Hong Kong’s SFC to strengthen enforcement

Wheatley told reporters during a review of the SFC’s work in 2005 that the regulator had made 19 prosecutions for market manipulation in the nine months to end-December, against 16 cases for the 12 months to end-March 2005.

In addition, the SFC has continued to take action against insider dealing and the mis-selling of investment products. “There is a continuing trend of encountering cases in which investment advisers sell unsuitable products to clients. Several will conclude this year. We are especially concerned about geared products, because gearing can turn a low risk underlying product into a high risk product,” said Wheatley.

The SFC launched an Investor Education (IE) Month in January to coincide with the launch of several initiatives. These included TV and radio commercials reminding investors to ask the right questions before investment, an IE icon, and re-branding of the IE website as InvestEd. In the second quarter of this year, the SFC will release a new TV series on warrants and alternative investments, and will continue to hold seminars. Findings of a retail investor survey will also be published soon.

“It is important to recognise that investor education is the responsibility of all parties – regulators, market operators, investment advisers, brokers, academia, etc,” said Wheatley.

Another key initiative for 2006 will be to codify important listing requirements and give them statutory backing. The requirements concern three areas: financial reporting and other periodic disclosure; disclosure of price sensitive information; and shareholders’ approval for certain notifiable transactions. The SFC is discussing with the government and the Hong Kong Exchange on proposed revisions to the Securities & Futures (Stock Market Listing) Rules.

The regulator is also working with market practitioners to strengthen the regulation of sponsors and compliance advisers. “We hope to publish the conclusions to our proposals in the first half of 2006. Meanwhile, as part of our ongoing supervision, we continue to inspect the operations of sponsors,” Wheatley said.

Another important area of work for the SFC will be a review on selling practices as part of an overall effort to improve investor protection and facilitate the development of the investment advisory market.

“We must also continue to develop our relationship with our counterparts in mainland China in order for Hong Kong to continue its role as a major listing platform for PRC companies,” he added.

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