Publication of the Exemption Notice Suspending Payment of the Investor Compensation Levies

The SFC publishes today in the Government gazette an exemption notice made under section 25(1) of the Securities and Futures (Investor Compensation – Levy) Rules (the Rules) to declare that no person is required to pay investor compensation levies in respect of a sale and purchase of securities or futures contract on or after 19 December 2005.

The suspension will remain in force until terminated by a termination of exemption notice published by the SFC in the Government gazette under section 26(1) of the Rules at some future date when the net asset value of the Investor Compensation Fund (ICF) falls below $1 billion.

Under Parts 2 and 3 of the Rules, investors are required to pay investor compensation levies at 0.002% on each side of securities transactions executed on the Stock Exchange of Hong Kong Limited and $0.5 ($0.1 for smaller size contracts) per side of a contract on futures transactions executed on the Hong Kong Futures Exchange Limited.

The Securities and Futures (Investor Compensation – Levy) (Amendment) Rules 2005, which came into effect on 28 October 2005, provide for a levy suspension and re-instatement mechanism whereby the investor compensation levies can be suspended when the net asset value of the ICF exceeds $1.4 billion, and subsequently reinstated when the net asset value of the ICF falls below $1 billion.

The levy suspension and re-instatement mechanism helps to reduce the transaction costs borne by investors while ensuring that the assets of the ICF are at a prudent level. As of the end of September 2005, the net asset value of the ICF was $1.59 billion. The SFC will continue to monitor the size of the ICF in order to ensure that it is able to cope with changing market needs.

Ends

Note:

1. In December 2004, the SFC issued a Consultation Paper on “Review of the Level and Funding of the Investor Compensation Fund, Broker Defaults since 1998 and the Operation of the Investor Compensation Arrangements”. Among other matters, the SFC recommended a levy suspension and re-instatement mechanism. The mechanism provides that if the net asset value of the ICF exceeds $1.4 billion, the obligation to pay the levies under the Rules will be suspended. However, if the net asset value of the ICF falls below $1 billion, the obligation to pay the levies will be reinstated. The SFC received general support to the mechanism in the public consultation. Since March 2005, the SFC had worked with the Financial Services and the Treasury Bureau to introduce legislative changes to the Securities and Futures (Investor Compensation – Levy) Rules to implement the levy suspension and re-instatement mechanism. The Amendments Rules were tabled at the Legislative Council for negative vetting between 6 July and 19 October 2005. Upon expiry of this period, the Secretary for Financial Services and the Treasury appointed 28 October 2005 as the commencement date of the Amendment Rules.