Most investors meet the exchange only through a broker’s contract note or a newspaper price. Behind that sits Part II of the Capital Market Act 2015, which decides who may run a securities market in Papua New Guinea.
Only approved markets may operate
A person shall not establish, operate or maintain, or assist in establishing, operating or maintaining, or hold himself out as providing, operating or maintaining, a stock market that is not (a) a stock market of a stock exchange; or (b) an exempted stock market; or (c) a registered electronic facility under Section 27(1).
“Stock market” is defined widely in section 2: any place or facility where offers to buy, sell or exchange equity securities, debt securities or units are regularly made, or where their prices are regularly published. A promoter who sets up an online board for trading units in a managed fund needs one of the three lawful forms. The Commission may declare an exempted stock market by Gazette order (section 8(3)), and the Bank of Papua New Guinea’s systems for unlisted debt securities in Schedule 1 are deemed exempt (section 8(4)). Breach carries a fine of up to K10,000,000 or ten years’ imprisonment, or both.
How a stock exchange is approved
A body corporate applies in writing and the Commission approves it by Gazette notice, subject to conditions (section 9). The Commission must be satisfied that the exchange will run an orderly and fair market, manage its risks prudently, put investors’ interests first, be able to discipline its participating organisations, have rules covering listing and dealing, and have sufficient financial, human and technical resources (section 9(2)). Conditions may be amended at any time (section 9(4)). PNGX Markets Ltd holds the only approval; POMSoX began under the repealed Securities Act 1997.
Members, rules and directors
Members. The members are the participating organisations, the stockbrokers licensed to deal in securities. Section 10(1) is awkwardly drafted but appears to require every licence holder other than a trustee, fund manager, investment adviser, financial journalist or underwriter to be a member. A listed company may not be a member (section 10(2)), and membership must not be confined to one interest group (section 10(3)); directors who ignore a direction to spread membership face a fine of up to K5,000,000 or seven years’ imprisonment (section 10(6)).
Rules. Every proposed rule or amendment goes to the Commission within seven days and has no effect until approved; the Commission must decide within four weeks (section 11). It may also require the exchange to amend its constitution or rules (section 11(10)).
Directors. One-third of the board are public interest directors appointed by the Minister with the Commission’s concurrence, and the non-executive Chairman must be one of them (section 12).
Duties of the exchange
Section 13(2) imposes a duty to ensure, so far as reasonably practicable, an orderly and fair market; where the exchange’s duties to its own shareholders conflict with the public interest, the public interest prevails (section 13(3)). It must tell the Commission immediately if a broker looks unable to meet its obligations, and report any disciplinary action within seven days (section 13(5)–(6)). The Commission audits the exchange and its members annually (section 13(8)). The exchange files an annual regulatory report within three months of year end (section 16) and a quarterly report within six weeks of each quarter (section 17).
The Commission’s powers over the exchange
| Power | Section | Limits |
|---|---|---|
| Written directions, including taking over supervision of the market | 19 | Immediate effect; appeal to the National Court within 14 days |
| Close the market in an emergency, disaster or financial crisis | 20 | Five business days at a time, with reasons |
| Prohibit trading in a particular security, suspend trading, set price limits | 21 | Direct prohibition up to 21 days; issuer gets reasons; appeal to the National Court |
| Suspension order over the board, a committee or the principal officer | 23 | Up to six months, extendable three months at a time; gazetted |
| Revoke approval or direct closure of facilities | 14 | Listed grounds, hearing first; may instead suspend trading on 14 days’ notice |
An exchange that permits trading against a section 21 notice is liable to a fine of up to K10,000,000, and each director to K5,000,000 or seven years’ imprisonment. Revocation does not unwind trades already made (section 15). See the Commission’s powers.
Clearing houses and electronic facilities
Trades are settled through a clearing house, which nobody may operate without approval under section 31(4); the penalty is a fine of up to K10,000,000 or ten years’ imprisonment (section 30). Its rules must provide a quick and fair way of settling disputes between brokers and their clients (section 31(2)), and revocation of its approval does not affect completed transactions (sections 32–33). An electronic trading platform that is not a full exchange may be registered under section 27 on conditions. Electronic holding of securities is governed by the Central Depositories Act 2015; see what a central depository is.
Where unit trusts fit in
Section 116(1)(b) requires the Commission’s approval before units of a unit trust are listed or quoted on a stock market. Once listed, units are bought and sold through participating organisations at market prices rather than redeemed from the trustee, and the trust must follow the listing rules as well as Part V of the Act. See approvals needed to list units.
Before paying for “listed” units, check the PNGX official list and the Commission’s register of participating organisations. A security missing from the official list is not listed, whatever the brochure says, and only clients of participating organisations are protected by the compensation fund.
Sources
- Capital Market Act 2015 — ss 2(1) (“stock exchange”, “stock market”, “participating organisation”), 8–23, 27–33, 116(1)(b), Schedule 1
- Securities Commission Act 2015 — s 117
- Securities Act 1997 (repealed)
- Central Depositories Act 2015
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.