(b)
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49
what protection is provided to investors in the event of the closure of such companies due to operational problems?
Answer:
(a)
Under the Leveraged Foreign Exchange Trading Ordinance (Cap. 451) (LFETO), it is an offence for any person to carry on a business of leveraged foreign exchange trading without a licence. The maximum penalty on conviction for such an offence is $10 million and 7 years' imprisonment.
Since the coming into force of the LFETO on 1 October 1994, there have been no complaints from the public of unlicensed leveraged foreign exchange trading. Nevertheless, the Securities and Futures Commission (SFC) has committed substantial resources to preventing unlicensed activity. 23 addresses which were identified as possible locations where unlicensed activity might be occurring were visited by SFC staff but no unlicensed activity has been detected.
Separately, there has been one successful prosecution of a company which held itself out as carrying on a business of leveraged foreign exchange trading whilst unlicensed. The company was fined $60,000 and ordered to pay SFC's costs of $30,495.
In two other cases, search warrants were executed. The first case involved a securities dealer who was suspected to have offered facilities to his clients to trade foreign exchange on a leveraged basis. The other case involved the issue of a pamphlet to a solicitor which offered a scheme involving investment in foreign exchange in a manner which could infringe the LFETO. Enquiries into both these cases are continuing.
SFC will continue to take vigorous action against unlicensed leveraged foreign exchange traders to protect investors. However, a distinction should be drawn between unlicensed companies operating illegally and those which have applied for a licence under the transitional provisions of the LFETO. These latter companies, although legally unlicensed, are allowed to continue trading until their applications have been determined. In order to apply for a licence, these companies are required to have a minimum $30 million capital, ab initio, but they do not have to comply with the Financial Resources Rules, the Conduct of Business Rules and the Accounts and Audit Rules until they are licensed.