ADVENT OF AFRINEX – MAURITIUS FSC AMENDS LICENSING RULES
The regulator for non-banking financial services in Mauritius, the Financial Services Commission (FSC) has recently reviewed its regulatory regime and made significant changes to its licensing rules for market intermediaries dealing in derivatives.
The changes were made in the context of the operations of AFRINEX Ltd (Afrinex), a new securities exchange in Mauritius. The newly amended Securities (Licensing) Rules 2007 (the Rules) cater for a new category of investment dealers namely, the Investment Dealer (Derivatives) which replaces the former three categories of Investment Dealer (Commodity Derivatives Segment), Investment Dealer (Currency Derivatives Segment) and Investment Dealer (Equity Segment).
In November 2018, the FSC licensed Afrinex and its subsidiary, Afrinex Clearing House Ltd, a clearing and settlement facility in Mauritius. A memorandum of understanding between Afrinex and Bombay Stock Exchange Ltd (BSE) was signed in March 2018 to develop this new securities exchange in Mauritius.
Afrinex intends to list a variety of securities from the National Stock Exchange of India Ltd and the BSE and will benefit from the support that BSE will provide in terms of technology, training, market data sharing and surveillance. These developments are in line with the objective of the Mauritius Government to develop and internationalise capital markets in Mauritius, to diversity the range of listed financial products available in this market, and thereby further enhance its role as a regional financial hub.
A significant amendment to the Rules is the introduction of the concept of ‘market-maker’. A market-maker is an essential player in financial markets yet the regulation of this role was previously unclear. A market-maker is now defined in the Rules as a person admitted by a securities exchange in respect of futures contracts specified by the exchange for the purpose of: (i) entering into transactions for the purchase or sale of futures contracts for his own account, and (ii) regularly publishing bona fide competitive bid and offer quotations in respect of futures contracts.
The new category of Investment Dealer (Derivatives) licence allows its holder to act as market-maker, and also as intermediary in derivative contracts generally. The single licence avoids segregating permissible activities based on the type of underlying product in a derivative transaction. It is hoped that the single licence will facilitate trading of derivatives in a broader range of derivative instruments.
Effective since 16 November 2019, any person, who by way of business, intends to act as an intermediary in the execution of orders for clients in ‘derivative contracts’ and act as market maker, should apply for an Investment Dealer (Derivatives) licence. A ‘derivative’ is defined as a financial contract whose value is derived from or depends on, the price of some underlying asset and derivatives contracts include contingent claims and forward claims (including forwards and swaps).
Only a body corporate may apply for an Investment Dealer (Derivatives) licence and the dealer is required to employ, at all times, a duly licensed representative to carry out its functions. This does not apply to investment dealers that will hold a global business licence. The Investment Dealer (Derivatives) also has the obligation to always maintain a minimum stated unimpaired capital of MUR 1 000 000.
As a licensee of the FSC, the investment dealer (derivatives) is considered as a financial institution for the purposes of the Financial Intelligence and Anti-Money Laundering Act 2002 and the Financial Intelligence and Anti-Money Laundering Regulations 2018 and therefore must comply with all applicable laws, regulations and codes relating to anti-money laundering and counter-terrorism financing in Mauritius, including the FSC Code on the Prevention of Money Laundering and Terrorist Financing.