The SFC Clarifies Certain Issues relating to iMarkets Limited

The SFC regulates Hong Kong's securities and futures markets without fear or favour and seeks a fair and level playing field for all market participants. It treats all applications for approvals on their merits based on documented criteria.

The SFC has licensed iMarkets as a Securities Dealer under the Securities Ordinance. It has received no special treatment. The SFC has previously licensed similar trading platforms as Securities Dealers and has used the same licensing criterion for iMarkets as it has for the other trading platforms. The SFC has imposed additional conditions on iMarkets' licence in relation to its proposed operations, that it can only provide electronic trade messaging and transaction execution services to professional investors. The SFC will regulate iMarkets as a registered intermediary taking into account the additional conditions imposed on its licence. It will be subject to the same reporting and inspection requirements as all other registered intermediaries plus additional requirements as contained in the conditions to its licence.

Upon enactment of the Securities and Futures Bill, iMarkets would also be regulated as a provider of Automated Trading Services (ATS). The SFC has published Draft Guidelines for the Regulation of Automated Trading Services that set out principles, procedures and standards in relation to the authorisation or licensing of persons by the SFC for providing automated trading services. These draft guidelines provide that "in general, the level of regulation of an ATS will be commensurate with the functions it performs and the risks it poses. In addition, a fair and level playing field will be sought so that similar regulation is applied to similar functions."

The SFC is satisfied that iMarkets' proposed operations are not illegal and do not infringe on the "monopoly" of HKEx. We have taken the same view in relation to other electronic market services. Moreover, iMarkets is not unregulated, it is regulated as a Securities Dealer.

The SFC would also like to make clear that all legal and regulatory requirements that apply to the marketing of ELNs and similar investment products, including the law on prospectuses, apply irrespective of the platform on which they are traded - whether through a facility such as iMarkets or on a stock exchange in the case of HKEx. Different rules apply depending on whether products are offered to professionals or retail investors, and depending on how they are designed.

HKEx is not regulated in the same way as a Securities Dealer. It is a recognised exchange controller, which in turn wholly owns two regulated Exchange Companies and three regulated recognised clearing houses. If new products are to be offered to and traded by the public across HKEx, appropriate trading and listing rules are required to be agreed on by HKEx and the SFC. However, if it wishes to provide services similar to iMarkets it is free to do so and the new venture would be treated on the same basis as iMarkets.