XN000022-1993-07-14 — Page 26

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WEDNESDAY, JULY 14, 1993

TIGHT CONTROL OF LEVERAGED FOREIGN EXCHANGE CONTRACTS

THE NATURE OF THE LEVERAGED FOREIGN EXCHANGE CONTRACTS AND THE VOLATILITY OF THE FOREIGN EXCHANGE MARKET CALL FOR TIGHT REGULATION SO AS ΤΟ PROVIDE A SAFER AND MORE ORDERLY ENVIRONMENT IN WHICH THE INVESTING PUBLIC CAN HAVE CONFIDENCE.

THE REMARK WAS MADE BY THE SECRETARY FOR FINANCIAL SERVICES, MR MICHAEL CARTLAND, WHEN HE MOVED THE SECOND READING OF THE LEVERAGED FOREIGN EXCHANGE TRADING BILL IN THE LEGISLATIVE COUNCIL TODAY (WEDNESDAY).

HE SAID INVESTORS IN THE CONTRACTS WOULD BE GIVEN MORE PROTECTION UNDER A LEGAL REGULATORY FRAMEWORK PROPOSED IN THE BILL.

COMPANIES INVOLVED IN THE BUSINESS AND THEIR REPRESENTATIVES WILL BE REQUIRED IN FUTURE TO OBTAIN A LICENCE FROM THE SECURITIES AND FUTURES COMMISSION (SFC), HE SAID.

EXCEPT FOR CERTAIN EXEMPTIONS GIVEN TO AUTHORISED INSTITUTIONS AND DEALS CONDUCTED UNDER SPECIFIED CIRCUMSTANCES, IT WILL BE A CRIMINAL OFFENCE FOR ANYONE TO CARRY ON SUCH BUSINESS WITHOUT BEING SO REGISTERED.

THE PENALTY FOR A BREACH OF THIS REQUIREMENT INVOLVES A MAXIMUM FINE OF $10 MILLION AND MAXIMUM IMPRISONMENT FOR SEVEN YEARS.

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MR CARTLAND SAID THERE HAD BEEN FREQUENT COMPLAINTS FROM INVESTORS ABOUT MALPRACTICES BY THESE COMPANIES.

"DESPITE THE COMPLAINTS RECEIVED, IT IS DIFFICULT TO SECURE SUFFICIENT EVIDENCE TO PROVE THAT THESE COMPANIES HAVE DISHONESTLY OR RECKLESSLY TRADED THEIR CLIENTS' ACCOUNTS, MR CARTLAND SAID.

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"SOME HAVE EVEN ROUTED THEIR DEALS TO OVERSEAS SISTER COMPANIES, MAKING IT VIRTUALLY IMPOSSIBLE TO OBTAIN SUFFICIENT EVIDENCE TO SUPPORT A PROSECUTION OR CIVIL SUIT, HE SAID.

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AT PRESENT, IT IS ESTIMATED THAT NO FEWER THAN 200 COMPANIES ARE ENGAGED IN THE BUSINESS.

THESE COMPANIES ARE NOT SUBJECT TO ANY FORM OF GOVERNMENT REGULATION APART FROM HAVING TO FULFILL THE INITIAL REGISTRATION REQUIREMENTS APPLICABLE ΤΟ ALL COMPANIES UNDER THE COMPANIES ORDINANCE.

MR CARTLAND SAID MALPRACTICES, COUPLED WITH BAD MANAGEMENT, HAD LED TO THE COLLAPSE OF SOME OF THESE COMPANIES.

IN THE LIGHT OF THIS SITUATION, THERE SHOULD BE STRINGENT REQUIREMENTS IN ORDER TO PROVIDE ADEQUATE PROTECTION TO INVESTORS,

SAID.

HE

DEBATE ON THE BILL WAS ADJOURNED.

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