The Securities and Futures Commission (SFC)
The SFC was established in May 1989 following enactment of
the Securities and Futures Commission Ordinance (SFCO).
This represented a first important phase in the overhaul of the
securities legislation in Hong Kong and the implementation of
some of the major recommendations made by the Securities
Review Committee in May 1988.
The SFCO transfers to the SFC the functions of the former
Securities Commission, the Commodities Trading Commission
and the Office of the Commissioner for Securities and
Commodities Trading. It provides a general regulatory
framework for the securities and futures industries, leaving
certain elements to be covered by regulations, administrative
procedures and guidelines developed by the commission.
The SFC exercises prudential supervision over the securities,
financial investment and commodities futures industry in Hong
Kong. It administers the Securities and Futures Commission
Ordinance, the Securities Ordinance, the Protection of
Investors Ordinance, the Commodities Trading Ordinance, the
Stock Exchange Unification Ordinance, the Commodities
Exchanges (Prohibition) Ordinance, the Securities (Clearing
Houses) Ordinance, the Securities (Disclosure of Interests)
Ordinance, the Securities (Insider Dealing) Ordinance, the
Leveraged Foreign Exchange Trading Ordinance, and part of
the Companies Ordinance in so far as it relates to prospectuses
and purchases by a company of its own shares. These
ordinances provide a regulatory framework within which the
securities, futures and investment industries operate. Checks
and balances are also in place in these ordinances providing for
the investigation of malpractices as well as compensation
arrangements for investors.
The SFC, established as an autonomous statutory body outside
the civil service, has 10 directors (half of them executive)
appointed by the Chief Executive of the HKSAR. It must
present the Financial Secretary with an annual report and an
audited statement of its accounts, which are laid before the
legislature.
The SFC seeks advice on policy matters from its advisory
committee, the 12 independent members of which are
appointed by the HKSAR Chief Executive and are
broadlyrepresentative of market participants and relevant
professions. Decisions relating to matters concerning the
registration of persons and intervention in their business are
subject to appeal to the Securities and Futures Appeals Panel,
the members of which are also independently appointed by the
Chief Executive.
The SFC is funded largely by the market and partly by the
government, although no funding has been sought from the
latter in the past five years. The market contribution is in the
form of fees and charges for specific services and functions
performed, plus a statutory levy on transactions recorded on
the stock and futures exchanges. Its budget for 1997-98 was
$296 million and it had an establishment of 289 at year's end.
The SFC has developed a framework of securities and futures
regulation that brings Hong Kong in line with
internationally-accepted standards. In addition, it has published
various codes of conduct and guidelines regulating market
conduct and criteria for approval of investment products and
licensing of market intermediaries.
Dealers in securities, investment advisers, commodity dealers
and commodity-trading advisers, leveraged foreign exchange
traders and their representatives have to register with the SFC.
Criteria for registration are stipulated in the Securities
Ordinance, the Commodities Trading Ordinance, the
Leveraged Foreign Exchange Trading Ordinance, and the
Securities and Futures Commission Ordinance. In 1997, the
SFC registered 20 167 persons, of whom 568 were corporate
securities dealers and 162 were commodities dealers. Among
them, 338 were from overseas.
As regards the regulation of Leveraged Foreign Exchange
Trading, the SFC had issued 21 foreign exchange trade
licences and 1 323 licences for their representatives by the end
of 1997. The SFC reviewed the Leveraged Foreign Exchange
Trading Ordinance in September 1996 to consult the public on
several proposed changes. In response to public comments,
the SFC is considering certain legislative amendments
including insurance of traders and compensation to investors.
In 1996, the SFC consulted on the draft composite Securities
and Futures Bill which aims to consolidate and streamline the
existing regulatory regime for the securities and futures
markets. Since the draft touched on some issues relating to
fundamental policy issues, and some diverse public views
were received, the government and the SFC are conducting a
clause-by-clause examination with a view to sorting out the
controversial items in 1998.
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