SFC clarifies licensing obligations of inter-dealer brokers

The Securities and Futures Commission (SFC) has issued a circular giving guidance concerning the licensing obligations of inter-dealer brokers (Note 1) carrying on business in Hong Kong.

The SFC has licensed a number of inter-dealer brokers. However, following recent discussions with intermediaries concerning the typical business operations of inter-dealer brokers, the SFC thinks it possible that some inter-dealer brokers might not fully appreciate the nature, extent and implications of the licensing provisions of the Securities and Futures Ordinance (SFO).

Inter-dealer brokers are reminded that the licensing exemptions stipulated in the SFO are relatively narrow in their scope. This means that the normal business activities of inter-dealer brokers are quite likely to fall within the definitions of the three regulated activities of “dealing in securities”, “dealing in futures contracts” or “leveraged foreign exchange trading”. If so, they are required to be licensed by the SFC under the SFO.

The SFC therefore urges inter-dealer brokers to review their business models and, if necessary, to ensure that they are appropriately licensed under the SFO.

The circular is available on SFC website (www.sfc.hk).

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Note:
1. Typically, inter-dealer brokers carry on the business of facilitating transactions between institutional clients and financial institutions in relation to a wide range of financial instruments.