SFC chairman Andrew Sheng says the new ordinance further reinforces Hong Kong’s position as an international financial centre

The Securities Futures Ordinance (SFO), which came into force on April 1, will provide new standards of protection to international players in Hong Kong's financial markets, as well as shareholders in listed companies and buyers of other investment products.

The SFO has been widely welcomed by market players and lawyers as a major step in reinforcing Hong Kong's role as the region's leading financial centre.

Secretary for Financial Services and the Treasury Frederick Ma said the ordinance would bring about "a fair, efficient and transparent regulatory regime that inspires confidence, facilitates market innovation and development, and is on par with prevailing international standards".

Under the new law, the SFC has been armed with legally enforceable regulations which will reflect the speed of change in global financial markets. It will enable Hong Kong to avoid the risks that were dramatically revealed by the corporate governance scandals that began with the collapse of the US Enron giant two years ago.

Single, streamlined ordinance

Preparing the new law was a mammoth task. It took four and half years, tens of thousands of man hours and extensive consultation with the financial services industry. What emerged was a single, streamlined ordinance which replaced 10 separate pieces of legislation which had been built up over decades.

The ordinance for the first time puts the full force of the law behind the SFC's regulatory objectives, explained SFC chairman Andrew Sheng. Those objectives were to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry, as well as providing a greater understanding of the market and providing investors with full protection.

The new system empowers the SFC as the statutory regulator of listed company disclosures. This is a crucial development which addressed the concerns of potential conflicts of interest when Hong Kong Exchanges and Clearing (HKEx), which runs the stock market, was solely responsible for monitoring corporate disclosures.

In a separate move, an Expert Group set up to examine Hong Kong's market mechanisms recommended in late March that the approval of listing of companies on the HKEx should also be put under the wing of the SFC.

Greater transparency and protection

In Hong Kong, where the rights of minority shareholders have to be closely watched because of the overwhelming domination of the stock market by family controlled companies, the new law provides greater transparency and protection, by demanding swifter notification of changes in holdings.

It also moves the SFC into the front line in the prevention of corporate crime and misconduct.

The new rules cracking down on market manipulation were welcomed by Mr Sheng. A powerful tribunal will investigate allegations of insider dealing and other alleged offences. If evidence is found, the cases can be referred to the criminal courts, where 10 years' imprisonment or fines of up to HK$10 million (US$1.3 million) await law-breakers.

The ordinance also allows investors to take legal action to recover losses resulting from market misconduct.

The SFO will not relieve investors in Hong Kong of taking responsibility for their own investments, pointed out Mr Sheng.

However, he added: "The new law promises that the investor in Hong Kong will operate in an environment that has the rules of the game on par with the most developed markets - and we will not hesitate to use them."

The SFC website www.hksfc.org.hk has a comprehensive section of the SFO.