifier (DTI) ISO standards. In 2023 the initiative expanded to cover new ISINs assigned by ANNA (XT ISINs), based on DTIs for digital assets that are not financial instruments.
©Markets Media Europe 2024
