ENG-2005 — Page 112

82 | Financial and Monetary Affairs

In June 2005, the SFC amended the Code on REITS to allow investment of SFC- authorised REITs in real estates outside Hong Kong. The Practice Note on Overseas Investments by SFC-authorised REITs was published to provide guidance in this respect.

In December 2005, the SFC announced the requirement to adopt relevant disclosure provisions substantially equivalent to those in Part XV of the SFO, which are applicable to listed corporations, in trust deeds of SFC-authorised REITs. The policy would enhance transparency and the accessibility of information regarding interests in REITs. With effect from February 16, 2006, holders of REIT units will be required to submit to the REIT manager and HKEX notification of interests upon the attainment of the 5 per cent disclosure threshold, and other changes in accordance with the provisions of relevant trust deeds.

In September 2005, the SFC released the consultation conclusions on the Review of the Hedge Fund Guidelines and the revised guidelines came into effect at the end of the month.

The SFC continued to monitor the latest developments in the Undertakings for Collective Investment in Transferable Securities (UCITS) III, the regulations issued by the European Union Commission governing funds domiciled in the EU states, and maintained its dialogue with overseas regulators and market practitioners. On March 31, 2005, the SFC issued interim measures to facilitate the processing of UCITS III fund applications in Hong Kong. By the end of the year it had authorised 1 016 UCITS III funds, or over 88 per cent of the applications received.

The Office of Commissioner of Insurance and the SFC concluded a MOU to promote mutual assistance and the exchange of information between the two regulators, including the fostering of closer cooperation on regulatory effort in the regulation of insurance-related investment products.

The SFC worked closely with the HKMA and HKEX to facilitate the launch of two ETFs, namely the ABF Hong Kong Bond Index Fund and the ABF Pan Asia Bond Index Fund, under the ABF2 project. The ABF2 framework envisages eight single market bond index tracking funds and a pan-Asia bond index tracking fund investing in sovereign and quasi-sovereign local currency bonds. The two ETFs, being the first bond ETFs launched in Asia, were authorised by the SFC and listed on SEHK in June and July 2005.

In May, the SFC approved HKEx's rule amendments on the reduction of minimum spreads for shares trading above $30. The amendments sought to enhance the competitiveness, efficiency and liquidity of the market. The new trading spreads came into effect on July 4. In November, the SFC approved HKEx's proposal to launch callable bull/bear contracts. HKEX started to brief market participants and introduce the product details to issuers the following month, in preparation for a product launch later in 2006.

In light of the concerns of the public and the industry about the derivative warrants market, the SFC started a review of the regulatory framework of derivative