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FINANCIAL STRUCTURE
causing concern. The Securities Commission, after consultation with the Hong Kong Federation of Stock Exchanges, approved the making of a statutory rule prohibiting directors of a listed company incorporated in Hong Kong from issuing shares-other than on a pro-rata basis to existing shareholders-without the approval of share- holders. The proposed rule is generally consistent with the recommendations contained in the Second Report of the Companies Law Revision Committee. In the meantime the Hong Kong Federation of Stock Exchanges has included this restriction in the listing rules of the stock exchanges. By the end of the year, three public companies had passed ordinary resolutions at their general meetings to give the directors a general mandate to issue and dispose of additional shares not exceeding 10 per cent of the existing share capital of the companies.
On August 14, 1975, the Securities Commission approved a Code on Takeovers and Mergers for Hong Kong which had been drawn up after discussions with under- writers, merchant banks, the Hong Kong Federation of Stock Exchanges and others professionally interested. The code is administered by a committee consisting of one official and two unofficial members of the Securities Commission, one representative from the Hong Kong Federation of Stock Exchanges and two representatives from financial institutions. The committee has power to co-opt members to assist in specific cases. Members will hold office for one year but may be re-elected.
The purpose of the code is to provide guidelines for companies and their advisers who contemplate or become involved in takeovers and mergers. The code does not cover those aspects of takeovers which might have broader social repercussions in the community but which fall outside the scope of good business practice and the need to protect investors. The code itself does not have the force of law, but it has received the full support of all those professionally concerned. It is operated on a voluntary basis because the conditions in which takeovers occur and the details of the proposals vary so much that legislation would have to be complex if it were to be comprehensive. A non-statutory code is also easier to amend or extend in the light of experience.
The present code for Hong Kong incorporates much of the London City Code, but with substantial amendments to suit local conditions. It also includes some of Britain's statutory provisions regarding information to be provided.
Commodity Exchange
On August 13, 1975 the Legislative Council passed a resolution approving in principle the establishment of a Commodity Exchange in Hong Kong. A proviso was that legislative measures should be introduced effectively to minimise social hazards to the people of Hong Kong. It has been accepted in principle that the administration of the proposed legislation dealing with the control of a Commodity Exchange and the registration of commodity dealers should be vested in the Commissioner for Securities and the Securities Commission. The draft Commodity Exchange Bill is to go before the Executive Council in 1976.