Competition Law Guidelines

  1. Introduction
    • The Pan Asia Securities Lending Association's ("PASLA") aims are to represent the common interests of institutions engaged in the lending or borrowing of securities in the Asian and international securities lending markets, assist in the orderly, efficient and competitive development of these markets, establish agreed global standards and good working practices taking into account local regulations and liaise with regulators and other organisations to promote and develop appropriate regulatory frameworks for the industry.
    • Many of the jurisdictions in which PASLA's members are active currently have competition laws in force (or have laws which are expected to come into force in the near future). These laws contain broadly worded provisions prohibiting conduct which could have the object or effect of preventing, restricting or distorting competition.
    • Sanctions for breach of competition law include: (i) financial penalties; (ii) director disqualification orders; and (iii) third party actions for compensation in the courts. In certain jurisdictions, such as the United States, there are criminal sanctions for breaches of competition law.
    • This document sets out some key issues in relation to the application of competition law in the context of membership of trade associations such as PASLA and set out some key do's and don'ts. PASLA members are expected to adhere to these guidelines.
  2. Common areas of concern in relation to trade associations
    • PASLA members compete in several financial markets and regularly meet in the context of PASLA meetings both in formal and informal settings. Common areas of potential antitrust concern in relation to trade associations arise around:
      • The exchange of commercially sensitive information between members during meetings or other less formal events;
      • Adoption of decisions or other measures or practices which may lead members to align their competitive conduct or exclude other competitors from access to a key competitive input (such as a shared technical standard);
      • Adopting rules or regulations which limit the ability of members to operate freely in the marketplace.
    • It is therefore important that PASLA members comply with competition law and in particular:
      • each member must determine its commercial strategy independently of its competitors and must not use PASLA as a form to collude in any way regarding output or prices;
      • each member must not disclose commercially sensitive information (defined below) with competitors either directly or indirectly; reciprocally or unilaterally.
  1. Role of trade associations
    • The following activities undertaken by trade associations do not usually give rise to any competition law concerns provided they do not involve the sharing of commercially sensitive information or the coordination of competitive conduct:
      • Discussions on the meaning or interpretation of current or proposed legislative or regulatory requirements, including responding to public consultation or participating in discussions on Government policy;
      • Providing guidance on issues of a technical nature or relating to the application of legal or regulatory requirements;
      • The development and use of standard terms, provided these are not related to price; are expressly non-binding; accessible to all; and have been developed in an open and transparent manner.
  1. Commercially sensitive information
    • Commercially sensitive information is defined as information that is not public and could be used by a competitor to make pricing, marketing or commercial strategy decisions including but not limited to, information relating to costs, capacity, distribution, marketing, supply, market territories, customer relationships, the terms of dealing with any particular customer (including the identity of individual customers and the quantity sold to any particular customer), and current and future prices or fees (such as lender fees etc), including discounts, bids or price lists.
    • Competition law and the rules governing commercially sensitive information apply in every situation where representatives of competing firms come into contact with each other. This includes both formal meetings and informal social events. Some specific protocols which apply in the context of more formal PASLA meetings are set out in the following section. Members should however feel free to raise any concerns with PASLA in relation to any competition issues arising in any PASLA related event.
    • The following outlines the competition law infringement risks associated with the exchange of various categories of information:
Low risk Medium risk (seek legal advice) High risk (never share these with a competitor without seeking legal advice)

Information which is:

  • in the public domain (e.g. trade press, newspapers and company websites)
  • industry trends or general market conditions (provided the information is not company specific and relates to the industry as a whole)
  • historical information (e.g. more than a year old) that has been compiled and aggregated by independent third parties

Information relating to:

  • top line budgets or information relating to costs
  • sales targets
  • capacity
  • capital investment plans
  • market research
  • aggregated projected revenues

Information relating current or future:

  • prices (level of fees and, in the case of the use of cash collateral, level of rebates to borrowers) margins
  • levels of return
  • sales volumes
  • customer details
  • arrangements with suppliers
  1. Standard Documentation
    • Under Hong Kong Competition Law, according to the draft Guideline on the First Conduct Rule, standard terms are considered examples of conduct which may have the effect of harming competition. Standard terms may be considered to harm competition where:
      • The trade association prohibits new entrants from accessing its standard terms and the use of those terms is vital for successful entry into the market;
      • The standard terms affecting prices to consumers including those terms which recommend particular prices.
    • In its work as a trade association, PASLA provides standard documentation for its members including agreements, clauses and guidelines. With respect to any standard documents, PASLA should always keep in mind certain general principles for antitrust compliance including:
      • Documents should be non-binding and voluntary. Members should adapt standard agreements or clauses to suit the needs of each individual transaction. Documents and guidelines should not appear to suggest that all lenders are expected to use the same terms and provisions to create one "standard" for all transactions. Each party should be encouraged to adapt the standard documents to suit their own transaction;
      • Whether in terms of procedure or substance, documents should be drafted with a view towards objectivity and fairness and not give the impression that they prejudice certain parties or certain categories (for example, borrowers).
      • Efforts should be made to ensure that all parties have access to standard documents on fair, reasonable and non-discriminatory terms such as for a reasonable fee.
  1. Key safeguards during PASLA meetings
    • In addition to the guidelines above, below is a summary of the key safeguards that should be observed during PASLA meetings:
  • Ensure that meeting agendas are agreed between members and circulated in advance of any PASLA meetings.
  • If you are chairing a PASLA meeting, remind meeting participants about competition law compliance in the beginning of the meeting.
  • Ensure that accurate minutes are circulated after PASLA meetings.
  • Inform meeting organisers if you have competition law concerns. If there are concerns, members should immediately raise the matter with the organiser, leave the room, ensure this is noted in minutes and inform both PASLA and in-house legal counsel or the responsible compliance officer.
  • Discuss or share commercially sensitive information in any PASLA meeting or elsewhere.
  • Agree to coordinate commercial strategy or prices in any PASLA meeting or elsewhere.
  • Remain at a PASLA meeting if any commercially sensitive information is discussed or disclosed by competitors. Have your departure minuted or recorded.
  • Under any circumstances, destroy, falsify or alter any document during or in anticipation of an investigation by the competition authorities

This note outlines areas requiring careful consideration. It is not intended to be exhaustive and should not be treated as guidance or a substitute for independent legal advice.