FINANCIAL AND MONETARY AFFAIRS
schedule to the Ordinance. The main approval criteria include fitness and propriety of the management, financial soundness, prudent conduct and adequacy of accounting and control systems.
The SFC was established in 1989 after the October 1987 world stock market crash. It exercises prudential supervision over the securities, financial investment and commodities futures industry in Hong Kong. It administers the Securities and Futures Commission Ordinance, all securities and futures-related ordinances, and part of the Companies Ordinance in so far as it relates to prospectuses and purchases by a company of its own shares.
The Securities Ordinance, the Stock Exchange Unification Ordinance, together with the Securities and Futures Commission Ordinance, provide a framework within which dealings in securities are conducted and regulated. They require the registration of dealers, dealing partnerships, investment advisers and other intermediaries. They also provide for the investigation of suspected malpractices in securities transactions and the maintenance of a 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. 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 and the Securities and Futures Commission Ordinance provide a regulatory framework within which futures dealers, commodity trading advisors and representatives conduct their business. It includes provisions for the registration of futures 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 clearing houses and approval of clearing house rules by the SFC, and makes certain exceptions to insolvency law in relation to a clearing house and its role in guaranteeing the settlement of market transactions.
The Insider Dealing Tribunal is an important feature of the regulatory framework. in Hong Kong. It was established under the Securities (Insider Dealing) Ordinance to look into cases involving suspected insider dealing referred to it by the Financial Secretary. Since it began operation in 1994, the tribunal has successfully concluded four cases. A second division of the Insider Dealing Tribunal was set up in March 1996 so that two or more cases can be dealt with concurrently.
The Securities (Disclosure of Interests) Ordinance requires company shareholders with 10 per cent or more of the voting shares of a listed company to disclose their interests and dealings publicly, and directors and executives to disclose certain dealings.
The Leveraged Foreign Exchange Trading Ordinance provides for the regulation, by the SFC, of the retail end of leveraged foreign exchange trading where an investor buys or sells foreign currencies 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. Regulation of the market is effected through the licensing,
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