ENG-2006 — Page 106

78 Financial and Monetary Affairs

such as ordering the disgorgement of profits, banning a person from trading in SFC regulated financial products and disqualifying a person from directorship or management of a company.

The MMT inquires into market misconduct that occurred on or after April 1, 2003. The Insider Dealing Tribunal continues in existence to inquire into cases of insider dealing that occurred before April 1, 2003.

As an alternative to civil proceedings, market misconduct is subject to criminal prosecution, which, if successful, may result in more severe penalties on conviction, including up to 10 years' imprisonment or a fine of up to $10 million.

Recent Developments

Apart from reinforcing Hong Kong's status as the premier capital formation centre for Mainland enterprises, the listing of more quality overseas companies in Hong Kong will be encouraged to further consolidate its position as an international financial centre. Currently, listing applications submitted by companies that are not incorporated in the pre-approved jurisdictions are assessed on a case-by-case basis with the burden of proof primarily resting on the listing applicants to demonstrate the adequacy of shareholder protection of the jurisdiction in question. In practice, this makes it relatively onerous for companies incorporated outside the pre-approved jurisdictions to list in Hong Kong. To facilitate the listing of more quality overseas companies in Hong Kong, HKEX would publish a policy statement setting out its expectations as a schedule of shareholder protection measures that overseas applicants should address in seeking a listing in Hong Kong.

With effect from February 16, 2006, all SFC-authorised REITs adopted the relevant disclosure provisions substantially equivalent to those in Part XV of the SFO in their trust deeds. As a result, holders of REIT units are required to submit to the REIT manager and HKEX notification of interests upon the attainment of the 5 per cent disclosure threshold.

To further enhance the understanding of fund managers and practitioners on SFC's authorisation requirements of UCITS III funds (funds domiciled in the EU states which are governed by the Undertakings for Collective Investment in Transferable Securities III issued by the European Commission), the SFC issued in August 2006 a guide to the information relating to the risk management and control process that should be provided in support of applications for UCITS Il funds using financial derivative instruments for investment purposes. By year-end, the SFC had authorised 1 347 UCITS III funds, representing over 93 per cent of the UCITS III funds applications received.

The SFC approved HKEx's proposal to increase the position limits on stock. options contracts in October 2005. The increased limit took effect on February 10, 2006 after completion of legislative amendments.

5 The pre-approved jurisdictions are Bermuda, the Cayman Islands, the People's Republic of China,

Australia and Canada's British Columbia.