Securities and Futures Ordinance - Revised Draft Rules and Consultation Conclusions (i) Securities and Futures (Client Securities) Rules (ii) Securities and Futures (Client Money) Rules (iii) Securities and Futures (Accounts and Audit) Rules (iv) Securities and Futures (Keeping of Records) Rules

The Securities and Futures Commission (SFC) today releases the above Revised Draft Rules with Consultation Conclusions.

The original proposed rules were released for public consultation on 15 February 2002 (Keeping of Records Rules), 21 December 2001 (Accounts and Audit Rules) and 12 April 2001 (Client Securities Rules and Client Money Rules). During the respective consultation periods, the SFC received responses from market practitioners including industry representative bodies, other regulatory bodies, international brokerage firms, fund managers, professional associations and law firms. Sessions were held with industry participants and their legal advisers during and after the consultation period to discuss their comments. The overall tone of the comments was positive and commentators generally welcomed the proposed rules. The submissions were carefully considered and the proposed draft rules were revised as appropriate.

As the Revised Draft Rules are subject to deliberation of the Legislative Council, they may not be in the final form. They are issued primarily to demonstrate how we have revised the rules in response to the market comments and not for the purpose of another round of consultation. They should be read together with the Consultation Conclusions that provide an analysis of the submissions and explain the Commission's perspectives.

The Revised Draft Securities and Futures (Client Securities) Rules, derived from sections 81, 81A and 121AB of the Securities Ordinance, prescribe how clients' securities or securities collateral are to be dealt with, such as depositing the securities in the safe custody of a segregated account. While extending the statutory protection of clients' securities and securities collateral to all intermediaries (including futures dealers and leveraged foreign exchange traders) and their associated entities, these rules also acknowledge the market's need by:

The Revised Draft Securities and Futures (Client Money) Rules rationalised the existing statutory requirements on the manner in which client money should be dealt with and treated (i.e. section 84 and Division 6 of Part XA of the Securities Ordinance, section 46 of the Commodities Trading Ordinance and section 23 of the Leveraged Foreign Exchange Trading Ordinance). These rules aimed at minimising the exposure of clients' money, as well as enabling licensed corporations to improve their operating efficiency. In summary, these rules require licensed corporations and their associated entities to:

The Revised Draft Securities and Futures (Accounts and Audit) Rules prescribe the contents of the annual accounts to be submitted by licensed corporations and associated entities of intermediaries. The primary changes implemented by these rules from the existing requirements are:

The Revised Draft Securities and Futures (Keeping of Records) Rules, in essence, require intermediaries and their associated entities to keep records containing sufficient details to explain their business activities and operations and account for their client assets, such as accounting records and documents evidencing authorities provided by clients. These rules are intended primarily to rationalize the existing requirements found in three different ordinances (i.e. section 83 and section 121AG of the Securities Ordinance, section 45 of the Commodities Trading Ordinance, and section 3 of the Leveraged Foreign Exchange Trading (Books, Contract Notes and Conduct of Business) Rules).

These rules will become effective on the day appointed for the commencement of Part VI of the Securities and Futures Ordinance.

Copies of the Consultation Conclusions and revised draft Rules are available at the SFC's office, on the SFC's website (www.hksfc.org.hk) and the FinNet communication network.