FINANCIAL AND MONETARY AFFAIRS
investment advisers and other intermediaries. They also provide for the investigation of suspected malpractices in securities transactions and the maintenance of a compensation fund to compensate clients of defaulting brokers.
The Protection of Investors Ordinance prohibits the use of fraudulent or reckless means to induce investors to buy or sell securities, or to induce them to take part in any investment arrangement in respect of property other than securities (the latter being controlled by the Securities Ordinance). It regulates the issue of publications relating to such investments by prohibiting any advertisement inviting investors to invest without the advertisement first being submitted to the commission for authorisation.
The Commodities Trading Ordinance, together with the Securities and Futures Commission Ordinance, provides a regulatory framework within which the Futures Exchange operates and dealers, commodity trading advisers and representatives conduct their business. It includes provisions for the registration of dealers and their representatives and the maintenance of a compensation fund to compensate clients of defaulting commodity dealers.
The Securities (Clearing Houses) Ordinance provides for the recognition of a clearing house and approval of clearing house rules by the Securities and Futures Commission, and makes certain exceptions to insolvency law in relation to a clearing house and its role in guaranteeing the settlement of market transactions.
Two important components of the regulatory framework in Hong Kong are the Securities (Insider Dealing) Ordinance and the Securities (Disclosure of Interests) Ordinance, which were brought into operation in September 1991. The Securities (Insider Dealing) Ordinance provides much stricter penalties for insider dealing than those previously applicable. The Securities (Disclosure of Interests) Ordinance requires that company shareholders with 10 per cent or more of the voting shares of a listed company disclose their interests and dealings publicly and that directors and executives disclose certain dealings.
The Leveraged Foreign Exchange Trading Bill, when enacted, will add a new component to the regulatory framework. The Bill provides for the regulation, by the Securities and Futures Commission, of the retail end of leveraged foreign exchange trading where an investor buys or sells spot currency by putting up a small percentage of the full value of the contract, settlement being made with reference to differences in exchange rates rather than actual delivery. Leveraged foreign exchange traders and their representatives will be required to be licensed under the proposed framework. The Bill also provides for the investigation of suspected trading malpractices, supplemented by rules governing arbitra- tion, conduct of business, maintenance of financial resources, accounts and audit, contract notes and appeal procedures.
The Office of the Commissioner of Insurance exercises prudential supervision of the insurance industry in Hong Kong. It administers the Insurance Companies Ordinance which brings all classes of insurance business under a comprehensive system of regulation and control by the Commissioner of Insurance (Insurance Authority). The conduct of insurance business in or from Hong Kong is restricted to authorised companies, to Lloyd's members and to certain underwriters approved by the Governor in Council. All new applications for authorisation are subject to careful scrutiny by the Insurance Authority, to ensure that only insurers of good repute, who meet all the criteria of the ordinance, are admitted. The ordinance stipulates minimum share capital and solvency requirements for
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