A monthly newsletter for investors and intermediaries
ISSUE NO.9 JUNE 2002
Investors taking ownership Sample Statement of a Stock S egregated A ccount
How can you be sure that your shares are really kept in CCASS?
As an investor trading through a brokerage, you your brok erage. You should
may ask your broker how he k eeps y our shares note that statements issued by
for you. In most c as es, he will s ay t hat your HK SCC and y our brokerage
s hares are being k ept in t he CCA S S (t he may not have the same cut-off
Cent ral Clearing and S ett lement S ys t em) dat es , whic h may res ult in
acc ount of the brokerage. In the absence of any differences in shareholding
proof, how c an y ou know that t his is true? information.
At present, the vast majorit y of brokerages keep Th e S t o c k S e g r e ga t e d
their clients' shares in CCASS (operated by the Account allows your brokerage to segregate your
After opening an Inves tor A ccount , y ou st ill have
Hong Kong S ecurities Clearing Co. Lt d. or shares from those of the firm itself and it s other
t o trade through y our brok er. Furthermore, you
"HKSCC"). However, even t hough your broker- clients. When an order has been filled, you will
need t o c onfirm wit h HK SCC t he s et t lement
age has depos it ed y our s hares int o CCAS S, not have to move the s hares y ourself as your
instructions issued by y our brokerage before any
HK SCC will still regard your brokerage, rather brokerage will transfer shares into or out of the
trans act ion is processed. Some brok erages only
than you, as t he owner of the s hares and your Stock Segregated Account. In addition, you will
withdraw your shares for sett lement purposes after
brokerage still has full c ontrol over the s hares. receive corporat e communications, s uc h as
your trade has been filled. However, s ome other
There are, however, two ot her met hods for y ou annual report and notices, directly from the share
brok erages may, for risk management purpos e,
t o k eep t rac k of y ou r s hareholdi ngs and regist rars.
request y ou t o t rans fer y our s hares t o t heir
movement s in CCAS S. However, the S tock Segregated Ac count is still accounts before you place your s ale order. Holders
Method 1: Making use of a Stock Segregated under the full cont rol of t he brok erage. HKSCC of Inves tor Ac counts can now send and c onfirm
will not rec ognise y ou as t he account holder or their orders via the Int ernet and by phone.
Account w ith Statement Service
the registered holder of the s hares.
B y opening a S tock S egregat ed A cc ount in Apart from having full cont rol of s tock movements
Method 2: Opening a CCASS Investor Account in your acc ount, you will als o receive an ac count
HKSCC through your brok erage, you will receive
a Daily Movement St at ement from HK SCC Unlike a S tock S egregat ed Acc ount, this is an ac tivit y statement from HKS CC direc tly with t he
whenever there is a stock movement in the Stock account which you can open in your own name lates t dat a on y our holdings in CCAS S. You c an
Segregated A ccount. At the end of each month, in HKSCC. What is special about this account is als o enjoy HKS CC's comprehens ive nominee
you will also receive a Monthly Balance Statement that CCASS will process a withdrawal or deposit, services, including the collection of dividends and
from HKSCC, even when that account has a zero only upon t he receipt of c onfirmation of the t ak ing up of right s iss ues, as well as receiving
balanc e. Th es e s t at ement s s erve as an sett lement instruction you, the acc ount holder, communicat ions of lis ted companies.
independent rec ord of the movement s of your give to your brokerage. This enables you to have F or fu r ther i nform ati on on th e Stoc k Segr egated
shares and you can check the information on the full control of stock movements in the account. Ac counts and Investor Accounts , please cal l the HKSCC
stat ements against the information supplied by hotli ne at 2979 7000 or 2979 7111.
CONTENTS What's new?
The timelines s of information about financial At pres ent , users can c hoose to receive update
l Investors taking ownership P.1 mark et development s is just as important as not ificat ions whenever there are changes made to
accuracy. Old news, as they say in journalism, is the following sections of the website:
What’ new? P.1
no news. The SFC has designed its websit e to
l What's new on licensing-related matters;
l Expanding horizons P.2 enable market participants to quickly access the
l FAQs on licensing-related matters;
l SFO updates P.2 latest information by such standard means as the
l W ha t 's ne w on S ec urit ies an d Fut u res
scrolling news box and "What's New" sect ions
l Shorts P.2 Ordinance;
on its homepage.
l What's new on inves tor education; and
l Unregistered dealing in P.3
The Commission has now gone a step further, l Invest or alert updates.
cyberspace however, by launching an even more efficient
The SFC will continue to expand the scope of the e-
l FinNet - the financial P.3 way of alerting its website users to breaking news
mail alert service. Visit our website now and click on
- an e-mail alert service. Investors and financial
services network t he ic on above t o s ign up for the s ervic e. The
intermediaries who have signed up for this free
hyperlink s to t he ex act webpages where changes
l A fine balance P.4 service will receive e-mails containing hyperlinks
have been made will be delivered to your electronic
to new updates on the SFC's website.
MediaHotline Investor Hotline Electronic Investor Resources Centre SFCwebsite E-mail address
CONTACTING US (852) 2840 9287 (852) 2840 9333 w ww .hkeirc.org w ww .hksfc.org.hk firstname.lastname@example.org
S FC Monthly New s letter Is s ue No.9 June 2002 PA G E 1
Local fund managers will have the opportunity to tap
Expanding horizons into the Australian fund market in a more cost-efficient
manner. A s ment ioned earlier, A S IC already
A new conti ne nt has be en a dded to Hong Kong's fund ma na ge m ent universe w ith a
recognises standard bonds and equities funds that
mutual recognition of fund m anagers de al wi th Austral ia are established in Hong Kong and authorised by the
Hong K ong and A us t ralia have reac hed a informat ion from t he overseas authority for the SFC. Hence, local fund managers will enjoy regulatory
cons ens us on t he mutual recognition of fund purpose of cross-border supervision of the fund compliance cost s savings when they market their
managers . Fund managers lic ensed by the management company. funds in Australia, as these funds are already deemed
Australian S ecurit ies Invest ment Commission to have met most of ASIC's key requirements.
(A SIC) would be able t o manage inves tment Overseas jurisdic tions accepted by the SFC as
s chemes aut horised by t he SFC. This is a AIRs include t he United S tates and European With t he pooling and exchange of Hong Kong and
significant and encouraging step forward from the c ountries ac k nowledged as major financ ial Aust ralian fund expertise leading to furt her product
recent recognition by ASIC of standard bonds and centres. Australia will be the first count ry in the innovation, Hong Kong will be able to further develop
equities funds that are established in Hong Kong Asia Pacific region to be added to this list. as a major regional fund management c entre.
and authorised by the SFC. The mut ual rec ognit ion of fund managers Hong Kong already has one of the world's most open
At present, the SFC's Code on Unit Trusts and benefits investors, local fund managers, and the fund management indust ries. In the past 10 years,
Mut ual Funds requires t hat t he invest ment Hong K ong fund market as a whole. the loc al fund indust ry has developed in leaps and
management operations of an authorised fund be bounds . The number of authoris ed unit trus ts and
Investors will benefit from having a greater choice mutual funds registered with the SFC has grown from
based in a juris dic t ion wit h an acc ept able of retail funds to c hoose from. The introduc tion
inspection regime (AIR). This is to ensure that the 920 in 1992, to 1,890 by the end of March 2002, with
o f in n ovat i ve n e w f un ds mana g ed b y a net asset value of US$285 billion.
investment management activities of the fund is experienced Australian-based fund managers will
regulated and inspected by an overseas authority cert ainly be a welcome addition t o our fund The SFC is now working towards concluding the co-
in a manner generally consistent with t he SFC's market. operation and mut ual rec ognition agreement with
own regulatory standards. The SFC can also get ASIC in the third quarter of 2002.
of the SFO with the B LIS 's organised structure
SFO updates and its user-friendly " search" func tion.
Consul ta ti ons and Conclusi ons l Regularly checking the warning list of unlicensed
SFO on BLIS
overseas companies on the SFC website may well
The S FC has c reated on its website (under t he Over t he las t few week s , the c ons ult ation save you a lot of money. This was certainly the
s ec tion of Securit ies and Futures Ordinanc e ex ercises cont inued for various piec es of sub- case for a UK investor Mr A (real name withheld)
(S FO)) a new link t o t he full t ext of t he SFO in legi s lat io n unde r t he S FO. A numbe r of who avoided falling victim to an investment scam.
the Bilingual Laws Informat ion S ys tem (B LIS) Consultat ion Conclus ions were also published. Mr A had been under pres sure from a Scott Mills
operat ed by t he Depart ment of Jus tic e. The All the consultat ion and conclusions papers are of First Chartered Capital who contacted Mr A by
public can easily acc ess any specific provision available on t he SFC website under the S FO phone and fax for two weeks. Mr A was about to
section. send Mills £5, 000 to invest in his "onc e in a life
Consulta tion Papers on the follow ing Issue Da te Cl osing Da te time" offer. Luckily Mr A visit ed the SFC website,
have be en i ssue d since 15 Ma y 2002: read the art icle on "B oiler Room" frauds and
Securit ies and Fut ures (Leveraged Foreign E xc hange checked the warning list, on which First Chartered
Trading - Exempt ion) Rules 5 June 2002 26 June 2002 Capit al appeared. He immediately withheld t he
money. He sent an email to the SFC to say "thank
Securities and Futures (Short S elling Exemption
y ou". He said that he was glad t hat the SFC
and S toc k Lending) Rules 24 May 2002 21 June 2002
highlighted these companies before he got ripped
Securities and Futures (Disclosure of Interests - off. The warning lis t saved Mr A his hard earn
Ex clus ions) Regulation 16 May 2002 8 June 2002 money. It could also save yours!
Consultation Conclusions on the fol lowi ng Issue Da te l The S FC has announc ed amendment s t o the
have be en i ssue d since 15 Ma y 2002: ex ist ing Financ ial Res ourc es Rules . Firms
providing sec urit ies margin financ ing will be
Securities and Futures (Cont rac t Notes , St atement s of Ac counts and
required to: (a) apply a 80% " illiquid c ollat eral
and Receipt s) Rules 6 June 2002
discount" to the value of stoc k collat eral that are
i) Securit ies and Fut ures (Levy ) Order diffic ult to liquidate; and (b) where a firm's tot al
ii) Securities and Fut ures (Levy) Rules 5 June 2002 borrowings whic h are s ecured by repledging
Securities and Fut ures (Registration of Commission margin clients' sec urities exceed 65% of it s total
Disciplinary Orders) Rules 5 June 2002 margin loan, include the excess amount in the firm's
i) Securities and Futures (Investor Compens ation - Levy) Rules ranking liabilities. The amended Rules will become
ii) Securities and Futures (Inves tor Compens ation - Compens ation effective on 1 Oc tober 2002.
Limit s) Rules l The SFC's Hedge Funds Guidelines bec ame
iii) Securities and Futures (Transfer of Func tions - Invest or effect ive on 17 May 2002. To fac ilit at e mark et
Compens ation Company ) Order prac t it ione rs ' app lic at i ons for hedge fund
iv) Securities and Fut ures (Investor Compens ation - Claims) Rules 5 June 2002 au t hor is a t io n, t he S FC has pr epa red an
Securities and Futures (Professional Investor) Rules 4 June 2002 applic at ion c hec klis t. The c heck list c an be
downloaded from the SFC webs ite under Part C
Securities and Fut ures (Gold P urchase) Notice 3 June 2002
of Volume 2 of the Regulatory Handbook in t he
Securities and Futures (A ssoc iated E ntit ies) Rules 30 May 2002 "Bills, Legislation & Codes" sec tion.
S FC Monthly New s letter Is s ue No.9 June 2002 PA G E 2
Unregistered dealing in cyberspace
It is the SFC's job to ove rse e al l securiti es firm s w ho target Hong Kong i nve stors - even i n cybe rspa ce
The S FC has no t ed t hat s ome ove rs eas c ommit ment to impart ial enforc ement and In c ons idering the penalty, Mr White comment ed
sec urities firms, which are not licensed in Hong invest or protect ion. that the offences were very serious. The potential
Kong, offer local inves tors the opportunity, via damage of unregistered c ompanies operating from
B et ween May 2000 and May 2001, GLA , a
hyperlinks on their websites, to open accounts an overs eas mot her company to solicit funds from
subsidiary of a lic ensed securities dealer in the
and trade in st oc ks overs eas. Hong K ong inves t ors , who were left wit h no
US , operat ed a loc al webs it e whic h was
poss ibility of rec overy in t he case of default, was
The SFC welcomes t he increase in investment hyperlink ed to t he online t rading plat form of
it s parent company in the US. Inves tors could enormous. The penalt y impos ed was intended to
opport unit ies for local inves t ors, and als o
det er not only t he defendant c ompany, but als o
s upports t echnologic al advances t hat mak e open acc ounts and t rade s toc ks in the US via
ot her part ies who int ended to act similarly.
s ec urit ies dealings more efficient and les s t he websit e. GLA was not regist ered and it
cost ly. The Commiss ion has a duty, however, already breached the S ecurities Ordinanc e. The S FC would like to remind mark et part icipants
t o protect local invest ors by overseeing the t hat t he mere pres ence of a hy perlink t o an
The company also kept and distributed promotional
act ivit ies of all sec urit ies firms who target Hong overseas t rading platform does not normally t rigger
documents and account opening forms at its Hong
Kong invest ors. a lic ensing requirement . The pres ence of any
Kong office, and referred potential clients to its
induc ement, or invit ation, to vis it the relat ed sit es
To ensure the standards of financial intermediaries website for details and to open accounts. These
through the links concerned may, however, mean
and to afford inves tors an effec tive protection, document s and t he mat erials on the website
a lic ence is required. In general, invest ors s hould
registration with the SFC is a must for companies contained an invitation to the public to deal in
securities, which had not been authorised by the mak e sure t hat they are dealing wit h qualified
engaging in s ecurities dealing in Hong Kong
profess ionals who have registered with t he SFC.
unless they are exempted. Whether a company SFC. Henc e, GLA was als o in breach of t he
is an online broker or a traditional brok er makes Protection of Investors Ordinance.
F or mor e detai l s, mar k et prac ti ti oners c an refer to the
no difference. “Cir c ul ar on Pr ovi si on of Fi nanc ial Informati on on the
The S FC s uc c ess fully prosec uted GLA for
The case of GlobaLinkA s ia. com Lt d (GLA), thes e offenc es. The c ompany pleaded guilty Inter net - Lic ensi ng Requir ements ” is sued by the SF C
which was rec ently pros ecuted for unregistered t o s ix summonses before Mr P C W hit e at on 30 J une 2000. The Ci rc ul ar is avail ab le on the SF C
dealing and t he is s uanc e of unaut horis ed West ern Magistrac y on 5 June 2002. It was we b s i te u nde r t he "In term edi ar i es , Li c ens i ng &
advert is ement s , demons t rat es t he S FC's fined a t ot al of $280,000 and ordered t o pay Inves tment Pr oducts - Upda te for Intermed i ar i es -
costs of $14,178 to the SFC. O thers " section.
FinNet - the financial services network
Ke eping the financia l com muni ty informe d and conne cted
Information, it is often blit hely asserted, is the Keep in touch al s o po s t e d on Fi nNe t for vi ew ing and
lifeblood of mark ets . W hat is s ometimes downloading.
overlooked, however, is that jus t as important All SFC regis trants are automatically entitled to
as information is c ommunic ation. a FinNet membership, which includes a FinNet Other new feat ures to be introduced to t he e-SFC
e-mail account. Since 1 May 2002, the SFC has shortly include an "e-Licensing" system (for electronic
FinNet - the s ecure online network c onnect ing been sending out circulars to registrants through s ubmiss ion of lic ence applic at ions ), and an "e-
financial market participants in Hong K ong - is FinNet e-mail accounts, replacing the traditional Survey" system (that enables the conducting of online
much more than an information channel between pap er-b as ed s y s t em. This allo ws m ore surveys). The "search" function of FinNet is also a
the SFC and its registrants. It is emerging as a convenient, secure and timely communicat ion. valuable feature for registrants, enabling user-friendly
s ing le net work f or c om munic a t ions and Besides the circulars, other SFC documents and access to the data on FinNet.
transac tions bet ween Hong Kong's regulators, publications are also delivered via the FinNet e-
banks , brok ers , inves t ment advis ors , and mail network, and FinNet has become a one-stop- Watch this space
information providers. shop for an expanding range of e-SFC services, The SFC expects that new services and applications,
including: including those provided by third-part ies, will be
Since its launch in July 2001, this secure, open,
s calable and high performance net work has gradually launched on FinNet, ultimately realis ing
l e-FRRR - regis t rant s c an s ubmit t heir
expanded with cross-link s with ot her regulators FinNet's vision of making Hong Kong one of the first
Financial Res ources Rules Returns to the
and market players. international financial cent res to achieve straight-
through proces sing and real-time delivery vers us
The Hong Kong Monetary Authority (HKMA) and l e-Circulars - besides being sent by e-mail, payment for financial transactions on a single secure
Hong K ong Ex changes and Clearing Limit ed the c irculars are also posted on the FinNet network interconnecting all financial institutions.
(HKEx), for example, now offer their services via website;
FinNet . Thes e include access t o t he HKMA 's
SFC Regis tr ants c an vis i t the F i nNet web s ite at www.
announcements and HKEx's CCASS (the Central l e-Consultat ion - consultation papers issued
fi nnet-hk.net, and s houl d refer to the SF C letter s ent in
Clearing and S et tlement S ys tem). An e-IPO by the SFC are made available on FinNet;
January 2002 for F inNet login IDs and e- mail addresses.
mechanism is also in place to allow the backend and
Member s of the pub li c i nterested to know more ab out
proces sing of s hare s ubsc riptions between
l e-Newslet t ers & e-P ublic at ions - S FC this pr ivate network can vis it Fi nNet's pub lic webs ite at:
brok ers and share registrars in an initial public
news let ters and ot her public ations are www.ab outfi nnet-hk.net.
S FC Monthly New s letter Is s ue No.9 June 2002 PA G E 3
A fine balance
The SFC's simplified and rationalise d lice nsing regim e is more user-friendl y for intermedia ries a nd gi ves investors better protection
Simplifying the procedures required of financial direc tors and advisory directors in their own right, businesses before the end of the two-year transition.
intermediaries applying for an SFC licence does un der t h e S FO t he y wi ll be lic ens ed as
Both intermediaries and investors benefit
not neces sarily mean lowering the standards representat ives and approved as res pons ible
required of persons applying to join the industry. offic ers. The new licensing regime is more competitive, both
The new licensing regime provided by the in terms of compliance cos ts to the indust ry and in
The prac t ical advant age (apart from a more
Securities and Futures Ordinance (S FO), for providing better protection to t he investing public.
appropriately named licence c ategory) is that the
ex ample, r educ es c omplianc e c os t s for
directors will be able to transfer the accreditations For intermediaries, a 3% across-the-board reduction
int ermediaries without c ompromising inves tor
of their licences to another principal should t hey in fees is planned. For example, t he annual and
happen to change employment. (Under the current application fees for a representative will be reduced
This has largely been ac hieved t hrough a system, their licences will lapse upon their leaving to $1,790 (from the existing $1,850). A s a further
rationalisat ion of t he exist ing licensing regime the acc redited firm. ) A n added flexibility is that, incentive, existing licensees seeking to convert their
(o ut li ned in t he S e c ur it ie s O rdi nanc e, under the SFO, all representatives will have s ix licence under the new regime in the first year will
Commodities Trading Ordinanc e, and t he months (four more than the existing system) to find enjoy a further 5% early bird discount.
Le ve ra ge d Fo re ig n E x c h an ge Tra di ng a new employer before their licences expire.
For investors, the new public register will contain a
Ordinance), which requires practitioners to apply
Representatives may also look forward to receiving wider array of information on the status of licensees.
for as many as 12 different kinds of lic enc es
their licences wit hin a week after submitting an Additions to the register are the conditions attached
depending on what kind of ac tivity t hey are
application. These come in the form of a provisional to each lic ence, a five-year dis ciplinary record of
licence. The intention is that a provisional licence every licensee, and each firm's complaint channels.
The single licence will be issued upon a "no adverse information basis"
"The implement ation of the new regime will be a
and the applic ant s atis fying t he compet enc e
All these licences will disappear when t he new very exciting event for the industry," says the SFC's
requirements but before t he completion of external
Ordinance becomes operational. The regulated Director of Lic ensing, Lucinda Wong. " Licens ing
vetting procedures by the SFC.
activities will be subsumed into nine types: staff are storming ahead with preparations for the
The fast t rack approval proc ess will be extended, c hange-over, whic h ent ails rebuilding a new
Type 1 - dealing in securities
in t he form of temporary licences, t o overseas comput er s ys tem, redesigning new application
Type 2 - dealing in futures contracts regulated intermediaries or representat ives who forms, carrying out public consultations on pertinent
wis h t o come over to Hong K ong to conduc t is sues , rewrit ing lic ens ing public at ions , and
Type 3 - leveraged foreign exc hange trading
business on a short-term basis. Although these are conducting internal and ex ternal training sessions,
Type 4 - advising on securities limited to types 1, 2, 4, 5 & 6 of the above regulated etc."
ac t ivit ies , and t he approved period of eac h
Type 5 - advis ing on fut ures cont racts She has this advice for intermediaries: "To really reap
temporary licenc e cannot exceed three mont hs,
the benefits of the efficiency window made available
Type 6 - advising on corporate finance t hey ar e ex empt ed fr om c ert ain li c ens ing
by the new licensing regime, intermediaries should
Type 7 - providing automat ed trading services reflect on their own bus ines s models as soon as
All existing licensees will be able to board a two- pos s ible and t ak e s t e ps t o s t reamline and
Type 8 - securities margin financing
year transit ional train, during which they will be consolidate fragmented regulat ed ac tivities under
Type 9 - asset management deemed to have been lic ensed under the new a single legal vehic le."
regime. Dealing and advisory directors will c arry
Each intermediary will only need one licence to Her words to investors are: "The SFC's gatekeeping
on as responsible offic ers . The current ex empt
c arry out more than one ty pe of regulated role in ensuring that only fit and proper persons are
dealer and exempt invest ment advis er status es
act ivities, and only an additional endorsement allowed to join the industry remains unchanged. Yet,
(which mainly apply to authorised institutions) will
(and not a new licence) is required for carrying there will be greater transparency under t he new
give way to a registrat ion s ys tem. A uthoris ed
out an additional regulated activity. The savings regime and inves tors can ac cess the information
institutions engaging in regulated activities will need
in c apit al and c ompliance res ourc es will be from t he public regis t er maint ained by t he
to register with the SFC, and be subject to a similar
Other efficiency gains
As an additional investor protection meas ure, sole A full ver sion of an over view of the new li cens ing regi me
A nother major effic ienc y gain has been the proprietors and partnerships will have to give way under the SFO i s available on the SF C's webs ite at www.
introduct ion of the 'responsible officer' concept. to corporations. This means existing sole proprietor hks fc.org.hk. A set of Transitional Guidelines wil l further
W hile t he c urrent sy s tem licens es dealing and part ners hip firms mus t c orporat is e t heir be issued shortly.
Securities and Futures Commission
12/F Edinburgh Tower, The Landmark, 15 Queen’ Road Central, Hong Kong
Telephone: (852) 2840 9222 Facsimile: (852) 2521 7836 Website: www.hksfc.org.hk Electronic Investor Resources Centre: www.hkeirc.org
S FC Monthly New s letter Is s ue No.9 June 2002 PA G E 4