ENG-1994 — Page 108

FINANCIAL AND MONETARY AFFAIRS

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The Securities (Clearing Houses) Ordinance provides for the recognition of a clearing house and approval of clearing house rules by the Securities and Futures Commission, and makes certain exceptions to insolvency law in relation to a clearing house and its role in guaranteeing the settlement of market transactions.

Two important components of the regulatory framework in Hong Kong are the Securities (Insider Dealing) Ordinance and the Securities (Disclosure of Interests) Ordinance, which were brought into operation in September 1991.

The Securities (Insider Dealing) Ordinance provides much stricter penalties for insider dealing than those previously applicable. The year 1994 witnessed the successful con- clusion of the first inquiry of the Insider Dealing Tribunal, set up under the ordinance to look into cases involving suspected insider dealing referred to it by the Financial Secretary. In that case, the tribunal imposed fines on persons found to have committed insider dealing and issued orders to disqualify them from holding such positions as that of a director of a listed company. The Financial Secretary has referred two other cases to the tribunal for inquiry. During the year, the scope of the ordinance was extended to derivative products in respect of listed securities. Previously, the ordinance only covered insider dealing on listed securities.

The Securities (Disclosure of Interests) Ordinance requires that company shareholders with 10 per cent or more of the voting shares of a listed company disclose their interests and dealings publicly, and that directors and executives disclose certain dealings. == The Leveraged Foreign Exchange Trading Ordinance, enacted in June 1994 and brought into effect on September 1, added a new component to the regulatory framework. The ordinance provides for the regulation, by the SFC, of the retail end of leveraged foreign exchange trading where an investor buys or sells foreign currencies by putting up a small percentage of the full value of the contract, settlement being made with reference to differences in exchange rates rather than actual delivery. This was an area which had been subject to frequent investor complaints against malpractices by unscrupulous traders over the past few years, and the introduction of a legislative framework was necessary to protect the interests of investors. The regulation of the market was effected through the licensing, by the SFC, of leveraged foreign exchange traders and their representatives who are required to fulfil 'fit and proper persons' criteria. The ordinance also provides for the investigation of suspected trading malpractices, supplemented by rules governing arbitra- tion, conduct of business, maintenance of financial resources, accounts and audit, contract notes and appeal procedures.

The Office of the Commissioner of Insurance exercises prudential supervision over the insurance industry in Hong Kong. It administers the Insurance Companies Ordinance, which brings all classes of insurance business under a comprehensive system of regulation and control by the Commissioner of Insurance (the Insurance Authority). The conduct of insurance business in or from Hong Kong is restricted to authorised companies, Lloyd's members and underwriters approved by the Insurance Authority. All new applications for authorisation are subject to careful scrutiny by the Insurance Authority to ensure that only insurers of good repute, established track-record, undoubted financial standing, and who meet all the authorisation criteria are admitted. The ordinance stipulates minimum share capital and solvency requirements for all authorised insurers and requires them to submit financial statements and other relevant information to the authority annually. It also requires