ENG-1994 — Page 110

FINANCIAL AND MONETARY AFFAIRS

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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 to the SFC the functions of the former Securities Commission, the Commodities Trading Commission and the Office of the Commissioner for Securities and Commodities Trading. It provides a general regulatory framework for the securities and futures industries, leaving certain elements to be covered by regulations, administrative procedures and guidelines developed by the commission.

The SFC was established as an autonomous statutory body outside the civil service. It has 10 directors (half of them executive), including the chairman and deputy chairman of the commission. The directors are appointed by the Governor. Each year, the commission must present to the Financial Secretary a report and an audited statement of its accounts, which are laid before the Legislative Council.

The commission 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, the members of which are independently appointed by the Governor.

The SFC is funded largely by the market and partly by the government, although no -funding has been sought from the latter in the past two years. The 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. Its annual budget in 1994 was about $221 million. On December 31, 1994, the SFC had an establishment of 239.

In its first five years of operation, the SFC has successfully developed a detailed framework of securities and futures regulation that brings Hong Kong into line with internationally-accepted standards of market regulation and practice. 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. The revised versions ensure the codes conform with the increasingly sophisticated investment environment and incorporate a number of features designed to deal with situations which are unique to Hong Kong. Two codes (the Code on Investment-Linked Assurance and Pooled Retirement Funds and the Code on Immigration- Linked Investment Schemes) have also been issued, enhancing the level of protection for investors of these funds within the framework of the Protection of Investors Ordinance.

In July 1994, the Securities and Futures Commission Ordinance was amended to enable the SFC to conduct preliminary inspections of the books and records of listed companies and their subsidiaries. This enhanced the ability of the SFC to promptly identify possible misbehaviour in such companies. Legislative amendments were also introduced to the Legislative Council in October to assist the SFC in providing reciprocal investigatory assistance to overseas regulators and company inspectors, which is in line with the global development toward closer cross-border regulatory co-operation.

The SFC has been encouraging the development of more efficient equity trading systems and a greater variety of securities and futures products. It worked closely with the stock exchange on the Automatic Order Matching and Execution System (AMS), which was fully