按月份存档： 6 月, 2015

• 信报头版专访- 内地与香港基金互认（2015年6月8日）

1. SFC emphasizes proper disclosure of inside information
2. SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Warderly shares
3. SFC reprimands and fines Kingston HK$500,000 for fitness and properness concerns
4. SFC bans Wong Wai Hong for six months for breaching the Code of Conduct
5. SFC recovers HK$190 million for investors of collapsed hedge fund
6. SFC bans Benjamin Zhu Zhiwei for 18 months for misconduct
7. Hong Kong Game Theory Association Limited and sole director convicted of unlicensed activities
8. Intermediaries reminded full compliance with Know Your Client and account opening procedures
9. Update on reporting and record keeping rules for OTC derivatives
10. SFC enhances regime to regulate alternative liquidity pools
11. SFC launches new register of cold shoulder orders
12. Joint Announcement of China Securities Regulatory Commission and SFC on Mutual Recognition of Funds
13. SFC and CSRC sign agreement on Mainland-Hong Kong Mutual Recognition of Funds
14. SFAT affirms SFC decision to ban Sun Xiao for 13 months
15. Former licensee convicted of false trading

1.  SFC emphasizes proper disclosure of inside information

On 29 April 2015, the SFC published the latest edition of its Corporate Regulation Newsletter highlighting the importance of the proper disclosure of inside information by listing applicants and listed companies.

Background

The newsletter describes, through a number of examples, some of the factors that should be considered when determining whether information needs to be disclosed. These include, among others, the certainty and materiality of the information as well as whether it diverges from market expectations. The newsletter also advises companies to be careful when they repeat information which was either included in their prospectuses or otherwise already announced.

The newsletter also addresses disclosures by listing applicants. In particular, it reinforces the obligation on sponsors to conduct reasonable due diligence to ascertain the accuracy of the information disclosed in listing documents. The newsletter further states that where the identities of a listing applicant’s major customers are not included in the prospectus, that information cannot be supplied at roadshows or in marketing materials. The SFC also encouraged listing applicants to take particular care in ensuring that incentive schemes for initial public offerings are appropriate and easy to understand.

Comment

Pursuant to section 307D of the SFO, listed companies have an obligation to disclose inside information to the public as soon as reasonably practicable after the information has come to their knowledge, subject to specified exceptions under section 307B of the SFO. Inside information is considered to have come to the knowledge of a listed corporation if (a) an officer of the corporation, in the course of performing his duties as an officer of the corporation, has or ought reasonably to have known about the inside information; and (b) a reasonable person, acting as an officer of the corporation, would consider that the information is inside information in relation to the corporation. If this obligation is breached, the listed corporation and/or its directors may be subject to civil liability of a regulatory fine up to HK$8 million and/or other sanctions under section 307N of the SFO.

To view the Corporate Regulation Newsletter, please visit:

http://www.sfc.hk/web/EN/files/ER/Reports/CRN/CR_201504.pdf

For details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR39

2. SFC commences Market Misconduct Tribunal proceedings over alleged insider dealing in Warderly shares

On 4 May 2015, the SFC commenced proceedings in the Market Misconduct Tribunal (“MMT”) against Mr Lo Hang Fong (“Mr Lo”), a former Company Secretary of Warderly International Holdings Limited (“Warderly”), and Mr Luu Hung Viet Derrick (“Mr Luu”), a lender and potential investor of Warderly, for alleged insider dealing in Warderly shares.

Background

The SFC alleges that Mr Lo and Mr Luu were aware that Warderly was in a perilous financial position with banks withdrawing credit facilities when they sold the company’s shares in 2007 and avoided a total loss of HK$12,564,516. The SFC further alleges that Mr Lo and Mr Luu knew the financial crisis facing Warderly was material, highly price sensitive and not generally known to the market.

Warderly began to encounter cash flow problems in mid-2006 due to a surge in the price of raw materials and the settlement of a large tax claim with the Inland Revenue Department. From July 2006 onwards, Warderly experienced a number of material events concerning its financial position, including tightening of banking facilities and subsequent events such as overdue loans, rescheduled payments, demand letters and writs issued by banks. Furthermore, on 14 May 2007, the SFC directed the SEHK to suspend all dealings in Warderly shares under Rule 8 of the Securities and Futures (Stock Market Listing) Rules. Trading of Warderly shares resumed on 16 December 2013 after Warderly underwent a restructuring of its business operations and a change of its management team.

Comment

The definition of insider dealing is set out in sections 270 and 291 of the SFO. Under those sections, insider dealing includes the situation when a person dealing in the Hong Kong listed securities of a corporation is connected with the listed corporation and knowingly has inside information in relation to the listed corporation. Under the Ordinance, “inside information” refers to specific information in relation to a corporation, its shareholders or officers, or its listed securities or their derivatives, which is not generally known to the persons who are accustomed to dealing or would be likely to deal in those securities, but would likely affect the price of the listed securities materially if the information was disclosed.

For details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR41

3.  SFC reprimands and fines Kingston HK$500,000 for fitness and properness concerns

On 5 May 2015, the SFC reprimanded and fined Kingston Securities Limited (“Kingston”) HK$500,000 for fitness and properness concerns.

Background

The SFC found that on 19 January 2009, an employee of Kingston, while in Macao, opened accounts for 22 Macao residents and took orders and payment from those clients, who each bought one or three board lots of PCCW Limited (“PCCW”) shares. The transactions in question involved PCCW shares that were later voted in the shareholders’ meeting in early 2009 to consider the scheme of arrangement (scheme) proposing the delisting and privatization of PCCW, and the scheme was subsequently withdrawn.

Since neither Kingston nor its employee involved were authorized by the Monetary Authority of Macao (“AMCM”) to conduct regulated activities, including opening securities accounts and taking orders for securities trading in Macao, the conduct was in breach of the Financial System Act of Macao. In October 2014, the AMCM in its proceedings against Kingston, made a final ruling to sanction and fine the firm MOP750,000 for its breach of the Financial System Act.

Kingston’s conduct has subsequently raised the SFC’s concern over Kingston’s fitness and properness as an SFC-licensed corporation. The SFC considers that Kingston’s contravention of the laws of Macao casts doubt on the firm’s reputation, character and reliability because as an SFC-licensed corporation, the duty of Kingston to demonstrate these qualities is not only restricted to conduct in the Hong Kong market. It is also imperative for Kingston to respect and comply with rules of relevant regulatory authority and laws of relevant jurisdictions, particularly those where Kingston conducts its business activities. This is evident in the circular issued by the SFC to intermediaries in January 2014, reminding them about their obligations when conducting cross-border business, including the importance of ensuring compliance with all relevant laws and obligations.

Comment

According to paragraph 12.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”), a licensed person should comply with, and implement and maintain measures appropriate to ensuring compliance with the law and relevant regulatory requirements. This general obligation to observe legal and regulatory requirements applies to activities conducted by the licensed person whether in or outside Hong Kong, with respect to all applicable requirements of any relevant regulatory authority. Furthermore, a licensed corporation having employees or agents conducting business activities on its behalf in other jurisdictions, irrespective of whether such persons are licensed under the SFO, is likely to be regarded by the SFC as responsible for their conduct. Therefore, if these persons are not licensed under the laws or regulations of such other jurisdictions when they should be, or they otherwise conduct themselves in an improper manner, this may constitute a breach of paragraph 12.1 of the Code of Conduct and may also call into question the fitness and properness of such a corporation and/or individual to be, or remain, licensed under the SFO. As such, licensed corporations should enquire as to how the law of other jurisdictions applies to the particular activity before conducting any cross-border business activities.

For details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR42

4.  SFC bans Wong Wai Hong for six months for breaching the Code of Conduct

1. the client’s authority must be in writing;
2. the authority should specify the person who is authorized to operate the account, stating that the person is an employee or agent of the licensed or registered person, if the authority is granted to such person;
3. the terms of the authority should be explained by the licensed or registered person or a person employed by it to the client if the authority is given to such persons to operate the account;
4. the authority should be confirmed annually by the licensed or registered person with the client – for this purpose, it is permissible for the licensed or registered person to notify the client before the expiry date that it will be automatically renewed unless the client specifically revokes it before the expiry date;
5. the account should be designated as a discretionary account;
6. senior management should approve the opening of the account; and
7. internal control systems should be installed to ensure that the operation of the account is properly supervised.

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR43

5.  SFC recovers HK$190 million for investors of collapsed hedge fund

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR44

6. SFC bans Benjamin Zhu Zhiwei for 18 months for misconduct

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR45

7. Hong Kong Game Theory Association Limited and sole director convicted of unlicensed activities

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR46

8. Intermediaries reminded full compliance with Know Your Client and account opening procedures

On 12 May 2015, the SFC issued a Circular reminding intermediaries on the importance of appropriate account opening procedures for investors in and outside Hong Kong in order to fully comply with the Know Your Client (“KYC”) and account opening procedures requirements under the Code of Conduct.

Background

The Circular was issued after the SFC had identified certain deficiencies and an unsatisfactory practice by licensed corporations during recent supervisory reviews of KYC and account opening procedures. As a result, the SFC urged intermediaries to take proper measures to effectively authenticate the client’s identity and the client’s execution of account opening documents. Intermediaries are reminded to ensure that the identity and other personal information about their clients are accurate and up-to-date to ensure their clients are contactable.

The Circular also identifies that the use of an affiliate which itself is not a regulated financial institution and is not subject to similar KYC requirements to perform the task of certifying the identity documents of new clients and client’s execution of account opening documents may result in inadequacies due to the lack of relevant knowledge and experience of the affiliate. As such, intermediaries are strongly discouraged from appointing any affiliate which is not a regulated financial institution to perform such task.

If intermediaries fail to maintain and implement proper policies and procedures for compliance with the KYC and account opening procedures, they may be subject to disciplinary actions by the SFC.

Comment

The KYC requirements are set out in paragraph 5.1 of the Code of Conduct, which states that prior to executing any transaction for a client, a licensed or registered person is required to satisfy itself on reasonable grounds of the identity, address and contact details of the ultimate originator and the ultimate beneficiary of a transaction and keep a record of the information used to establish the same. In the case of a collective investment scheme (“CIS”) or discretionary account, this will require the licensed or registered person to establish the identity of the CIS or account and its manager. The identities of the ultimate beneficiaries only need to be established where they are in fact giving the instructions.

The above requirements are supplemented by paragraph 5.4 of the Code of Conduct and the Client Identity Guidance Note in Schedule 2 of the Code of Conduct, which contains further clarifications and examples of the above requirements.

To view the Circular, please visit: http://www.sfc.hk/edistributionWeb/gateway/EN/circular/openFile?refNo=15EC28

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR47

9. Update on reporting and record keeping rules for OTC derivatives

On 15 May 2015, the HKMA and SFC released conclusions on the further consultation on mandatory reporting and related record keeping obligations under the new OTC derivatives regime. Proposals on certain aspects of the reporting regime were revised after taking into account market feedback.

Background

On 18 July 2014, the HKMA and SFC commenced a one-month public consultation on the Securities and Futures (OTC Derivatives Transactions – Reporting and Record Keeping Obligations) Rules. Thereafter, on 28 November 2014, the HKMA and SFC issued the Consultation Conclusions. The further consultation, which ended on 23 December 2014, sought further views on three ancillary matters relating to: (i) the reporting of valuation transaction information (including the details of this requirement and the proposed implementation timetable); (ii) the designation of a list of jurisdictions for the purpose of the masking relief; and (iii) the list of stock markets, futures markets and clearing houses to be prescribed for the purposes of defining the scope of the OTC derivatives regime.

Highlights of the consultation conclusion include requirements on:

• Daily valuation reporting
• Jurisdictions for masking relief
• Markets and clearing houses to be prescribed
• Definition of the term “affiliate”
• Record keeping obligations

The revised Securities and Futures (OTC Derivative Transactions – Reporting and Record Keeping Obligations) Rules attached to the conclusions paper was gazetted on the same today and was tabled before the Legislative Council on 20 May 2015 for negative vetting. A set of draft FAQs has also been uploaded on the HKMA and SFC websites to help market participants better understand how the rules operate.

Comment

Part VI of the SFO grants the SFC powers to make detailed rules relating to the keeping of account and records by licensed or registered intermediaries and associated entities of an intermediary whose client assets are received or held by them. As such, the SFC has made the Securities and Futures (Keeping of Records) Rules under s.151 of the SFO.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR49

10. SFC enhances regime to regulate alternative liquidity pools

On 15 May 2015, the SFC released consultation conclusions on proposals to enhance and unify the regulatory regime for alternative liquidity pools (“ALPs”).

From 27 February to 25 April 2014, the SFC conducted a two-month consultation concerning the regulation of ALPs. The SFC received 59 written responses from industry associations, market participants (including ALP operators), professional and statutory bodies as well as individuals during the consultation. The respondents generally welcomed the proposals.

The enhanced regime included the following highlights:

• no individual investors (including individual professional investors and their wholly owned investment holding corporations) will be allowed to use ALPs;
• client facilitation orders will be treated as proprietary orders, which will have a lower execution priority in ALPs than agency orders; and
• there will be no mandatory “opt-in” requirement before client orders can be routed to ALPs, but ALP operators should permit their clients to opt out of having their orders transacted in ALPs.

Mr Ashley Alder, the SFC’s CEO, said, “The enhanced regulatory regime aims to provide a level playing field for all ALP operators in Hong Kong. We have developed the regime in light of practices in major international markets and the principles published by the International Organization of Securities Commissions.” He further stated that “the SFC will closely monitor market and regulatory developments, and may propose further policy refinements and rule changes in the future to maintain an appropriate balance between market innovation and investor protection”.

The new regime involves amendments to the Code of Conduct, which include a new paragraph 19 and a new Schedule 8 which are set out in Appendices B and C to the Consultation Conclusions. This regime will come into effect on 1 December 2015.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR15

11. SFC launches new register of cold shoulder orders

On 21 May 2015, the SFC launched a new public register of cold shoulder orders to facilitate compliance by intermediaries when dealing with clients who are subject to these sanctions.

Background

The new register, which can be accessed under the Alert List the homepage of the SFC’s website, contains the names of those who are the subjects of current cold shoulder orders made by the courts, the MMT or the Takeovers Panel. The Alert List also includes a table of disqualification orders made against directors of companies and a link to “Have you seen these people?” which contains information of individuals being sought by the SFC in relation to its investigations or enforcement inquiries.  Names on these lists will be deleted once the period of prohibition or disqualification is completed. The SFC therefore encourages intermediaries to refer to the list from time to time to ensure compliance with the orders.

“Successful enforcement relies upon the cooperation of market participants and we hope the new register will make those who are prohibited from trading in Hong Kong or disqualified from acting as company directors more readily identifiable,” said the SFC’s Executive Director of Enforcement, Mr Mark Steward.

Comment

A cold shoulder order is a prohibition on investing or trading in Hong Kong markets for up to 5 years. On the other hand, a disqualification order is a prohibition on someone from being a director of a corporation, and carries a maximum term of 15 years.

Pursuant to sections 12.2(c) and 12.3 of the Introduction to the Codes on Takeovers and Mergers and Share Buy-Backs (the “Codes”), the Takeovers Panel and the Takeovers Executive may impose sanctions requiring licensed corporations, licensed representatives, registered institutions, or relevant individuals, for a stated period, not to act or continue to act in any or a stated capacity for any person who has failed to comply, or has indicated that he does not intend to comply, with either the Codes or a ruling. Moreover,  Under sections 257(1)(b) and 307N(1)(b) of the SFO, the MMT can make a cold shoulder order against a person requiring that the person shall not, without the leave of the Court of First Instance, in Hong Kong, directly or indirectly, in any way acquire, dispose of or otherwise deal in any securities, futures contract or leveraged foreign exchange contract, or an interest in any securities, futures contract, leveraged foreign exchange contract or collective investment scheme for a period not exceeding 5 years. Furthermore, a cold shoulder may be made by the Court of First Instance under the following two sections. Pursuant to section 213(2)(g) of the SFO, the Court of First Instance may make any ancillary order which the Court of First Instance considers necessary in consequence of the making of any of the orders referred to in paragraphs (a) to (f). Additionally, section 214(2)(a) of the SFO provides that the Court of First Instance may make an order restraining the carrying out, or requiring the carrying out, of any act or acts.

12. Joint Announcement of China Securities Regulatory Commission and SFC on Mutual Recognition of Funds

The China Securities Regulatory Commission (“CSRC”) and SFC have recently decided to embark on the Mainland-Hong Kong Mutual Recognition of Funds (“MRF”) initiative to deepen Mainland-Hong Kong financial cooperation and promote the joint development of the Mainland and Hong Kong capital markets. On 22 May 2015, the SFC made a joint announcement setting out the details of the MRF initiative.

The CSRC and SFC have agreed on the implementation principles, and the mode and operation of the MRF. On 22 May 2015, the CSRC and SFC signed a memorandum of regulatory cooperation in respect of the MRF. Through the MRF, the CSRC and SFC will allow Mainland and Hong Kong funds that meet the eligibility requirements to follow streamlined procedures to obtain authorization or approval for offering to retail investors in each other’s market.

Further, the announcement states that the MRF is an important element in the opening up of the Mainland capital market and an important milestone in the mutual opening of the Mainland and Hong Kong markets. The MRF will enhance the mutual capital market access between the Mainland and Hong Kong and is significant in (i) deepening the exchange and cooperation of Mainland and Hong Kong asset management industries, broadening cross-border investment channels, and enhancing the competitiveness of the Mainland and Hong Kong fund markets; (ii) laying a foundation for the CSRC and SFC to jointly develop a fund regulatory standard, promoting the integration and development of the Asian asset management industry and encouraging the transformation of Asian savings into cross-border investments; and (iii) providing more diverse fund investment products to Mainland and Hong Kong investors, expanding business opportunities and enhancing the international competitiveness of Mainland and Hong Kong fund management firms.

The announcement also mentions the “Provisional Rules for Recognized Hong Kong Funds” and “Circular on Mutual Recognition of Funds between the Mainland and Hong Kong”, which are documents prepared by the CSRC and SFC. The said documents set out the eligibility requirements, applications procedures, operational requirements and regulatory arrangements of the MRF, and will form the basis of regulation and enforcement, and market participants’ business operations. The CSRC and SFC have also established a cooperation mechanism for cross-border regulation and enforcement, to ensure that Mainland and Hong Kong investors receive equal protection.

Moreover, the CSRC and SFC will establish equivalent eligibility requirements for recognizing Hong Kong and Mainland funds promote the mutually beneficial development of recognized funds and broadly balanced cross-border in and out fund flows, and will hold briefings to explain to the market the application procedures and requirements for the MRF. Readers should note that the MRF will be implemented on 1 July 2015.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR52

13. SFC and CSRC sign agreement on Mainland-Hong Kong Mutual Recognition of Funds

On 22 May 2015, the SFC and CSRC have signed a Memorandum of Regulatory Cooperation on Mainland-Hong Kong MRF, which will allow eligible Mainland and Hong Kong funds to be distributed in each other’s market through a streamlined vetting process. The scheme will be implemented on 1 July 2015. .

The Memorandum also established a framework for exchange of information, regular dialogue as well as regulatory cooperation in relation to the cross-border offering of funds.

“The MRFs initiative is a major breakthrough in the opening up of the Mainland’s funds market to offshore funds. It will also open up a new frontier for the Mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets,” the SFC’s Chairman, Mr Carlson Tong (“Mr. Tong”) said.

“More importantly, this initiative will lay the foundation for the CSRC and SFC to jointly develop a fund regulatory standard, promoting the integration and development of the Asian asset management industry,” Mr Tong added.

Further details of the scheme are set out in the joint announcement issued by the SFC and the CSRC and in the SFC Circular issued on 22 May 2015.

To view the Joint announcement, please visit:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR52

To view the SFC Circular, please visit:

http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=15EC29

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR51

14. SFAT affirms SFC decision to ban Sun Xiao for 13 months

On 26 May 2015, the SFC had banned Ms Sun Xiao (“Ms Sun”) from re-entering the industry for 13 months from 22 May 2015 to 21 June 2016 after the Securities and Futures Appeals Tribunal (SFAT) affirmed the SFC’s decision and ordered her to pay the SFC’s costs.

An SFC investigation found that Ms Sun:

• maintained a personal securities account and conducted personal trades in the account without disclosing it to her former employer; and
• failed to avoid potential conflicts of interest in that she (i) recommended target companies to her former employer as potential investment opportunities, without disclosing that she held shares in these companies and/or (ii) traded in shares of the target companies after she had recommended them to her former employer as potential investment opportunities, while two of these companies were on the firm’s restricted trading list.

The SFC concluded that Ms Sun’s failures were in breach of the Code of Conduct. Her non-disclosure of trading activities in the secret account was deliberate and dishonest, and called into question her fitness and properness as a licensed person.

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR54

15. Former licensee convicted of false trading

On 27 May 2015, The Eastern Magistrates’ Court convicted Mr Wong Chun (“Mr Wong”) of false trading in respect of the shares of Sino-Tech International Holdings Limited (“Sino-Tech”).

Mr. Wong was remanded in custody pending sentencing. The case was adjourned to 19 June 2015.

The SFC alleged that, between December 2010 and January 2011, Mr Wong created a false or misleading appearance of active trading in shares of Sino-Tech, using matched trades and some wash trades between his own account and the accounts of two other investors he was able to control to grossly inflate trading volume by more than 400%.

As a result, the securities accounts controlled by Mr Wong were able to off-load more than 200 million shares making a gross profit of more than HK$2 million that he would otherwise not be able to do so.

The SFC’s Executive Director of Enforcement, Mr Mark Steward, said, “Falsifying the market for or the price of securities misleads the investing public and is dishonest. The SFC will continue to prosecute deliberate and dishonest manipulation and offenders can expect to receive terms of imprisonment.”

For further details, please refer to:

http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=15PR55

The article is for general information purpose only and is not intended to constitute legal or other professional advice.

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