ENG-1990 — Page 97

FINANCIAL AND MONETARY AFFAIRS

ordinance represented a first, important phase in the overhaul of securities legislation in Hong Kong and the implementation of some of the major recommendations made by the Securities Review Committee in May 1988.

The ordinance transfers the functions of the former Securities Commission, the Commodities Trading Commission and the Office of the Commissioner for Securities and Commodities Trading to the SFC. It provides a general regulatory framework for the securities and futures industries, leaving certain elements to be provided by regulations, administrative procedures and guidelines developed by the commission. In its first year of operation, the SFC has taken steps to develop a detailed framework of securities regulation that brings Hong Kong in line with internationally-accepted standards of market reg- ulation and practice.

The SFC was established as an autonomous statutory body outside the civil service. It has 10 directors, half executive and half non-executive. The Governor appoints the directors and may give policy directions to the commission. Each year the commission must present the Financial Secretary with a report and an audited statement of its accounts, which are laid before the Legislative Council.

The SFC seeks advice on policy matters from its Advisory Committee, whose 12 independent members are appointed by the Governor and are broadly representative of market participants and relevant professions. Decisions of the SFC relating to matters concerning the registration of persons and intervention in their business are subject to appeal to the Securities and Futures Appeals Panel which is also appointed by the Governor.

The SFC is funded largely by the market and partly by the government. Market contribution is in the form of fees and charges for specific services and functions performed (on a cost recovery basis), plus a statutory levy on transactions recorded on the Stock and Futures Exchanges. The annual budget is estimated at about $160 million. As of December 31, 1990, the SFC had a total of 232 staff members.

The SFC has taken a lead in a comprehensive overhaul of securities and futures legislation. As part of this exercise, it has issued revised versions of the Code on Unit Trusts and Mutual Funds and the Code on Takeovers and Mergers for public con- sultation. A new Code on Investment-linked Assurance and Pooled Retirement Funds has also been issued, while the new Code on Immigration-linked Investment Schemes has been brought into effect. The SFC has also issued the Fit and Proper Criteria, which sets out guidelines indicating the manner in which the SFC administers the 'fit and proper' test applied to entities seeking registration as securities and futures brokers, dealers and advisers.

A significant accomplishment during the year was the development of a more efficient, streamlined system for the authorisation of unit trusts and mutual funds. This improved system allowed the commission to clear the backlog of unit trusts for authorisation that existed prior to May 1989 and to reduce the authorisation time for such products from in excess of 12 months to an average of 22 days.

The SFC has been encouraging the development of more efficient equity trading systems and a greater variety of securities and futures products. It has been working closely with the Hong Kong Securities Clearing Company in order to implement the proposed new, automated book-entry central clearing and settlement system, which should improve settlement efficiency, enhance risk management capability, save money and increase trading

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