Securities and Futures Ordinance - Consultation on the Securities and Futures (Associated Entities) Rules

The Securities and Futures Commission (SFC) has today published for public consultation a draft of the Securities and Futures (Associated Entities) Rules (the draft Rules) which the SFC proposes to make under the Securities and Futures Ordinance (No. 5 of 2002) (the Ordinance) when it commences.

Part VI of the Ordinance closes a regulatory gap under the existing legislation that enables an intermediary, for example a securities dealer, to register client's securities held in the dealer's safe custody in the name of a nominee company set up by the securities dealer. These nominees are presently unregulated.

To improve investor protection, section 164 of the Ordinance prescribes the types of persons that are allowed to receive or hold in Hong Kong client assets. These persons now include an "associated entity of an intermediary" - a term that would cover most nominees that hold client assets of intermediaries. However, the provisions of Part VI require an associated entity to comply with the various rules made under Part VI, except the Financial Resources Rules.

The draft Rules prescribe for the purposes of section 165(1) of the Ordinance the particulars that an associated entity of an intermediary (other than an associated entity that is a licensed corporation or an authorized financial institution) must provide to the Commission by notice in writing when it becomes or ceases to be an associated entity. A notice is also required when there is a change in any such particulars.

The draft Rules have been prepared having regard to the information that the SFC would ask a licensed corporation to provide. No new policy changes have been incorporated into the draft Rules which are intended simply to implement the policy already explained in section 165 of the Ordinance.

It is the intention of the SFC that the draft Rules should be user-friendly and, for example, they have been drafted in plain English where possible with this objective in mind. The SFC would welcome suggestions from industry participants on any specific improvements that could be made to streamline procedures or make it easier for participants to comply with the Ordinance and the draft Rules.

The public is invited to submit comments in writing before close of business on 19 April 2002. They may be sent -

By mail to:

SFC (Associated Entities Rules)
12/F, Edinburgh Tower
The Landmark
15 Queen's Road Central

By fax to: (852) 2293 5755

By on-line submission at: http://www.hksfc.org.hk

By e-mail to: Associated_Entities_Rules@hksfc.org.hk

Copies of the draft Rules are available at the SFC office and on the SFC's website at http://www.hksfc.org.hk.

Notes to Editors:

1. A licensed corporation means a corporation which is licensed under the Ordinance to carry on regulated activities.

2. An authorized financial institution means an authorized institution as defined in section 2(1) of the Banking Ordinance which can be a bank, a restricted licence bank or a deposit-taking company.