XN000022-1996-03-13 — Page 21

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Leveraged Foreign Exchange Trading Bill

Following is a speech by the Secretary for Financial Services, Mr Rafael Hui, in moving the second reading of the Leveraged Foreign Exchange Trading (Amendment) Bill 1996 in Legislative Council today (Wednesday):

Mr President,

I move the second reading of the Leveraged Foreign Exchange Trading (Amendment) Bill 1996.

The Bill seeks to require a trader licensed under the Leveraged Foreign Exchange Trading Ordinance to obtain the consent of the Securities and Futures Commission (SFC) prior to the sale or issue of substantial holdings in its shares. The Bill also seeks to amend the Ordinance so that the making of orders by the High Court under section 13 will apply to any person, instead of to licence holders only, and any such order may specify assets instead of currency.

Under the present Ordinance, a licence to operate leveraged foreign exchange trading can be granted only to limited companies and their representatives, while traders which were in business prior to the introduction of the Ordinance are allowed to continue their businesses pending processing of their applications by the SFC. At present, the Ordinance does not explicitly and expressly prohibit a company which is considered not 'fit and proper', including a company which has been refused a licence to be a trader, from acquiring shares of a licensed trader and therefore gaining control of the latter. The proposed amendment in the Bill is intended to close this possible loophole.

Separately, section 13 of the present Ordinance empowers the High Court to make orders against a licence holder who has contravened or is about to contravene the provisions of the Ordinance and its subsidiary legislation or any conditions of its licence. An order made under section 13 can only apply to a licence holder, but not to an applicant. Furthermore, under the same section 13, the High Court may make orders restraining a person from acquiring, disposing of, or otherwise dealing with any currency specified in the order. For better protection of investors, the word 'currency' should be extended to cover assets which may have been obtained by fraudulent misappropriation of clients' monies. Therefore it is necessary to amend the relevant provisions so that an order made under section 13 will apply to any person, and any such order may specify assets instead of currency.

The overall objective of the bill is to strengthen the relevant risk management system and to enhance protection for investors.

Thank you, Mr President.

End