XN000022-1995-01-18 — Page 49

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One of the main roles of the Clearing Company is to act as settlement counterparty to all stockbrokers. This role controls the systemic risks of broker defaults. If investors were to participate in CCASS, they would add risk and cost to CCASS operations. Investor access to CCASS would require consideration of what risk management measures would apply to investors and how much they would be required to pay to participate in CCASS. This raises the question of whether investors would be willing to pay the necessary costs.

The Securities (Clearing Houses) Ordinance would need to be reviewed to determine whether legislative amendments would be necessary if the Clearing Company were to change its role from being a wholesale clearing house to also become a retail clearing house.

Another question is whether the Clearing Company is the appropriate entity to provide investors with access to CCASS. This question requires analysis of the appropriate roles of not only the Clearing Company, but also the Stock Exchange and listed companies and their registrars who under the Companies Ordinance are responsible for recording and transferring ownership interests of the company shareholders.

Investors participation in CCASS would not be a panacea. Even if investors were to have direct access to CCASS, they would still remain at risk during the settlement process if a broker or custodian has defaulted or become incapacitated.

The handling of complaints lodged by investors concerning market matters rests primarily with the Stock Exchange and the SFC. An investor who has suffered pecuniary loss as a result of any act done in the course of, or in connection with, the stockbroking business of a stockbroker in relation to any money or securities entrusted to the stockbroker or his employees may claim compensation from the Compensation Fund pursuant to section 109 of the Securities Ordinance. The Compensation Fund is set up by legislation, funded in part by transaction levy and administered by the Stock Exchange and the SFC.

End/Wednesday, January 18, 1995