ENG-1995 — Page 107

FINANCIAL AND MONETARY AFFAIRS

made the reporting of suspicions of money-laundering transactions a statutory obligation.

The SFC, which was established in 1989 in response to weakness in Hong Kong's financial markets after the October 1987 world stock market crash, exercises prudential supervision over the securities, financial investment and commodities futures industry in Hong Kong. It administers the Securities and Futures Commission Ordinance, the Securities Ordinance, the Protection of Investors Ordinance, the Commodities Trading Ordinance, the Stock Exchanges Unification Ordinance, the Commodities Exchanges (Prohibition) Ordinance, the Securities (Clearing Houses) Ordinance, the Securities (Disclosure of Interests) Ordinance, the Securities (Insider Dealing) Ordinance, the Leveraged Foreign Exchange Trading Ordinance, and part of the Companies Ordinance in so far as it relates to prospectuses and purchases by a company of its own shares.

The Securities Ordinance, the Stock Exchanges Unification Ordinance, together with the Securities and Futures Commission Ordinance, provide a framework within which dealings in securities are conducted and regulated. They require the registra- tion of dealers, dealing partnerships, investment advisers and other intermediaries. They also provide for the investigation of suspected malpractices in securities transactions and the maintenance of a fund to compensate clients of defaulting brokers.

The Protection of Investors Ordinance prohibits the use of fraudulent or reckless means to induce investors to buy or sell securities, or to induce them to take part in any investment arrangement in respect of property other than securities. It regulates the issue of publications relating to such investments by prohibiting any advertise- ment inviting investors to invest without the advertisement first being submitted to the commission for authorisation.

The Commodities Trading Ordinance and the Securities and Futures Commission Ordinance provide a regulatory framework within which futures dealers, commodity trading advisers and representatives conduct their business. It includes provisions for the registration of futures dealers and their representatives and the maintenance of a compensation fund to compensate clients of defaulting commodity dealers.

The Securities (Clearing Houses) Ordinance provides for the recognition of clearing houses and approval of clearing house rules by the Securities and Futures Com- mission, 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 1995 witnessed the successful conclusion of the second 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. 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.

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