ENG-2006 — Page 104

76 | Financial and Monetary Affairs

• to reduce systemic risks in the securities and futures industry; and

• to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the securities and futures industry.

Established as an autonomous statutory body, the SFC is responsible for regulating the securities and futures markets in Hong Kong. At year-end, the SFC had a governing body of 14 directors (the chairman, six executive directors and seven non-executive directors) appointed by the Chief Executive. The Government is not involved in the day-to-day regulation of the securities and futures industry.

The SFC is funded by the market. No government funding has been sought since. 1993. The revised estimate of its operating expenditure budget for 2006-07 (including depreciation) was $562 million.

The SFC seeks advice on policy matters from its advisory committee, which comprises the chairman of the SFC, three executive directors of the SFC and 12 independent members. The independent members are appointed by the Chief Executive and are broad-based and representative of market users.

The exercise of powers by the SFC is subject to a range of checks and balances. For instance, a wide range of SFC decisions are subject to appeal and appeals are made to the independent Securities and Futures Appeals Tribunal chaired by a High Court judge. In November 2000, the Process Review Panel for the SFC (PRP) was established by the Chief Executive to review and advise the SFC on the adequacy of the internal procedures and operational guidelines governing the actions and operational decisions it takes in the performance of its regulatory functions. Members of the PRP are appointed by the Chief Executive. In July 2006, the Government published the PRP's fifth annual report, which concluded that the SFC had generally followed its internal procedures in handling cases under review.

Broadly speaking, the SFC's work involves licensing, supervision and monitoring. of intermediaries; regulation of the public marketing of unit trusts, mutual funds and other collective investment products; regulation of takeovers, mergers and other corporate activities; listing regulation under the dual filing system for IPO applicants and issuers; supervision of markets including the exchanges and clearing houses; enforcement of securities laws and rules and investor education.

As at year-end, there were 28 051 licensed persons, including securities brokerage firms, futures dealers, and securities margin financiers, as well as their representatives, and 88 registered institutions, such as banks, engaging in regulated activities like dealing and advising on securities and futures.

Investor education continues to be a priority of the SFC's work. The SFC's investor education theme in 2006 was 'Before you invest, ask the right questions', which aimed at encouraging investors to ask the right questions about products and services to make informed choices.