§ 9.1 p.m.
§ Lord Brabazon of Tara rose to move, that the draft order laid before the House on 24th February be approved [19th Report from the Joint Committee].
§ The noble Lord said: My Lords, this order specifies circumstances in which the price of an investment may be stabilised in accordance with rules made by the Securities and Investments Board without contravening Section 47(2) of the Financial Services Act. It may be helpful if I were to explain the background to this order.
§ When a large offering of securities is made it is conventional for certain measures to be taken by or on behalf of the underwriters of the offering in order to prevent short-term disruption of the price. If properly regulated those activities can promote an orderly market. However it is possible that some of those actions might in the absence of specific provision be regarded as technically in breach of Section 47(2). Section 48(7) therefore provides that Section 47(2) is not to be regarded as breached by anything done in accordance with rules made by the SIB under Section 48(2)(i) for the purpose of stabilising the price of an investment falling within paragraphs 1 to 5 of Schedule 1 during a period before or after the issue of those investments. The board's rules on this subject are contained as Part 10 of its conduct of business rules. It contains provisions to ensure that investors are alerted to the fact that stablisation activities may be engaged in.
§ Stabilisation activities are also sometimes carried out when a security is offered for sale otherwise than 1122 at the time of its issue. The effect on the market of such offerings is the same as the effect of an issue. Section 48(8) therefore permits the Secretary of State to make an order amending Section 48(7) so as to extend or restrict the exemption from Section 47(2) for conduct in accordance with the SIB's rules. This order defines those offerings which are closest in nature to an original issue and permits the price to be stabilised in accordance with the SIB's rules.
§ It is important to emphasise that nothing in the order or the rules will permit the making of misleading statements or the dishonest concealment of material facts in connection with an offering, because the order does not provide an exemption from the offence in Section 47(1). I beg to move.
§ Moved, That the draft order laid before the House on 24th February be approved [19th Report from the Joint Committee].—(Lord Brabazon of Tara.)
§ Lord Williams of ElvelMy Lords, the House will again be grateful to the noble Lord for presenting this draft order. In his introduction he has answered one of the questions that I had as to whether Section 47(1) would still apply. The answer is yes. I think it is important for the House and the public to know that fact. I hope that he will confirm my understanding of what he said, that this order covers secondary offers as well as primary offers; I think I understood from the text of the order and from what he said that it did and I trust that he will confirm that.
I have two remaining questions. First, why should the order specify "the 30th day"? Is there precedent for that or is there some magic to that date after the end of a certain period? And should there be any terminal date, what is the reason behind it? Secondly, would the noble Lord care to give the House a definition of,
any other exchange of repute",which is in the new subsection (7A) introduced by the order? We understand what "a recognised investment exchange" is because it is defined—or at least the criteria for it are in the Act, but I see nothing in the Act, unless my memory is sadly mistaken, as it may well be, which defines,any other exchange of repute".
§ Lord Brabazon of TaraMy Lords, the answer to the noble Lord's first question about secondary offerings is yes. The order is concerned with secondary offerings, as I think I made clear in my opening remarks when I said that stabilisation activities are also sometimes carried out when a security is offered for sale otherwise than at the time of issue.
As to why we chose the 30th day, it is a feature of Section 48(8) that the order must specify a period. The period extending to the 30th day after the offer confirms with the SIB's rules on the matter. That of course does not fully explain why the 30th day was chosen, but it is the reason for it.
As regards the definition of,
any other exchange of repute",this term is used in the Companies Act. It is also referred to elsewhere in the Financial Services Act, and therefore I believe it is already a clearly defined expression. It is not anything especially new.
§ Lord Williams of ElvelMy Lords, perhaps I may point out to the noble Lord that the phrase may be referred to in the Companies Act but, because we have a new Act defining financial services and investment exchanges which goes into great detail about what a recognised investment exchange is and what criteria it has to meet, to introduce an expression from the Companies Act, the consolidation of which was before the Financial Services Act, introduces a term of art which existed before the Financial Services Act but which is not relevant to the Financial Services Act itself.
§ Lord Brabazon of TaraMy Lords, I said that the expression was also referred to in the Financial Services Act. I have no doubt that when the Bill went through your Lordships' House there was an opportunity to raise that matter.
§ Lord Williams of ElvelMy Lords, I recognise that my memory of this large Act is insufficient. Will the noble Lord point me to the schedule or section in the Act which mentions "exchange of repute"? I am sure that he is right, but I have forgotten about it.
§ Lord Brabazon of TaraMy Lords, if the noble Lord cares to turn to paragraph 23 on page 282 he will find the expression there. However, I shall look into the point that he has raised and as I said earlier I shall write to him on any points of detail that he has raised.
On Question, Motion agreed to.