SECURITIES ORDINANCE

SECURITIES ORDINANCE

LAWS OF HONG KONG

SECURITIES ORDINANCE

CHAPTER 333





CHAPTER 333

SECURITIES ORDINANCE

ARRANGEMENT OF SECTIONS

Section................................... Page

PART I

PRELIMINARY
MATTERS

1. Short title .......................................................... 7

2. Interpretation .......................7
3. Saving for certain transactions .....13
4. Definition of related corporation ...15

5. Interests in securities .......................... 16

PART II

SECURITIES AND FUTURE
COMMISSION

6-13................................(Repealed) 18
14....................................Rules 18
15......Commission may authorize mutual fund corporations and unit trusts 20
16-19...............................(Repealed) 20

PART III

STOCK MARKETS

20................Restriction on establishment of stock markets 20
21...........Restriction on use of the title 'stock exchange', etc . 20

22. Dealer not to deal in securities in a stock market that is not the Unified

Exchange ............................21
23.......................Power of entry and search, etc . 21
24............................Power to order closure 21
25..................................(Repealed) 22
26.................Suspension of dealings for misconduct, etc . 22
27....Commission may order closure of Unified Exchange in emergencies, etc . 23
28...............Publication of direction or order in the Gazette 24
29.......................Appeal against direction, etc . 24

30.....................(Repealed) .............................................................. 24

PART IV

(Repealed)

PART V

38-46. (Repealed)...........................................................
................................................. 24





Section.................................... Page
PART VI
REGISTRATION OF DEALERS, INVESTMENT ADVISERS, AND
REPRESENTATIVES, ETC.
47. Application of Part VI ..............24
48. Registration as a dealer ............25
49. Registration as an investment adviser 25
49A. Registration as a dealing partnership 26
49B. Registration as an investment advisers' partnership 26
49C. Dealing directors only to deal on behalf of registered dealing corporations 26
49D. Supervisory directors of corporations which are registered investment advisers

only to carry on the business of an investment adviser for such corporations 27

50. Registration as a representative ....27
50A..Partnerships which may be registered as dealing partnerships or investment
advisers' partnerships ..............28
51. Grant of certificates of registration 28
51A..................................(Repealed) 29
52. Deposit required before registration as a dealer 29
52A.................Accounts of sums deposited under section 52 32
53. Refusal of registration .............32
53A............Amendment of conditions of certificate of registration 34

54. (Repealed)
................................................................................................... 34

54A.................Deemed registration of certain partnerships 34
55. Revocation and suspension of certificates of registration in certain cases 35

56. Powers of Commission in relation to misconduct ..........................
37

57. Effect of revoking or suspending registration 38

58-59. (Repealed) .......................39

60. Exempt dealers ......................39
61. Exempt investment advisers ..........40

62. Offence to make a false representation for the purpose of obtaining a

certificate of registration under this Part 40

63. Information to be provided by registered person other than a representative,

etc . ...............................41
64. Commission to keep a register of dealers, etc. 42
65. Publication of names of registered dealers, etc . 43

PART VIA

SPECIAL PROVISIONS RELATING To
DEALERS

65A.................Qualifications for registration as a dealer 43
65B.......................Capital requirements for dealers 44
65C......................Failure to comply with section 65B 45
65D.............Books, accounts and records to be produced on demand 46





Section................................... Page

PART VII

RECORDS

66......................Application of Part VII
....................................................... 46

67.......................................Certain persons to maintain registers of securities 47
68.......................................Certain notices to be given to the Commission 47
69.......................................Defences 48
70.......................................Power of Commission to require certain information to be supplied to him 49
71.......................................Power of Commission to supply copy of register 49

PART VIII

TRADING IN SECURITIES

72.......................................Offers by dealers 49
73.......................................Calls by registered dealers 51
74.......................................Hawking of securities 52
75.......................................Issue of contract notes 53
76.......................................Dealers not to engage in option or forward trading 54
77.......................................Dealers to provide certain information, etc. to client 54
78.......................................Certain representations prohibited 55
79.......................................Disclosure of certain interests 55
80.......................................Short selling prohibited 57
81.......................................Disposition of security documents 58

PART IX

ACCOUNTS AND AUDIT

82.......................................Application and interpretation of Part IX 59
83.......................................Accounts to be kept by dealers 59
84.......................................Certain money received by dealer to be paid into a trust account 61
85.......................................Money in trust account not available for payment of debts, etc . 62
86.......................................Claims and liens not affected 63
87.......................................Dealer to appoint auditor 63
87A......................................Dealer's financial year 63
88.......................................Dealer to lodge auditor's report 64
89.......................................Auditor to send report directly to Commission in certain cases 64
90.......................................Power of Commission to appoint auditor 64
91.......................................Power of Commission to appoint an auditor on the application of a client 65

92......................Auditor to report to Commission 66





Section................................... Page

93. Powers of auditors ...................................... 66

94. Right of auditors and employees to communicate certain matters 66
95. Books, accounts, and records to be produced on demand 67

96. Offence to destroy, conceal, or alter records or send records or other property

outside Hong Kong
...................................................................... 67

97. Right of committee to impose obligations, etc., on members of Exchange

Company not affected by this Part 68

PART X

COMPENSATION
FUND

98. Interpretation .......................68
99. Establishment of compensation fund ...69
100.......................................Securities Compensation Fund Committee 69
101.......................................Money constituting the compensation fund 70
102.......................................Money to be kept in bank account 70

103.................Accounts of fund
...................................................................... 70
104.................Exchange Company to make deposits in respect of members
....................71

105.......................................Balance of sums in bank account may be invested 71
106.......................................Repayment of deposits in certain cases 72

107................................Replenishment of fund in certain cases ................... 72
108................................Payments out of the fund
...................................................................... 72

109..................Claims against the fund ................ 73

110.......................................Powers of Commission to increase payments made in respect of claims 74
111.......................................Rights of innocent partner, etc. in relation to the fund 74
112.......................................Notice calling for claims against the fund 75

113....................................Power of the committee of the Exchange Company in respect of claims ......76

114. Committee of the Exchange Company may require production of securities,

etc . .............................76

115....................................Court proceedings to establish a claim against the fund ...... 77

116. Supplementary provisions relating to proceedings brought under section 115 77

117....................................Form of court order establishing claim ...... 77

118. Subrogation of the Commission to rights, etc., of claimant on payment from

fund ...................................................
............................................ 78

119........................Payment of claims only from the fund ...... 78


120. Provision where fund is insufficient to meet claims or where claims exceed

total amount payable
............................................ 78

121. Power of Commission to return contributions on winding up the Exchange

Company ..............................79
121A......................................Commission may act where committee fails to do so 79





Section Page

PART XI
INSPECTIONS AND INVESTIGATIONS
Inspections
122-125. (Repealed) ......................80

Investigations

126. Interpretation for the purposes of sections 127 to 134 80
127. Investigation by inspector ..........80
128. Notes of examination ................82
129. Delegation of powers, etc., by inspector 82
130. Report of inspector .................83
131. Privileged communications ...........84
132. Cost of investigation ...............84
133. Concealing, etc., of books relating to securities 85
134. Commission may make certain orders ..85
PART XII
PREVENTION OF IMPROPER TRADING PRACTICES
Offences
135. False markets and trading ...........86
136. Employment of fraudulent or deceptive devices etc . 87
137. Restrictions on fixing, etc. prices for securities 87
138. False or misleading statements about securities 87
139. Offences and penalty in relation to sections 135 to 138 88
140. (Repealed) ..........................88
Action in Tort
141. Liability to pay compensation .......88
PART XIIA
INSIDER DEALING
141 A. Application of this Part ..........88

Definition of insider dealing

141 B. When insider dealing takes place ..89
141C. Culpability of insider dealing .....89
141 D. Definitions applicable to this Part 90
141 E. Definition of person connected with a corporation 91
141 F. Possession of relevant information by public officers 92





Section................................... Page
Insider Dealing Tribunal
141G....................Insider Dealing Tribunal established 92

Inquiries by Tribunal

141 H..............................Inquiries into insider dealings ................ 92

141I....................Report of Tribunal following inquiry 93

Powers of Tribunal

141J...............................Application to Tribunal of Commissions of Inquiry Ordinance .... 94

141 K.............Further powers of Tribunal to obtain information 94
141 L..............No privilege allowed except to legal advisers 96

PART XIII
MISCELLANEOUS PROVISIONS
142...............Restriction on use of title 'underwriter', etc . 96
143........................Investment advisory contracts 97
144........................Court may make certain orders 98
145............................Miscellaneous offences 99
146................................Regulations 99
146A..........................Rules by the Commission 101
147........................Liability of directors, etc . 102
148.......Commission may prosecute certain offences against this Ordinance 102
149.............Amendment of Schedules and certain specified amounts 103
150..................................(Repealed) 103

Schedule 1. Requirements to be satisfied in relation to offers to acquire securities 103
Schedule 2. Requirements to be satisfied in relation to offers to dispose of securities 104

Schedule 3....................Insider Dealing Tribunal 106





CHAPTER 333

SECURITIES

To make provision in relation to stock markets and dealers in securities, to control trading in
securities and the business of advising on making investments, and to provide for the
protection of investors and associated matters.

(Amended 58 of 1985 s. 32)

[Parts I and II 1 March 1974 L.N. 39 of 1974
Parts III and IV 1 June 1974 L.N. 107 of 1974
Part V 11 October 1974 L.N. 209 of 1974
Parts VI and VII 1 October 1974 L.N. 197 of 1974
Part VIII 29 November 1974 L.N. 247 of 1974
Part IX (other than section 88) 1 January 1977 L.N. 296 of 1976
Section 88 30 December 1977 L.N. 296 of 1976
Part X 19 August 1974 L.N. 166 of 1974
Part XI 1 October 1974 L.N. 197 of 1974

Sections 135, 136, 137, 138, 139

and 141 in Part XII 6 March 1974 L.N. 93 of 1974

Part XIIA 17 February 1978 L.N. 8 of 1978
Part XIII 19 August 19741 L.N. 166 of 1974

Originally 12 of 1974 L.N. 56 of 1974, L.N. 140 of 1974, 62 of 1976, 8 of 1978, L.N. 92 of
1980, L.N. 101 of 1980,47 of 1981, L.N. 377 of 1981,58 of 1985, R. Ed. 1986, L.N. 57 of
1988, 33 of 1988, L.N. 294 of 1988, 10 of 1989, L.N. 259 of 1989,

PART I

PRELIMINARY
MATTERS

1. Short title

This Ordinance may be cited as the Securities Ordinance.

2. Interpretation
(1) In this Ordinance, unless the context otherwise requires-





'auditor' means a professional accountant registered and holding a
practising certificate under the Professional Accountants Ordinance
(Cap. 50);
'banker's books' means-
(a) books of a banker;
(b)cheques, orders for the payment of money, bills of exchange, and
promissory notes in the possession of or under the control of a
banker; and
(c)securities in the possession or under the control of a banker,
whether by way of pledge or otherwise;
'books' includes accounts and deeds;
'business', in relation to a dealer, means the business of dealing in securities;
'certificate of registration' means a certificate of registration issued under
Part VI;
'Commission' means the Securities and Futures Commission established under
the Securities and Futures Commission Ordinance (Cap. 24); (Amended
10 of 1989 s. 65)
'committee' in relation to the Exchange Company, means the committee, by
whatever name called, for the management and control of the Exchange
Company; (Replaced 58 of 1985 s. 33)
'company' means a company as defined in section 2 of the Companies
Ordinance (Cap. 32), a company to which Part Xl of that Ordinance
applies, and any body corporate incorporated in Hong Kong having a
share capital;
'constitution', in relation to a company, means the memorandum and articles
of association of the company or other instrument providing the
constitution of the company;
'corporate member' means a body corporate which is a member of the
Exchange Company; (Replaced 58 of 1985 s. 33)
'corporation' means any company or other body corporate formed or
incorporated either in Hong Kong or elsewhere; but does not include-
(a)any body corporate that is incorporated in Hong Kong and is a
public authority or an organ or agency of the Crown;
(b) any corporation sole;
(c)any credit union registered under the Credit Unions Ordinance
(Cap. 119);
(d)any corporation registered under the Multi-storey Buildings
(Owners Incorporation) Ordinance (Cap. 344);
(e)any corporation which has been exempted by regulations from
the provisions of this Ordinance that affect corporations, or any
corporation that belongs to a class of corporations that has been
so exempted;
'Court' means the High Court;





'dealer', subject to section 82(1), means a person who carries on a business of
dealing in securities, whether he carries on any other business or not, and, in
the case of a corporation which is a dealer, includes any director of the
corporation who actively participates in, or is in any way directly responsible
for the supervision of, the corporation's business of dealing in securities; but
does not include- (Amended 62 of 1976 s. 2)

(a)a solicitor or professional accountant whose carrying on business as
a dealer is wholly incidental to the practice of his profession;

(b)except where specifically provided in this Ordinance, an exempt
dealer;

(c)a person who carries on a business of dealing in securities only
through a registered or exempt dealer;

'dealer's representative' means a person in the employment of, or acting for or by
arrangement with, a dealer, not being an exempt dealer who performs for that
dealer any of the functions of a dealer (other than work ordinarily performed by
an accountant clerk, or cashier) whether his remuneration is by way of salary,
wages, commission, or otherwise, but, in the case of a corporation which is a
dealer, does not include a director of the corporation; (Replaced 62 of 1976 s.2)

'dealing director' means a director of a corporation who, either alone or with others,
actively participates in, or is directly responsible for the supervision of, the
corporation's business of dealing in securities; (Added 58 of 1985 s. 2)

'dealing in securities', in relation to any person (whether acting as principal or
agent), subject to section 3, means making or offering to make an agreement
with any other person, or inducing or attempting to induce any other person to
enter into or offer to enter into any agreement

(a)for or with a view to acquiring, disposing of, subscribing for or
underwriting securities;

(b)the purpose or pretended purpose of which is to secure a profit to
any of the parties from the yield of securities or by reference to
fluctuations in the value of securities; (Amended 62 of 1976 s. 2)

'dealing partnership' means a partnership which carries on the business of dealing
insecurities; (Added 58 of 1985 s. 2)

'defalcation' means a misapplication of money, securities, or other property;

'director' has the same meaning as in section 2 of the Companies Ordinance (Cap.
32); (Added 62 of 1976 s. 2)

'document' includes any register, books, record, tape recording, any form of
computer input or output, and any other document or similar material (whether
produced mechanically, electrically, or manually, or by any other means
whatsoever);





'Exchange Company' means the company recognized as the Exchange Company
under section 3 of the Stock Exchanges Unification Ordinance (Cap.361);
(Added 58 of 1986 s. 33)

'exempt dealer' means a person declared under section 60 to be an exempt dealer for
the purposes of this Ordinance;

'exempt investment adviser' means a person declared under section 61 to be an
exempt investment adviser for the purposes of this Ordinance; (Added 62 of 1976
s. 2)

'financial year' means

(a)in the case of a dealer, the period notified by him under section 87A
or permitted by the Commission under that section; (Amended 10 of
1989 s. 65)

(b)in any other case, a period of 12 months ending on the 31st March in
any calendar year; (Replaced 62 of 1976 s. 2)

'foreign stock exchange' means a stock exchange which is permitted to operate in a
country or territory outside Hong Kong by the law of that country or territory
or, in the case of a country or territory which has no written law relating to
stock exchanges, is not prevented from operating by the law of that country or
territory;

'individual member' means a natural person who is a member of the Exchange
Company; (Replaced 58 of 1985 s. 33)

'investment adviser' means any person who

(a)for remuneration carries on a business of advising other persons
concerning securities;

(b)for remuneration as part of a regular business issues analyses or
reports concerning securities; or

(c)for remuneration pursuant to a contract or arrangement with a client,
undertakes on behalf of the client the management of a portfolio of
securities, including the arranging of purchases, sales, or exchanges
of securities through a dealer or exempt dealer, (Amended 10 of 1989 s.
65)

and, in the case of a corporation which is an investment adviser, includes any
director of the corporation who actively participates in, or is in any way directly
responsible for the supervision of, the corporation's business as an investment
adviser; but does not include

(i) a licensed bank;

(ii)a solicitor or professional accountant whose carrying on business as
an investment adviser is wholly incidental to the practice of his
profession;

(iii)the proprietor or publisher of, or any contributor to, a bona fide
newspaper, magazine, journal, or other periodical publication that is
generally available to the public, otherwise than on subscription,
who, only in that bona fide newspaper, magazine,





journal, or periodical publication, advises other persons concerning
securities, or issues analyses or reports concerning securities, not
being the proprietor or publisher of, or a contributor to, a newspaper,
journal, magazine, or other periodical publication whose principal or
only object is to advise others concerning securities or to issue
analyses or reports concerning securities;

(iv) a dealer or exempt dealer to the extent that his giving of investment
advice is incidental to his carrying on business as a dealer or exempt
dealer;

(v) a trustee company registered under Part VIII of the Trustee Ordinance
(Cap. 29);

(vi) an exempt investment adviser; (Replaced 62 of 1976 s. 2)

'investment advisers' partnership' means a partnership which carries on the
business of an investment adviser; (Added 58 of 1985 s. 2)

'investment representative' means a person in the employment of, or acting for or
by arrangement with, an investment adviser, not being an exempt investment
adviser, who performs for that investment adviser any of the functions of an
investment adviser (other than work ordinarily performed by an accountant,
clerk or cashier) whether his remuneration is by way of salary, wages,
commission, or otherwise, but, in the case of a corporation which is an
investment adviser, does not include a director of the corporation; (Replaced
62 of 1976 s. 2)

'issue' includes distribute and circulate; (Added 62 of 1976 s.2)

'licensed bank' means a bank licensed under the Banking Ordinance (Cap. 155) to
carry on banking business in Hong Kong;

'limited partnership' means a limited partnership registered under the Limited
Partnerships Ordinance (Cap. 37); (Added 58 of 1985s.2)

'listing', in relation to a security, means the procedure whereby a security is listed
on the Unified Exchange; (Amended 58 of 1985 s. 33)

'member', in relation to the Exchange Company or the Unified Exchange, means a
member within the meaning of section 2 of the Stock Exchanges Unification
Ordinance (Cap. 361), of the Exchange Company; (Added 58 of 1985 s. 33)

'mutual fund corporation' means any corporation which is or holds itself out as
being engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting or trading in securities and which is offering for sale or
has outstanding any redeemable shares of which it is the issuer;

'purchase', in relation to any securities, includes subscribing for those securities;

'registered', in relation to a dealer, dealing partnership, dealer's representative,
investment adviser, investment advisers' partnership or investment





representative, means registered under this Ordinance; (Amended 58 of
1985 s.2)

'registered company' means a company formed and registered under the
Companies Ordinance (Cap. 32);

'representative' means a dealer's representative or an investment representative;

'rules', in relation to the Exchange Company or the Unified Exchange, means the
rules governing the operation and management of the Unified Exchange or the
conduct of its members, by whatever name they may be called and wherever
contained; (Replaced 58 of 1985 s. 33)

'securities' means any shares. stocks, debentures, loan stocks, funds, bonds, or
notes of, or issued by, any body, whether incorporated or unincorporated, or
of any government or local government authority; and includes(Amended 62 of
1976 s. 2)

(a)rights, options, or interests (whether described as units or otherwise)
in or in respect of any of the foregoing;

(b)certificates of interest or participation in, or temporary or interim
certificates for, receipts for, or warrants to subscribe to or purchase,
any of the foregoing; or

(c) any instruments commonly known as securities; but does not include

(i) any shares or debentures of any company which- is a private
company within the meaning of section 29 of the Companies
Ordinance (Cap. 32);

(ii) any interest arising under a partnership agreement or proposed
partnership agreement (other than an agreement creating a limited
partnership), unless the agreement or proposed agreement relates to
an undertaking, scheme, enterprise, or investment contract
promoted by or on behalf of a person whose ordinary business is or
includes the promotion of similar undertakings, schemes,
enterprises, or investment contracts, whether or not that person is,
or is to become, a party to the agreement or proposed agreement, or
unless the agreement is or would be an agreement, or is or would be
within a class of agreements, prescribed by regulations for the
purposes of this paragraph;

(iii) any negotiable receipt or other negotiable certificate or document
evidencing the deposit of a sum of money, or any rights, or interest
arising under any such receipt, certificate, or document;

(iv) any bill of exchange within the meaning of section 3 of the Bills of
Exchange Ordinance (Cap. 19) and any promissory note within the
meaning of section 89 thereof, (Added 62 of 1976 s.2)

(v)any debenture that specifically provides that it is not negotiable or
transferable; (Added 62 of 1976 s.2)





'share' means a share in the capital of a corporation; and includes the stock or any
part of the stock of a corporation;

'stockbroker' means a member of the Exchange Company; (Replaced 58 of 1985 s.33)

'Stock market' means a place where persons regularly meet together to negotiate
sales and purchases of securities (including prices), or a place at which
facilities are provided for bringing together sellers and purchasers of
securities; but does not include the office of a stockbroker or of a registered
dealing partnership of which a stockbroker is a partner; (Amended 58 of
1985 s. 33)

'title' includes name or description;

'trust account' means a trust account established under section 84;

'underwriter' means a person who for remuneration undertakes to subscribe for or
purchase on specified terms such specified securities as are offered to the
public by a person issuing or selling those securities, but are not subscribed
for or purchased by the public; (Amended L.N. 377 of 1981)

'Unified Exchange' or 'exchange' means the stock market established under
section 27 of the Stock Exchanges Unification Ordinance (Cap. 361); (Added 58
of 1985 s. 33)

'unit trust' means any arrangement made for the purpose, or having the effect, of
providing facilities for the participation by persons, as beneficiaries under a
trust, in profits or income arising from the acquisition, holding, management or
disposal of securities or any other property whatsoever.

(2) In this Ordinance a reference to securities of a corporation is a
reference to securities-

(a) issued, made available, or granted by the corporation;

(b)proposed to be issued, made available, or granted by the corporation;
or

(c)proposed to be issued, made available, or granted by the
corporation when it is formed.
(3) In this Ordinance a security is regarded as listed on the Unified

Exchange when the exchange has on the application of the company which
issued the security, or on the application of any holder of the security, agreed to
allow, subject to the requirements of this Ordinance, dealings in that security to
take place on the Unified Exchange. (Amended 58 of 1985 s. 33)
(4) (Repealed 58 of 1985 s. 2)

3. Saying for certain transactions

(1) For the purpose of determining whether or not a person has dealt in
securities or has communicated an offer to acquire or dispose of securities, no
account shall be taken of his having (whether as principal or as agent)-





(a)effected any dealing through, or made an offer to acquire or dispose
of securities to, a registered dealer or a registered dealer's
representative, or an exempt dealer or an exempt dealer's
representative;

(b)issued a prospectus which complies with, or is exempt from
compliance with, Part II of the Companies Ordinance (Cap. 32), or in
the case of a company incorporated outside Hong Kong, complies
with or is exempted from compliance with Part XII of that Ordinance;

(e)issued any document relating to securities of a corporation
incorporated in Hong Kong that is not a registered company, being a
document which

(i) would if the corporation were a registered company be a
prospectus to which section 38 of the Companies Ordinance
(Cap. 32) applies, or would apply if not excluded by subsection
(5)(b) of that section or by section 38A of that Ordinance; and

(ii) contains all the matters which, by virtue of Part XII of that
Ordinance, it would be required to contain if the corporation
were a company incorporated outside Hong Kong and the
document were a prospectus issued by that company;

(d)issued a form of application for shares or debentures of a company,
together with

(i) a prospectus which complies with, or is exempt from compliance
with, Part II of the Companies Ordinance (Cap. 32) or, in the
case of a company incorporated outside Hong Kong, complies
with or is exempt from compliance with Part XII of that
Ordinance; or

(ii) in the case of a corporation incorporated in Hong Kong which is
not a registered company, a document which contains the
matters specified in paragraph (c)(ii);

(e)issued a prospectus which has been approved by the Commission in
relation to a mutual fund corporation or unit trust authorized by the
Commission under section 15;

(f) issued a form of application for the shares of a mutual fund
corporation or the units of a unit trust, being a mutual fund
corporation or unit trust which has been authorized by the
Commission under section 15, together with a prospectus approved
by the Commission;

or of his having as principal, acquired, subscribed for, or underwritten securities, or
effected transactions with a person whose business involves the acquisition and
disposal, or the holding, of securities (whether as principal or as agent).

(2) The Commission may, on application being made to it in that behalf,
approve a prospectus for the purposes of subsection (1)(e).





(3) Any approval under subsection (2) may be given subject to such
conditions as the Commission thinks fit.
(Amended 10 of 1989 s. 65)

4. Definition of related corporation

(1) Where a corporation-
(a) is the holding company of another corporation;
(b) is a subsidiary of another corporation; or
(c) is a subsidiary of the holding company of another corporation,
that first-mentioned corporation and that other corporation are, for the
purposes of this Ordinance, deemed to be related to each other.
(2) For the purposes of subsection (1), a corporation shall, subject to
subsection (3), be deemed to be a subsidiary of another corporation if-
(a) that other corporation-
(i) controls the composition of the board of directors of the
first-mentioned corporation;
(ii) controls more than half of the voting power of the
first-mentioned corporation; or
(iii)holds more than half of the issued share capital of the
first-mentioned corporation (excluding any part which
carries no right to participate beyond a specified amount on
a distribution of either profits or capital); or (Amended
L.N. 140 of 1974)
(b)the first-mentioned corporation is a subsidiary of any
corporation which is that other corporation's subsidiary.
(3) For the purposes of subsection (2), the composition of a corporation's
board of directors shall be deemed to be controlled by another corporation if
that other corporation by the exercise, of some power exercisable by it, without
the consent or concurrence of any other person, can appoint or remove all or a
majority of the directors, and for the purposes of this provision, that other
corporation shall be deemed to have power to appoint or remove a director if-
(Amended 62 of 1976 s. 3)
(a)a person cannot be appointed as a director without the exercise in
his favour by that other corporation of such a power; or
(b)a person's appointment as a director follows necessarily from his
being a director or other officer of that other corporation.
(4) In determining whether one corporation is a subsidiary of another
corporation-
(a)any shares held by or power exercisable by that other corporation
in a fiduciary capacity shall be treated as not held or exercisable
by it;





(b)subject to paragraphs (c) and (d), any shares held or power
exercisable

(i)by any person as a nominee for that other corporation (except
where that other corporation is concerned only in a fiduciary
capacity); or

(ii) by, or by a nominee for, a subsidiary of that other corporation,
not being a subsidiary which is concerned only in a fiduciary
capacity,

shall be treated as exercisable by that other corporation;
(Amended, L.N. 56 of 1974)

(c)any shares held or power exercisable by any person by virtue of the
provisions of any debenture of the first-mentioned corporation or of
a trust deed for securing any issue of any such debenture shall be
disregarded; and

(d)any shares held or power exercisable by, or by a nominee for, that
other corporation or its subsidiary (not being held or exercisable as
mentioned in paragraph (c)) shall be treated as not held or exercisable
by that other corporation if the ordinary business of that other
corporation or its subsidiary, as the case may be, includes the
lending of money and the shares are held or power is exercisable as
aforesaid by way of security only for the purposes of a transaction
entered into in the ordinary course of that business.

5. Interests in securities

(1) Subject to this section, a person has an interest in securities for the
purposes of sections 19, 67, 79, 135 and 141E(3) if he has authority (whether formal or
informal or express or implied) to dispose of, or to exercise control over the disposal
of, those securities. (Amended 8 of 1978 s.2)

(2) It is immaterial for the purposes of subsection (1) that the authority of a
person to dispose of, or to exercise control over the disposal of, particular securities
is, or is capable of being made, subject to restraint or restriction.

(3) For the purposes of subsection (1), a person shall not be deemed not to
have authority to dispose of, or to exercise control over the disposal of, particular
securities by reason only that his authority is exercisable jointly with another
person.

(4) For the purposes of subsection (1), where a corporation has authority
(whether formal or informal or express or implied) to dispose of, or to exercise
control over the disposal of, securities and

(a)the corporation is, or its directors are, accustomed or under an
obligation, whether formal or informal, to act in accordance with the
directions of a person in relation to those securities; or





(b)a person, or an associate of a person, has a controlling interest in the
corporation,

that person shall be deemed to have authority to dispose of, or to exercise control
over the disposal of, those securities.

(5) For the purposes of subsection (4) of this section, and of subsection (4) of
section 135, a person is an associate of another person if the first-mentioned person
is

(a)a corporation that, by virtue of section 4, is deemed to be related to
that other person;

(b)a person in accordance with whose directions that other person is
accustomed or is under an obligation, whether formal or informal, to
act in relation to the securities referred to in those subsections;

(c)a person who is accustomed or is under an obligation, whether formal
or informal, to act in accordance with the directions of that other
person in relation to those securities;

(d)a corporation that is, or the directors of which are, accustomed or
under an obligation, whether formal or informal, to act in accordance
with the directions of that other person in relation to those securities;
or

(e)a corporation in accordance with the directions of which, or of the
directors of which, that other person is accustomed or under an
obligation, whether formal or informal, to act in relation to those
securities.

(6) Where a person

(a) has entered into a contract to purchase securities;

(b)has a right to have securities transferred to him or to his order,
whether the right is exercisable presently or in the future and whether
on the fulfilment of a condition or not; or

(c)has the right to acquire securities, or an interest in securities, under
an option, whether the right is exercisable presently or in the future
and whether on the fulfilment of a condition or not,

that person shall, to the extent to which he could do so on completing the contract,
enforcing the right or exercising the option, be deemed to have authority to dispose
of, or to exercise control over the disposal of, those securities.

(7) There shall be disregarded

(a)for the purposes of sections 67 and 141E(3), an interest in securities
of a person whose ordinary business includes the lending of money
if he holds the interest only by way of security for the purposes of a
transaction entered into in the ordinary course of business in
connection with the lending of money;





(b)for the purposes of sections 67, 79 and 141E(3), an interest in
securities of a person who holds that interest only by virtue of his
having control over the securities as a manager, agent, trustee, or
nominee for, or as an employee of, another;

(c)where securities referred to in section 135(4) or 141E(3) are subject to a
trust, the interest of a trustee in those securities if a person who is
not a trustee has an interest in those securities by virtue of
subsection (6)(b) of this section; and

(d)for the purposes of any prescribed provision of section 19, 67, 79,
135 or 141E(3), a prescribed interest in securities, being an interest of
such person, or of the persons included in such class of persons, as
is prescribed by regulations. (Amended 62 of 1976 s. 4; 8 of 1978 s.
2)

PART II

SECURITIES AND FUTURES
COMMISSION

6-13. (Repealed 10 of 1989 s. 65)

14. Rules

(1) The Commission may, after consultation with the Exchange
Company, make rules in respect of all or any of the following matters-
(Amended 58 of 1985 s. 35)

(a) the listing of securities on the Unified Exchange, and in

particular-

(i) prescribing the requirements to be met before securities may be
listed on the Unified Exchange;

(ii) prescribing the procedure for dealing with applications for the
listing of securities on the Unified Exchange; and

(iii) providing for the cancellation of the listing of any specified
securities on the Unified Exchange if the Commission's
requirements for listing, or the requirements of the undertaking
referred to in paragraph (f), are not complied with or the
Commission considers that such action is necessary to maintain
an orderly market in Hong Kong; (Amended 58 of 1985 s. 35)

(b) the conditions subject to which, and the circumstances in which,

the Exchange Company shall suspend dealings in securities;
(Amended 62 of 1976 s. 5; 58 of 1985 s. 35)





(c)the procedure for and the method of allotment of any securities
arising out of an offer made to members of the public in respect of
those securities;

(d)the maximum number of persons who may be admitted to membership
of the Exchange Company; (Replaced 58 of 1985 s.35)

(e)the type of business that may be carried on at the Unified Exchange;
(Amended 58 of 1985 s. 35)

(f)requiring companies the securities of which are listed or accepted for
listing on the Unified Exchange to enter into an undertaking in the
form prescribed in the rules with the Exchange Company to provide
such information at such times as may be specified, and to carry out
such duties in relation to its securities as may be imposed, in the
undertaking; (Amended 58 of 1985 ss. 3 & 35)

(fa) requiring the chairman of the committee of the Exchange Company
who has become aware of any matter which adversely affects, or is
likely to adversely affect, the ability of any member of the Exchange
Company to meet his obligations as a dealer, to make a report
concerning the matter to the Commission as soon as practicable after
becoming aware of the matter; (Added 62 of 1976s.5.
Amended 58 of 1985 s.35)

(jb) requiring the Exchange Company when it expels, or suspends the
membership of, any of its members, or requests any of its members to
resign his membership, to notify the Commission of that fact within 3
trading days after the expulsion, suspension or making of the request,
as the case may be, and, in addition, to cause the expulsion,
suspension or request to be notified to the public in such manner and
within such period as may be prescribed in the rules;
(Added 62 of 1976 s.5. Amended 58 of 1985 s.35)

(g) anything which is to be or may be prescribed by rules.

(1A) Rules under this section may provide that a contravention of specified
provisions thereof shall be an offence and may provide penalties therefor not
exceeding a fine of $10,000. (Added 58 of 1985 s.3)

(2) No rules made under this section shall have effect until they have been
approved by the Governor and published in the Gazette.

(3) Nothing in this section prevents the Exchange Company from making rules
on any matter mentioned in subsection (1) under section 34 of the Stock Exchanges
Unification Ordinance (Cap. 361) or the constitution of the Exchange Company if
those rules have been approved by the Commission, but any such rules shall have
effect only to the extent that they are not repugnant to any rule made by the
Commission under subsection (1). (Replaced 58 of 1985 s.35)





15. Commission may authorize mutual

fund corporations and unit trusts

(1) The Commission may authorize mutual fund corporations and unit trusts for
the purposes of this Ordinance.

(2) An authorization under subsection (1) may be granted subject to such
conditions as the Commission considers fair and reasonable.

(Replaced 10 of 1989 s. 65)

16-19. (Repealed 10 of 1989 s. 65)

PART III

STOCK MARKETS
(Amended 58 of 1985 s. 37)

20. Restriction on establishment of stock markets

(1) No person shall

(a)establish or operate a stock market that is not the Unified Exchange;
or

(b)assist in the operation of a stock market that, to his knowledge, is not
the Unified Exchange. (Replaced 58 of 1985 s. 38)

(2) Any person who contravenes subsection (1) shall be guilty of an offence
and shall be liable on conviction to a fine of $500,000 and, in the case of a
continuing offence, to a further fine of $50,000 for each day during which the
offence continues.

21. Restriction on use of the title 'stock exchange' etc.

(1) Subject to section 42(2) of the Stock Exchanges Unification Ordinance (Cap.
361), no person, other than the Exchange Company, shall

(a)take or use the title 'stock exchange' or 'unified exchange' or
'unified stock exchange' or 'united exchange' or 'united stock
exchange'; or

(b)take or use, or have attached to or exhibited at any place, any title
which resembles any of the titles referred to in paragraph (a) or
which so closely resembles any of such titles as to be calculated

to deceive.(Replaced 58 of 1985 s. 39)





(2) Any person who contravenes subsection (1) shall be guilty of an
offence and shall be liable on conviction to a fine of $100,000 and, in the case of
a continuing offence, to a further fine of $5,000 for each day during which the
offence continues.

22. Dealer not to deal in securities in a stock
market that is not the Unified Exchange
Any dealer who transacts a dealing in securities at or through a stock
market in Hong Kong which, to his knowledge, is not the Unified Exchange
shall be guilty of an offence, and shall be liable on conviction to a fine of
$50,000 in respect of each such dealing.
(Amended 58 of 1985 s. 40)

23. Power of entry and search, etc.
(1) Any authorized officer may, with the assistance of such other officers
as may be necessary, without warrant-
(a)enter and search any premises in which he reasonably suspects
that an offence against section 20 or 22 is being or has been
committed; and
(b)remove and detain any thing which he has reason to believe is
evidence of the commission of the offence.
(2) Any such officer may, in the exercise of the powers conferred on him
under subsection (1)-
(a)break open any outer or inner door of any premises which he is
empowered to enter under that subsection;
(b)remove by force any person or thing obstructing him in the
exercise of any such powers;
(c)detain any person found in the premises until they have been
searched.
(3) In this section 'authorized officer' means an authorized officer of the
Commission or any police officer not below the rank of superintendent.
(4) The provisions of section 102 of the Criminal Procedure Ordinance
(Cap. 221) (which makes provision for the disposal of property connected with
offences) shall apply to any thing which has come into the possession of the
Commission under this section in the same way as it applies to property which
has come into the possession of the police.
(Amended 10 of 1989 s. 65)

24. Power to order closure
(1) If any person is charged with an offence against section 20, a
magistrate may, on application made by or on behalf of the Commission, order
that any premises in which the stock market is alleged to have been operated be
locked and secured until the charge is heard and determined.





(2) Any person aggrieved by the making of an order under subsection (1)
and having an interest in the premises in respect of which the order was made
may apply to a magistrate to have the order discharged; and on the hearing of
the application the magistrate may either confirm the order or direct that it be
discharged.
(3) An application under subsection (2) shall not be heard unless a copy
of the application has been served on the Commission at least 24 hours before
the hearing.
(4) If any person is convicted of an offence against section 20, the court
may order the premises in which the stock market was operated to be locked
and secured for such period not exceeding 3 months as may be specified in the
order. (Amended 58 of 1985 s. 41)
(5) Where any order under subsection (1) or (4) has been made, any
authorized officer may take such steps as may be necessary to ensure that the
premises to which the order relates are locked and secured.
(6) Any person who enters or attempts to enter any premises in respect of
which an order made under subsection (1) or (4) is in force without the
authority of the Commission shall be guilty of an offence and shall be liable on
conviction to a fine of $50,000.
(7) In this section 'authorized officer' means an authorized officer of the
Commission or any police officer.
(Amended 10 of 1989 s. 65)

25. (Repealed 58 of 1985 s. 42)

26. Suspension of dealings for misconduct, etc.

(1) The Commission may-
(a)on any of the grounds specified in section 36 of the Stock
Exchanges Unification Ordinance (Cap. 361); and
(b)instead of withdrawing its recognition of the Exchange Company
pursuant to that section,
direct that the premises of the Unified Exchange be closed forthwith for the
transaction of dealings in securities and remain closed until the Commission
revokes the direction.
(2) (Repealed 10 of 1989 s. 65)
(3) The Commission shall give to the Exchange Company not less than 14
days' notice in writing of its intention to issue a direction under subsection (1)
and the notice shall specify the grounds therefor.
(4) While a direction under subsection (1) remains in force, the
recognition of the Exchange Company given under section 3 of the Stock
Exchanges Unification Ordinance (Cap. 361) shall, for the purposes of the
application of sections 20, 21 and 22, be deemed to have been withdrawn.





(5) Where any direction under subsection (1) is in force, any authorized officer
may take such steps as may be necessary to ensure that the premises to which the
direction relates are locked and secured.

(6) Any person who enters or attempts to enter any premises in respect of
which a direction under subsection (1) is in force without the authority of an
authorized officer shall be guilty of an offence and shall be liable on conviction to a
fine of $50,000.

(7) Where any direction is issued under subsection (1), that direction shall take
effect immediately, notwithstanding that an appeal has been made or may be made
under section 29.

(8) In this section 'authorized officer' means an authorized officer of the

Commission or any police officer.
(Replaced 58 of 1986 s. 43.Amended 10 of 1989 s. 65)


27. Commission may order closure of Unified

Exchange in emergencies, etc.

(1) Without prejudice to the powers of the Commission under section 26, the
Commission may, after consultation with the Exchange Company, order that the
Unified Exchange be closed for the transaction of dealings in securities for a period
not exceeding 5 bank trading days.

(2) The Commission may make an order under subsection (1) on the ground
that, in his opinion, the orderly transaction of business on the Unified Exchange is
being or is likely to be prevented because

(a) an emergency or natural disaster has occurred in Hong Kong; or

(b)there exists an economic or financial crisis, whether in Hong Kong or
elsewhere, or any other circumstances, which is likely to prevent
orderly trading on the Unified Exchange.

(3) An order made under subsection (1) may be renewed by a further order for a
further period of not more than 10 bank trading days.

(4) Any dealer who deals in securities listed on the Unified Exchange while an
order made under subsection (1) or (3) is in force (being an order which has been
notified to the committee of the Exchange Company) shall be guilty of an offence
and shall be liable on conviction to a fine of $50,000.

(5) Where an order under subsection (1) or (3) has been made, the Commission
may take such steps as are necessary to secure compliance with the order and may,
in particular, cause the premises of the Unified Exchange to be locked and secured.

(6) Any person who, without the authority of the Commission, enters or
attempts to enter the premises of the Unified Exchange which have been locked and
secured under subsection (5) shall be guilty of an offence and shall be liable

on conviction to a fine of $20,000.
(Replaced 58 of 1986 s. 43.Amended 10 of 1989 s. 65)





28. Publication of direction or order in the Gazette

Where the Commission issues any direction under section 26(1), the
Commission makes any order under section 27(1) or (3), notice of the direction or
order, as the case may be, shall be published in the Gazette.

(Replaced 58 of 1985 s. 43. Amended 10 of 1989 s. 65)

29. Appeal against direction, etc.

(1) Where the Commission has issued a direction under section 26(1), the
Exchange Company may, within 14 days after the publication in the Gazette of notice
of the direction, appeal to the Governor in Council against the direction of the
Commission but the decision of the Commission shall take effect notwithstanding
the fact that an appeal has been made. (Replaced 10 of 1989 s.65)

(2) After considering any appeal under subsection (1) the Governor in Council
may confirm, reverse or vary the direction of the Commission and the decision of the
Governor in Council shall be final. (Amended 10 of 1989 s. 65)

(Replaced 58 of 1985 s. 43)

30. (Repealed 58 of 1985 s. 44)

PART IV

(Repealed 58 of 1985 s. 45)

PART V

38-46. (Repealed 10 of 1989 s. 65)

PART VI

REGISTRATION OF DEALERS, INVESTMENT
ADVISERS,
AND REPRESENTATIVES, ETC,
(Amended 58 of 1985 s. 4)

47. Application of Part VI

(1) Except so far as specifically provided, this Part does not apply to an exempt
dealer or to an exempt investment adviser, or to the representative of an exempt
dealer or exempt investment adviser, but





(a)subject to section 61, nothing in this subsection exempts an exempt
dealer who carries on a business as an investment adviser from being
registered as such under this Part; and

(b)subject to section 60, nothing in this subsection exempts an exempt
investment adviser who carries on a business of dealing in securities
from being registered as a dealer.

(2) Where a person would, but for this subsection, be liable to a penalty for not
being registered as a dealer, dealer's representative, investment adviser, or
investment representative, he shall not be so liable

(a)until the expiry of a period of 3 months immediately following the
commencement of this Part; or

(b)where, before the expiry of that period, he applies for registration,
until

(i) he is registered; or (ii) his
application is refused.

48. Registration as a dealer

(1) A person (whether an individual or a body corporate, or a member of a
partnership or director of a body corporate) shall not carry on a business in Hong
Kong of dealing in securities, or hold himself out as carrying on such a business,
unless he is registered as a dealer under this Part.

(1A) A corporation shall not carry on a business in Hong Kong of dealing in
securities, or hold itself out as carrying on such a business, unless at least one of
the directors of the corporation, or, in the case of a corporation having only one
director, that director, actively participates in, or is directly responsible for the
supervision of, the corporation's business of dealing in securities and is registered
as a dealer under this Part. (Added 62 of 1976 s.9)

(2) Any person who knowingly acts in contravention of subsection (1) or (1A)
shall be guilty of an offence and shall be liable on conviction to a fine of $50,000
and, in the case of a continuing offence, to a further fine of $500 for each day during
which the offence continues. (Amended 62 of 1976 s.9)

49. Registration as an investment adviser

(1) A person (whether an individual or a body corporate, or a member of a
partnership or director of a body corporate) shall not in Hong Kong act as an
investment adviser or hold himself out to be an investment adviser unless he is
registered as an investment adviser under this Part.

(1A) A corporation shall not in Hong Kong act as an investment adviser, or
hold itself out to be an investment adviser, unless at least one of the directors of the
corporation, or, in the case of a corporation having only one director, that director,
actively participates in, or is directly responsible for the supervision of, the
corporation's business as an investment adviser and is

registered as an investment adviser under this Part.(Added 62 of1 976 s.10)





(2) Any person who knowingly acts in contravention of subsection (1) or (1A)
shall be guilty of an offence and shall be liable on conviction to a fine of $20,000
and, in the case of a continuing offence, to a further fine of $200 for each day during
which the offence continues. (Amended 62 of 1976 s. 10)

49A. Registration as a dealing partnership

(1) No registered dealer shall

(a)be or remain a member of a partnership carrying on a business in
Hong Kong of dealing in securities, or hold itself out as carrying on
such business, unless the partnership is registered as a dealing
partnership under this Part; or

(b)being a partner in a dealing partnership which is registered under this
Part, carry on a business in Hong Kong of dealing in securities, or
hold himself out as carrying on such business, otherwise than as a
member of such partnership.

(2) Any person who knowingly acts in contravention of subsection (1) shall be
guilty of an offence and shall be liable on conviction to a fine of $50,000 and, in the
case of a continuing offence, to further fine of $500 for each day during which the
offence continues.

(Added 58 of 1985 s. 5)

49B. Registration as an investment advisers' partnership

(1) No registered investment adviser shall

(a)be or remain a member of a partnership which acts in Hong Kong as
an investment adviser, or hold himself out as so acting, unless the
partnership is registered as an investment advisers' partnership
under this Part; or

(b)being a partner in an investment advisers' partnership which is
registered under this Part, act in Hong Kong as an investment
adviser or hold himself out as so acting, otherwise than as a member
of such a partnership.

(2) Any person who knowingly acts in contravention of subsection (1) shall be
guilty of an offence and shall be liable on conviction to a fine of $20,000 and, in the
case of a continuing offence, to a further fine of $200 for each day during which the
offence continues.

(Added 58 of 1985 s. 5)
49C.Dealing directors only to deal on behalf
of registered dealing corporations

(1) No dealing director of a corporation which is a registered dealer shall carry
on in Hong Kong a business of dealing in securities except a business carried on for
and on behalf of





(a) that corporation;

(b)a registered dealing partnership, in which that corporation is a
partner; or

(c)another corporation of which he is a dealing director and which is
also a registered dealer.

(2) Any person who knowingly acts in contravention of subsection (1) shall be
guilty of an offence and shall be liable on conviction to a fine of $50,000 and, in the
case of a continuing offence, to a further fine of $500 for each day during which the
offence continues.

(Added 58 of 1985 s. 5)

49D. Supervisory directors of corporations which are
registered investment advisers only to carry
on the business of an investment adviser
for such corporations

(1) No director of a corporation which is a registered investment adviser and
who

(a)actively participates in, or is directly responsible for the supervision
of, the corporation's business as an investment adviser; and

(b) is registered as an investment adviser, shall carry on in Hong Kong
business as an investment adviser except on behalf of

(i) that corporation;

(ii) a registered investment advisers' partnership in which that
corporation is a partner; or

(iii) another corporation which is a registered investment adviser and of
which he is a director, being a director who actively participates in, or
is directly responsible for the supervision of, that other corporation's
business as an investment adviser.

(2) Any person who knowingly acts in contravention of subsection (1) shall be
guilty of an offence and shall be liable on conviction to a fine of $20,000 and, in the
case of a continuing offence, to a further fine of $200 for each day during which the
offence continues.

(Added 58 of 1985 s. 5)

50. Registration as a representative

(1) No person shall

(a)act as a dealer's representative in Hong Kong unless he is registered
as such under this Part; or

(b)act as an investment representative in Hong Kong unless he is
registered as such under this Part.





(1A) No registered dealer or registered investment adviser and no corporation
or partnership may be registered as a dealer's representative or an investment
representative under this Part. (Added 58 of 1985 s. 6)

(1B) A dealer's representative or investment representative shall be registered
as the representative of a registered dealer or, as the case may be, registered
investment adviser specified in the register. (Added 58 of 1985 s.6)

(1C) A dealer's representative or investment representative shall not act as a
dealer's representative or, as the case may be, investment representative on behalf
of any person other than the person specified in the register in accordance with
subsection (1B). (Added 58 of 1985 s.6)

(2) Any person who knowingly acts in contravention of subsection (1) or (1C)
shall be guilty of an offence and shall be liable on conviction to a fine of $10,000
and, in the case of a continuing offence, to a further fine of $100 for each day during
which the offence continues. (Amended 58 of 1985 s.6)

50A.Partnerships which may he registered as dealing
partnerships or investment advisers'
partnerships

(1) No partnership may be registered or continue to be registered as a dealing
partnership unless it is

(a)a general partnership and all the partners are registered dealers; or

(b)a limited partnership and all the general partners are registered
dealers.

(2) No partnership may be registered or continue to be registered as an
investment advisers' partnership unless it is

(a)a general partnership and all the partners are registered investment
advisers; or

(b)a limited partnership and all the general partners are registered
investment advisers.

(Added 58 of 1985 s. 7)

51. Grant of certificates of registration

(1) Subject to any provision to the contrary in this Part or Part VIA and to
subsection (5), the Commission shall, on application by any person in the
prescribed manner and on payment of the prescribed fee, issue to that
person(Amended 62 of 1976 s. 11; 58 of 1985 s. 8; L.N. 294 of 1988; 10 of 1989 s. 65)

(a)a certificate of registration authorizing him to carry on business as a
dealer in securities;

(b)a certificate of registration authorizing him to deal in securities as a
representative of a registered dealer;





(c)a certificate of registration authorizing him to carry on business as an
investment adviser; or

(d)a certificate of registration authorizing him to act as a representative
of a registered investment adviser.

(1A) Subject to sections 50A and 53 and to subsection (5), the Commission
shall, on application by any partnership in the prescribed manner and on payment of
the prescribed fee, issue to the partnership a certificate of registration- (Amended 10
of 1989 s. 65)

(a)authorizing the partnership to carry on the business of dealing in
securities; or

(b)authorizing the partnership to carry on business as an investment
adviser. (Added 58 of 1985 s.8)

(2) A certificate of registration shall be subject to such reasonable conditions
as the Commission considers necessary. (Replaced 10 of 1989 s.65)

(3) A certificate of registration issued to a dealer or investment adviser shall
specify the name of the person thereby authorized to carry on a business of dealing
in securities or as an investment adviser, as the case may be.

(4) The issue of a certificate of registration to a person shall not authorize such
a person to carry on that business under any name other than that specified in the
certificate.

(5) This section shall be construed and have effect subject to sections 23, 25
and 27(1)(b) of the Securities and Futures Commission Ordinance (Cap. 24). (Added
10 of 1989 s. 65)

51A. (Repealed 58 of 1989 s. 9)

52. Deposit required before registration as a dealer

(1) Subject to subsection (6), the Commission shall not register an applicant as
a dealer unless the applicant has deposited with the Commission such amount as is
prescribed in regulations.

(1A) Subject to subsection (6), where an applicant is a corporation the
Commission shall not register the corporation as a dealer unless there has been
deposited with the Commission in respect of each director of the corporation who
actively participates in, or is in any way directly responsible for, the corporation's
business of dealing in securities in Hong Kong such amount as is prescribed in
regulations. (Added 62 of l976 s.13)

(2) If

(a)the dealer, being an individual person or member of a partnership of
dealers, becomes bankrupt, the Commission shall pay the deposit to
the dealer's trustee in bankruptcy;





(b)the dealer, being a corporation, is ordered to be wound up by or
under the supervision of the Court, the Commission shall pay the
deposit to the liquidator of the corporation; or

(c)the certificate of registration of the dealer is revoked, or the dealer or
any servant of the dealer, or where the dealer is a partnership or a
corporation any member of the partnership or director or officer of the
corporation, is convicted of an offence necessarily involving a
finding that he or it was guilty of a breach of trust, defalcation, fraud,
or misfeasance in respect of any money or securities of a person who
is a client of the dealer, the Commission may direct that all or any part
of the deposit be forfeited.

(3) In the event of the deposit or any part of the deposit being paid to the
dealer's trustee in bankruptcy or liquidator under subsection (2)(a) or (b), the
amount paid shall be applied by the trustee or liquidator, as the case may be, in
accordance with regulations made under this Ordinance for the purposes of this
subsection.

(4) In the event of the deposit or any part of the deposit being forfeited under
subsection (2)(c), the amount forfeited shall be applied by the Commission subject
to and in accordance with regulations made under this Ordinance for the purposes
of this subsection.

(5) Except as provided in this section or under regulations made under this
Ordinance, no person may withdraw or transfer any deposit made under this
section. (Amended 62 of 1976 s. 13)

(6) The following persons are exempt from being required to deposit the
amount required under this section

(a) a member of the Exchange Company;

(b)a dealing director of a corporation which is a member of the Exchange
Company unless he is also a dealing director of another corporation
which is a registered dealer and which is not a member of the
Exchange Company;

(c)a corporation which is not a member of the Exchange Company, each
of whose dealing directors has deposited the amount so required;
and

(d)any other dealer who belongs to a class of dealers exempted from the
provisions of this section by regulations. (Replaced 58 of 1985 s.48)

(7) The Commission shall open one or more accounts at a licensed bank into
which he shall pay all sums received from dealers by way of deposit under this
section, and shall then ascertain what proportion of those sums ought, in his
opinion, to be retained in the accounts to enable liabilities under subsection (2), or
such other liabilities as may be prescribed by regulations, to be satisfied.





(8) After ascertaining the amount required to be retained under subsection (7),
the Commission shall cause the balance of the sums to be invested in such manner
as it thinks fit.

(M) Any document relating to the investment of money under subsection (8)
may be kept in the office of the Commission or deposited by it for safekeeping with
a licensed bank. (Added 62 of 1976 s.13)

(9) Where the Commission has invested the balance of the sums under
subsection (8), it shall, as soon as practicable after the end of each financial year, by
notice in the Gazette,

(a)declare a rate of interest to be paid for that financial year in respect of
each sum deposited under this section; (Amended 62 of 19 76 s. 13)

(b) specify the manner and time of payment of that interest; and

(c)specify an amount to be charged for management expenses incurred
by the Commission in administering that sum under this section.

(10) As soon as practicable after the publication of the notice referred to in
subsection (9), the Commission shall, after deducting the appropriate amount
chargeable in respect of management expenses, pay to each person who has
deposited the prescribed sum under this section, or to that person's duly authorized
agent or personal representative, the appropriate amount of interest due in respect
of that sum for the financial year in question. (Amended 62 of 1976s.13)

(11) If any person who has made a deposit under this section ceases to be
registered as a dealer and the deposit has not been or is not required to be disposed
of under subsection (2), that person, or his agent or personal representative, may
apply to the Commission for the deposit to be released to him. (Amended 62 of
1976 s. 13)

(12) On making an application under subsection (11), the applicant shall

(a) satisfy the Commission by a statutory declaration-

(i)that he knows of no other person who has made or is entitled to
make a claim in respect of the deposit;

(ii) if he is not the dealer who made the deposit, that he is entitled to
give a good discharge for the deposit and stating the
circumstances in which he is so entitled; and

(b)provide the Commission with such information as will satisfy him that
an advertisement in a form approved by him has been inserted once in
an English language newspaper, and once in a Chinese language
newspaper, circulating in Hong Kong.

(13) The Commission, on being so satisfied, shall cause the amount of the
deposit to be released to the applicant.

(Amended 10 of 1989 s. 65)





52A. Accounts of sums deposited under section 52

(1) The Commission shall keep proper accounts of all sums deposited under
section 52, and shall in respect of the financial year beginning before and ending
after the day on which this section commences, and in respect of each subsequent
financial year, prepare a revenue and expenditure account, and a balance sheet
made up to the last day of that year.

(2) The Commission shall appoint an auditor who shall audit the accounts kept
under subsection (1) and shall audit and prepare an auditor's report in respect of
each balance sheet and revenue and expenditure account prepared under
subsection (1) and shall submit the report to the Commission.

(3) (Repealed 10 of 1989 s. 65)

(Added 62 of 1976 s.14. Amended 1O of 1989 s.65)

53. Refusal of registration

(1) The Commission may refuse to register an applicant for registration under
this Part

(a) in the case of an applicant who is an individual, on the grounds

that

(i) the applicant has not provided the Commission with such
information relating to him or any person employed by or
associated with him, and to any circumstances likely to affect
his method of conducting business, as may be prescribed by
or under this Ordinance;

(ii)the applicant is detained under the Mental Health Ordinance
(Cap. 136) in a mental hospital or is a person suffering or
appearing to suffer from mental disorder within the meaning of
that Ordinance; (Amended 46 of 1988 s. 33)

(iii) the applicant is an undischarged bankrupt or has committed
such an act of bankruptcy as is described in section 3(1) of the
Bankruptcy Ordinance (Cap. 6) or has entered into any
compromise or scheme of arrangement with his creditors;
(Amended 58 of 1985 s. 10)

(iv)the applicant does not have the financial resources, in respect of
the business for which he applies for registration, specified in
any rules made under section 28 of the Securities and Futures
Commission Ordinance (Cap. 24) which are then in force and
which would be applicable to him if his application for
registration were granted; or (Replaced 10 of 1989 s. 65)

(v) the applicant has not for the purposes of section 27 of the
Securities and Futures Commission Ordinance (Cap. 24)
notified the location of business premises at which every





record or other document relating to the business in respect of
which he applies to be registered is to be kept, such location not
being, in the opinion of the Commission, unsuitable having
regard to the purposes of section 30 of that Ordinance; or
(Replaced 10 of 1989 s. 65)

(vi) the applicant is under 21 years of age; or (Replaced 10 of
1989 s.65)

(b) in the case of an applicant that is a corporation, on the grounds

that

(i)the applicant has not provided the Commission with such
information relating to it or any person employed by or
associated with it, and to any circumstances likely to affect its
method of conducting business as may be prescribed by or
under this Ordinance;

(ii) any director of the applicant is detained under the Mental Health
Ordinance (Cap. 136) in a mental hospital or is a patient as
defined in section 2 of that Ordinance;

(iii) any director of the applicant is an undischarged bankrupt or has
committed such an act of bankruptcy as is described in section
3(1) of the Bankruptcy Ordinance (Cap. 6) or has entered into
any compromise or scheme of arrangement with his creditors;
(Amended 58 of 1985 s. 10)

(iiia) where the application is for registration as a dealer, no director
of the applicant is, or is in the opinion of the Commission likely
to be, registered as a dealer, or where the application is for
registration as an investment adviser, no director of the
applicant is, or is in the opinion of the Commission likely to be,
registered as an investment adviser; (Added 62 of 1976 s. 15)

(iv) the applicant does not have the financial, resources, in respect
of the business for which he applies for registration, specified in
any rules made under section 28 of the Securities and Futures
Commission Ordinance (Cap. 24) which are then in force and
which would be applicable to him if his application for
registration were granted; or (Replaced 10 of 1989 s. 65)

(v) the applicant has not for the purposes of section 27 of the
Securities and Futures Commission Ordinance (Cap. 24) notified
the location of business premises at which every record or
other document relating to the business in respect of which he
applies to be registered is to be kept, such location not being,
in the opinion of the Commission, unsuitable having regard to
the purposes of section 30 of

that Ordinance; or(Replaced 10 of 1989 s. 65)





(c) in the case of an applicant that is a partnership, on the grounds

that

(i) any of the grounds specified in paragraph (a) or (b) exist in
relation to any partner of that partnership, every partner being
regarded as a separate applicant for the purposes of those
paragraphs; or

(ii) the applicant does not have the financial resources, in respect of
the business for which it applies for registration, specified in
any rules made under section 28 of the Securities and Futures
Commission Ordinance (Cap. 24) which are then in force and
which would be applicable to it if its application for registration
were granted; or

(iii) the applicant has not for the purposes of section 27 of the
Securities and Futures Commission Ordinance (Cap. 24) notified
the location of business premises at which every record or other
document relating to the business in respect of which it applies
to be registered is to be kept, such location not being, in the
opinion of the Commission, unsuitable having regard to the
purposes of section 30 of that Ordinance. (Replaced 10 of 1989 s.
65)

(2) The Commission shall not refuse an application for registration without first
giving the applicant an opportunity of being heard.

(3) Where the Commission refuses an application for registration, it shall notify
the applicant in writing of that fact and shall include in the notice a statement of the
reasons for the refusal.

(Amended 10 of 1989 s. 65)

53A. Amendment of conditions of
certificate of registration

Without affecting the generality of section 51(2), the Commission may at any
time, by a notice in writing served on the holder of a certificate of registration, attach
to the certificate such reasonable conditions as the Commission considers
necessary or, if it considers it necessary, amend or cancel any condition to which
the certificate is then subject.

(Added 10 of 1989 s. 65)

54. (Repealed 10 of 1989 s. 65)

54A. Deemed registration of certain partnerships

(1) Where

(a) in any registered dealing partnership or registered investment

advisers' partnership





(i) any partner by agreement ceases to be a partner or a further
partner is admitted to the partnership;

(ii)the registration of any partner, being a registered dealer or
registered investment adviser, is revoked under section 55 or 56;
or

(iii) any partner dies, is expelled, becomes bankrupt or, being a
corporation goes into liquidation or is ordered to be wound up;
or

(b) any registered dealing partnership or registered investment

advisers' partnership is dissolved by order of court, and any former
or remaining partners or, where a further partner is admitted to the partnership, the
former partners and the new partner, desire to continue in partnership the business
of dealing in securities or, as the case may be, carrying on the business of an
investment adviser, they may notify the Commission in writing of this intention.

(2) Where notice is given under subsection (1), any new partnership formed for
the purpose of continuing in partnership the business of dealing in securities or, as
the case may be, the business of an investment adviser of a previous partnership,
and any continuing partnership, shall be deemed to be a registered dealing
partnership or registered investment advisers' partnership, as the case may be, until
and unless the Commission in writing otherwise directs and, until and unless such
partners give such notification, such partnership shall not be deemed to be so
registered.

(3) The direction of the Commission under subsection (2) may permit the new
or continuing partnership to carry on business subject to such conditions, being
conditions reasonable in the circumstances as the Commission may think fit to
impose and, without derogation from the generality of the fore-going, such
conditions may require the continuing or new partnership to apply for registration
under this Part, or to again apply for such registration, within such time as may be
specified, failing which it shall no longer be deemed to be registered under this Part,
and further provide that such partnership shall no longer be deemed to be so
registered, should such application be unsuccessful.

(4) Any notice by a partnership under subsection (1) shall, if it gives
particulars of any facts required to be notified under section 63, be deemed

sufficient notice for the purposes of that section.
(Added 58 of 1985s.12.Amended 1O of 1989 s.65)

55. Revocation and suspension of certificates

of registration in certain cases

(1) Where any registered person-

(a) being an individual, dies; or





(b) being a corporation or, subject to section 54A, a partnership, is

dissolved, (Replaced 58 of 1985 s. 13) the
registration of that person is deemed to be revoked.

(2) The Commission may revoke the registration of a registered person or, if it
thinks it appropriate to do so, suspend the registration of such a person for such
time, or until the happening of such event, as it may determine

(a) in the case of a registered person who is an individual, if that

person

(i) suffers or appears to suffer from mental disorder within the
meaning of the Mental Health Ordinance (Cap. 136);

(Replaced 46 of 1988 s. 33)

(ii) has committed such an act of bankruptcy as is described in
section 3(1) of the Bankruptcy Ordinance (Cap. 6) or has
entered into any compromise or scheme of arrangement with
his creditors; (Replaced 58 of 1985 s. 13)

(iii) is convicted, whether in Hong Kong or elsewhere, of an offence
the conviction for which necessarily involved a finding that he
acted fraudulently or dishonestly;

(iv) is convicted of an offence against this Ordinance;

(v) ceases to carry on business in Hong Kong; or

(vi) is registered as a representative and the registration of the dealer
or investment adviser, in relation to whom the certificate of
registration of the representative was granted, is revoked or
suspended; or

(b) in the case of a registered person that is a corporation if

(i)the corporation goes into liquidation or is ordered to be wound
up;

(ii) a receiver or manager of the property of the corporation is
appointed;

(iii) the corporation has ceased to carry on business;

(vi) a levy of execution in respect of the corporation has not been
satisfied;

(v) the corporation has entered into a compromise or scheme of
arrangement with its creditors;

(vi) any director of the corporation is convicted, whether in Hong
Kong or elsewhere, of an offence the conviction for which
necessarily involved a finding that he acted fraudulently or
dishonestly;

(vii) any director of the corporation is convicted of an offence
against this Ordinance;

(viii) a director, secretary, or other person concerned in the
management of the corporation who is required to be registered
under this Part is not so registered or the





registration of such a director, secretary, or other person has
been revoked or suspended.

(2A) The Commission may

(a) revoke the registration of a registered dealer or a registered

dealing partnership; or

(b) suspend the registration of a registered dealer or registered

dealing partnership for such time, or until the happening of such event, as it may
determine, if such dealer or partnership fails to comply with section 65B. (Added 58
of 1985 s.49)

(3) The Commission may revoke a certificate of registration at the request of its
holder.

(4) The Commission may at any time remove the suspension of the registration
of a registered person if it appears to it desirable to do so.

(5) Every decision of the Commission revoking or suspending the registration
of a registered person shall be notified to that person in writing and shall include a
statement of the reasons on which it is based and take effect from the date on which
it is notified to that person or such later date as is specified in the notice. (Replaced
62 of 1976 s. 16)

(Amended 10 of 1989 s.
65)

S6. Powers of Commission in relation to misconduct

(1) The Commission may at any time make inquiry concerning any of the
following matters

(a) whether a registered person, being an individual, corporation or

partnership-

(i)has provided the Commission, whether before or after becoming
registered under this Ordinance or the Securities and Futures
Commission Ordinance (Cap. 24), with such information relating
to him, and to any circumstances likely to affect his method of
conducting business, as may be required by or under either of
those Ordinance;

(ii) is or has been guilty of any misconduct in relation to the
conduct of his business; or

(iii) is a fit and proper person to be registered by reason of any other
circumstances; or

(b) whether, in the case of a registered person that is a corporation,

any director, secretary or person concerned in the management of
the corporation-

(i) is or has been guilty of any misconduct; or

(ii) is a fit and proper person to be a director, secretary or person
concerned in the management of the corporation.





(2) After making such inquiry in respect of a registered person, the Commission
may if it thinks fit

(a) revoke the registration of the person;

(b)suspend the registration of the person for such time, or until the
happening of such event, as it may determine; or

(c)reprimand him or, in the case of a registered person that is a
corporation, reprimand any director, secretary or person concerned in
its management.

(3) The Commission shall not impose any penalty under subsection (2) without
first giving the registered person and, in the case of a registered person that is a
corporation, any director, secretary or person concerned in its management, an
opportunity of being heard.

(4) Every decision of the Commission imposing a penalty under subsection (2)
on a person shall be notified to that person in writing and shall include a statement
of the reasons on which it is based.

(5) For the purposes of this section 'misconduct' means

(a)any failure to comply with any requirement of or imposed by or under
this Ordinance or the Securities and Futures Commission Ordinance
(Cap. 24) with respect to dealers, investment advisers or
representatives;

(b)any failure to observe the terms and conditions of a certificate of
registration;

(c)any act or omission relating to the conduct of business of a dealer,
investment adviser or representative which is or is likely to be
prejudicial to the interests of members of the investing public.

(Replaced 10 of 1989 s. 65)

57. Effect of revoking or suspending registration

(1) (Repealed 10 of 1989 s. 65)

(2) A revocation or suspension under this Part does not operate so as to

(a)avoid or affect any agreement transaction or arrangement relating to
a dealing in securities entered into by a person whose registration
has been suspended or revoked, whether the agreement, transaction,
or arrangement was entered into before or after the suspension or
revocation of the registration; or

(b)affect any right, obligation, or liability arising under any such
agreement, transaction, or arrangement.

(3) A person whose registration is revoked under section 55 (other than under
subsection (2)(a)(v) or (vi) or (b)(iii) ) or 56 may not apply to be registered under
this Part, whether as a dealer, investment adviser, or representative, until the
expiration of at least 12 months from the revocation. (Amended 58 of 1985 s. 15)





(4) Where the Commission revokes or suspends the registration of any
person under section 55 or 56 or imposes any other penalty under section 56, it
shall notify that person in writing of the revocation, suspension, or other
penalty, and shall include in the notice a statement of the reasons as to why the
registration of the person was revoked or suspended or, as the case may be, the
penalty was imposed.
(Amended 10 of 1989 s. 65)

58-59. (Repealed 10 of 1989 s. 65)

60. Exempt dealers
(1) The Commission may declare any person to be an exempt dealer for
the purposes of this Ordinance if it is satisfied that the business of that person
complies with the following requirement, that is to say-
(a)the main business of that person consists of one or both of the
following activities-
(i) carrying on some business other than the business of dealing
in securities;
(ii)dealing in securities in one or more of the ways specified in
subsection (2); and
(b)the greater part of any business of dealing in securities done by
him in Hong Kong, otherwise than in one of the ways specified in
subsection (2), is effected with or through the agency of one or
more of the following persons-
(i) a registered dealer;
(ii) an exempt dealer; or
(iii) a member of a stock exchange outside Hong Kong.
(2) The ways of dealing in securities referred to in subsection (1) are-
(a)issuing any document which is or is to be deemed to be a
prospectus within the meaning of the Companies Ordinance
(Cap. 32) or any prospectus approved by the Commission that is
issued by a mutual fund corporation or unit trust authorized by
the Commission;
(b)making or offering to make with any person an agreement for or
with a view to the underwriting of securities by that person;
(c)making any invitation to persons to subscribe for securities or to
purchase securities on the first occasion that they are sold;
(d)making any invitation to persons to subscribe for or purchase
securities of the Government or the government of any country
or territory outside Hong Kong;
(e)effecting any transaction with a person whose business involves
the acquisition and disposal or the holding of securities, being a
transaction with that person as a principal.





(3) (Repealed 10 of 1989 s. 65)
(4) Without prejudice to subsection (1), the Commission may, by notice
in the Gazette, declare-
(a) any licensed bank;
(b)any trustee company registered under Part VIII of the Trustee
Ordinance (Cap. 29); or
(c)any person belonging to class of persons, or carrying on a type
of business, prescribed in regulations for the purposes of this
paragraph,
to be an exempt dealer for the purposes of this Ordinance.
(5) The Commission may at any time revoke a declaration made under
this section.
(6) The Commission shall cause to be published in the Gazette at least
once in every year the names and addresses of all persons who are exempt
dealers.
(Amended 10 of 1989 s. 65)

61. Exempt investment advisers

(1) The Commission may declare any person to be an exempt investment
adviser for the purposes of this Ordinance if it is satisfied that the business of
that person complies with the following requirements, that is to say-
(a)the investment advice is given mainly to persons whose business
involves the acquisition and disposal or the holding of securities;
or (Amended 62 of 1976 s. 18)
(b)the investment advice is given only to persons residing outside
Hong Kong.
(2) The Commission may at any time revoke a declaration under
subsection (1).
(Amended 10 of 1989 s. 65)

62. Offence to make a false representation for the purpose of
obtaining a certificate of registration under this Part

(1) Any person who for the purpose of obtaining a certificate of
registration under this Part, whether for himself or for any other person, makes
any representation, whether in writing, orally or otherwise, which he knows to
be false or misleading as to a material particular shall be guilty of an offence,
and shall be liable on conviction on indictment, to imprisonment for 5 years.
(2) For the purposes of subsection (1), 'representation' means a
representation-
(a) of a matter of fact, either present or past; or
(b) about a future event; or





(c)about an existing intention, opinion, belief, knowledge, or other state
of mind.

(3) Proceedings in respect of an offence against this section may be brought at
any time within 6 months of the discovery of the offence.

63. Information to be provided by registered person

other than a representative, etc.

(1) Every registered person other than a representative shall forthwith notify
the Commission in writing of any change which, while his certificate of registration
is in force, may occur- (Amended 58 of 1985 s. 16)

(a)in the address in Hong Kong at which he carries on the business of
dealing in securities or of investment adviser, as the case may be; or

(b)in any information supplied in or in connection with his application
for registration or renewal of registration, being information
prescribed by regulations.

(2) Every registered person other than a representative shall forthwith, on
ceasing to carry on business in Hong Kong as a dealer or an investment adviser,
notify the Commission in writing of that fact. (Amended 58 of 1985 s.16)

(3) If, at any time while a corporation is registered as a dealer or investment
adviser, any person becomes or ceases to be a director of the corporation, the
corporation shall within 7 days after that event notify the Commission in writing of
the name and address of that person and also his nationality or the fact that he has
no nationality.

(4) If, at any time while a person is registered as a dealer's representative or
investment representative, that person leaves or enters the service of, or becomes
or ceases to be an agent of, any dealer or investment adviser, that person and the
dealer or investment adviser as the case may be, shall within 7 days after that event
notify the Commission in writing of the fact and of the name and address of the
dealer or investment adviser. (Amended 58 of 1985 s.16)

(4A) Where

(a)in any registered dealing partnership or registered investment
advisers' partnership

(i) any partner ceases to be a partner or a further partner is admitted
to the partnership; or

(ii)any partner dies or becomes bankrupt or, being a corporation
goes into liquidation or is ordered to be wound up; or

(b)any registered dealing partnership or registered investment advisers'
partnership is dissolved by order of court,





the persons who were partners in such partnership immediately prior to such event
and, in the case of any person who is deceased, his personal representative, shall
forthwith notify the Commission in writing of the fact. (Added 58 of 1985 s. 16)

(5) Any person who, without reasonable excuse, contravenes any of the
provisions of this section shall be guilty of an offence and shall be liable on
conviction to a fine of $2,000.

(Amended 10 of 1989 s. 65)

64. Commission to keep a register of dealers, etc.

(1) The Commission shall establish and maintain at its office

(Amended 10 of 1989 s. 65)

(a)a register of dealers in which shall be entered the name of every
registered dealer and such other particulars as may be prescribed in
relation to registered dealers;

(b)a register of investment advisers in which shall be entered the name
of every registered investment adviser and such other particulars as
may be prescribed in relation to registered investment adviser;

(c)a register of dealers' representatives in which shall be entered the
name of every registered dealer's representative and such other
particulars as may be prescribed in relation to registered dealers'
representatives;

(d)a register of investment representatives in which shall be entered the
name of every registered investment representative and such other
particulars as may be prescribed in relation to registered investment
representatives; (Amended 58 of 1985 s. 17)

(e)a register of dealing partnerships in which shall be entered the name
of the partnership and of each partner thereof together with such
other particulars as may be prescribed in relation to registered
dealing partnerships; and (Added58of1985s.17)

(f)a register of investment advisers' partnerships in which shall be
entered the name of the partnership and of each partner thereof
together with such other particulars as may be prescribed in relation
to registered investment advisers' partnerships. (Added 58 of 1985 s.
17)

(2) The registers kept under this section and, after registration or renewal of
registration, as the case may be, all applications made for registration or renewal of
registration under this Part shall, during such hours as may be prescribed and on
payment of any fee prescribed by regulations, be open to inspection by members of
the public.





(3) A copy of any extract of or entry in the registers kept under this section,
purporting to be certified by an authorized officer of the Commission, shall be
admissible as evidence in any legal proceedings, whether under this Ordinance or
otherwise. (Amended 10 of 1989 s. 65)

65. Publication of names of registered dealers, etc.

(1) The Commission shall cause to be published in the Gazette, at such times
and in such manner as it thinks proper, the names and addresses of all persons who
are registered under this Part, and also

(a)in relation to any natural person who is so registered and in relation to
each general partner of a partnership which is so registered, being a
natural person, his nationality or, as the case may be, that he has no
nationality;

(b)in relation to each general partner of a partnership which is so
registered, his name and address; and

(c)in relation to any registered person who is a corporation, the country
where the corporation is domiciled or under the law of which the
corporation is incorporated. (Replaced 58 of 1985 s. 18)

(2) The information required by subsection (1) shall be published at least once
each year.

(3) If the Commission at any time amends any of the registers kept by it under
this Part by adding or removing the name of any person, it shall cause particulars of
the amendment to be published in the Gazette within one month after making the
amendment.

(Amended 10 of 1989 s. 65)

PART VIA

SPECIAL PROVISIONS RELATING To
DEALERS

65A. Qualifications for registration as a dealer

(1) No person, being an individual, may be registered as a dealer unless he can
show that

(a)he has sufficient qualifications or experience in dealing in securities;

(b) (Repealed 10 of 1989 s. 65)

(c)he is able to comply with the requirements of section 65B. (Added
58 of 1985 s. 50)

(2) No person shall be regarded as having sufficient qualifications or
experience for the purpose of subsection (1)(a) unless he has





(a) not less than 3 years' experience in dealing in securities-
(i) in Hong Kong; or

(ii)on any other stock market recognized by the Commission for the
purposes of this paragraph by notice in the Gazette; or

(b)passed an examination approved for the purposes of this paragraph
by the Commission by notice in the Gazette.

(3) No corporation may be registered as a dealer unless

(a) it is-

(i) a registered company; or

(ii) an overseas company to which Part Xl of the Companies
Ordinance (Cap. 32) applies and which has complied with the
provisions of that Part relating to the registration of documents;

(b) every person who will be a dealing director is a registered dealer;

and

(c) it is able to comply with the requirements of section 65B.

(Added 58 of 1985 s. 50)

(4) No partnership may be registered as a dealing partnership unless

(a) all the partners, in the case of a general partnership; or

(b) all the general partners, in the case of a limited partnership, are able to
comply with the requirements of section 65B. (Added 58 of 1985 s.50)

65B. Capital requirements for dealers

(1) A registered dealer shall provide and at all times maintain in his business as
a dealer

(a) if he is a company, a net capital of not less than $5,000,000; or

(b) subject to subsection (2), in any other case a net capital of not less

than $1,000,000.

(2) A registered dealing partnership shall provide and at all times maintain in
their business as a dealer a net capital which in aggregate amounts to not less than

(a) $5,000,000 for each corporation which is a partner; and

(b) $1,000,000 for any other person who is a partner, being in either case, a
partner who is required by this Ordinance to be a registered dealer.

(3) A registered dealer or dealing partnership shall at all times maintain in his or
their business as a dealer a liquidity margin of not less than 10 per centum of the
minimum net capital requirement specified in subsections (1) and (2),

(4) Nothing in this section shall apply to a registered dealer who is a dealing
director.





(5) The Governor in Council may, by order in the Gazette, amend this section by
substituting for any amount or percentage specified therein any other amount or
percentage.

(6) For the purposes of this section-

'approved assets' and 'ranking liabilities' means such assets and liabilities

as are specified to be approved assets and ranking liabilities by the

Commission by notice in the Gazette;

'liquid assets' means such of the approved assets as are specified as liquid

assets by the Commission by notice in the Gazette; 'liquidity margin' means
the excess of liquid assets over ranking liabilities; 'net capital' means the excess of
approved assets over ranking liabilities.

(7) Where under subsection (6) the Commission specifies any assets as
approved assets or liquid assets it may also specify the percentage of the value of
the assets that may be taken into account, or the percentage of the minimum net
capital or liquid assets that the assets may comprise, in computing the net capital or
the liquidity margin as the case may be.

(8) The Commission may waive or modify the requirements of this section in
relation to any registered dealing partnership. (Added 10 of 1989 s.65)

(Added 58 of 1985 s. 51)

65C. Failure to comply with section 65B

(1) If a registered dealer becomes aware of any inability by him or of any
registered dealing partnership of which he is a partner to comply with section 65B
he shall forthwith

(a) notify the Commission thereof; and

(b)cease dealing in securities and cause any registered dealing
partnership of which he is a member so to cease, otherwise than for
the purpose of giving effect to any agreement or arrangement entered
into before the time when he becomes so aware.

(2) Where the Commission becomes aware of any inability by a registered
dealer or registered dealing partnership to comply with section 65B it may, whether
or not notice has been given under subsection(l)--

(a)suspend the registration of the registered dealer or registered dealing
partnership pending consideration by it of the matter under section 55
or the report of an auditor appointed under section 90; or

(b) permit the registered dealer or registered dealing partnership

to continue dealing in securities on such conditions, if any, as
it may think fit to impose, being conditions reasonable
circumstances





(3) A person shall be deemed to be aware of any such inability as is described
in subsection (1) if he would, with the exercise of reasonable diligence, have been
aware of such inability and, if such person is a corporation, if any dealing director of
that corporation is aware or would, with the exercise of reasonable diligence, have
been aware of such inability.

(4) Any person who contravenes subsection (1) or who fails to comply with
any condition imposed by the Commission under subsection (2)(b) shall be guilty of
an offence and shall be liable on conviction to a fine of $25,000 and, in the case of a
continuing offence, to a further fine of $250 for each day during which the offence
continues.

(Added 58 of 1985 s. 51)

65D. Books, accounts and records
to be produced on demand

(1) For the purposes of ascertaining whether or not a registered dealer or
registered dealing partnership complies with section 65B the Commission and any
person who produces written authority in that behalf signed by the Commission,
shall have the powers of an auditor under section 95(1).

(2) For the purposes of section 95(3) a request made under section 95(1) by the
Commission, or by any person authorized by it, in pursuance of the powers vested
in it or him, as the case may be, by subsection (1) shall be deemed to have been
made under section (Added 58 of 1985 s.51. Amended lO of 1989 s. 65; L.N. 259 of 1989)

(Part VIA
added 58 of 1985 s. 19)

PART VII

RECORDS

66. Application of Part VII

(1) This Part applies to and in relation to

(a) a person who is(i) a dealer; (ii) a dealer's representative;

(iii) an investment adviser; or
(iv) an investment representative; and

(b)securities listed on the Unified Exchange and any other securities of a
class prescribed in regulations for the purposes of this subsection.
(Amended 58 of 1985 s. 52)

(2) The Governor in Council may, by order, apply any of the provisions of this
Part, with such modifications and additions as he thinks fit, to financial journalists.





(3) For the purposes of subsection (2) 'financial journalist' means a person
who, in the course of his business or employment, contributes advice concerning
securities for publication in a newspaper, magazine, journal, or other periodical
publication.

67. Certain persons to maintain registers of securities

(1) A person to whom this Part applies shall maintain a register of the securities
in which he has an interest and of the particulars relating to their acquisition and
disposal in a manner and form approved by the Commission. (Amended 10 of 1989 s.
65)

(2) Particulars of the securities in which a person to whom this Part applies has
an interest and particulars of his interest in those securities shall be entered by that
person in the register within 14 days after he becomes aware of the acquisition of
the interest or after the commencement of this section, whichever is the later.

(3) Where there is a change (not being a change prescribed by regulations) in
the interest or interests in securities of a person to whom this Part applies, he shall,
within 14 days after he becomes aware of the change, enter in the register full
particulars of the change, including the date when the change occurred and the
circumstances by reason of which the change occurred.

(4) For the purposes of this section, where a person acquires or disposes of
securities there shall be deemed to be a change in the interest or interests of that
person.

(4A) Where a person to whom this Part applies is a registered dealer who is a
partner in a registered dealing partnership or a registered investment adviser in a
registered investment advisers' partnership it shall be sufficient compliance with this
section if the register required to be maintained by this section is maintained by the
partnership in relation to all the partners of the partnership who are registered
dealers or registered investment advisers. (Added 58 of 1985s.20)

(5) A person who contravenes any provision of this section that is applicable
to him shall be guilty of an offence and shall be liable on conviction to a fine of
$5,000.

68. Certain notices to be given to the Commission

(1) A person to whom this Part applies shall notify in writing to the
Commission the place at which he keeps or intends to keep the register of his
interests in securities: (Replaced 62 of 1976 s. 19. Amended 58 of 1985 s. 21)


Provided that where the person to whom this Part applies is a registered dealer
who is a partner in a registered dealing partnership or a registered investment
adviser in a registered investment advisers' partnership such notice





may be given by the partnership or any partner thereof on behalf of such person,
and if such partnership or partner does so, such notice shall, for the purposes of
this section, be deemed to have been given by that person. (Added 58 of 1985 s. 21)

(2) Notice under subsection (1) shall be given

(a)if the person is a person to whom this Part applies at the
commencement of this section, within one month after that date; or

(b)in any other case, in or as part of the person's application for
registration under this Ordinance.

(3) A notice under paragraph (a) of subsection (2) shall be given as provided in
that paragraph notwithstanding that the person has ceased to be a person to whom
this Part applies before the expiration of the appropriate time referred to in that
paragraph.

(4) A person to whom this Part applies shall keep the register of his interests in
securities at the place specified in the notice given under subsection (1) unless he
gives a subsequent notice to the Commission in the form prescribed by regulations
to the effect that the register is kept at some other place specified in the subsequent
notice, in which case he shall keep the register--

(a)where only one such subsequent notice has been given, at the other
place specified in that notice, or

(b)where more than one such subsequent notice has been given, at the
other place specified in the later or latest of those notices.

(5) A person who ceases to be a person to whom this Part applies shall give
notice in the form prescribed by regulations to the Commission of that fact within 14
days thereafter.

(6) A person who contravenes any provision of this section that is applicable
to him shall be guilty of an offence and shall be liable on conviction to a fine of
$2,000.

(Amended 10 of 1989 s. 65)

69. Defences

(1) It shall be a defence to a prosecution for contravening any provision of
section 67(5) or 68(6) if the defendant proves that the contravention was due to his
not being aware of a fact or occurrence the existence of which was necessary to
constitute the offence.

(2) For the purposes of this Part, a person shall, in the absence of proof to the
contrary, be presumed to have been aware at a particular time of a fact or occurrence
relating to securities of which a servant or agent of the person, being a servant or
agent having duties or acting in relation to his employer's or principal's interest in
the relevant securities, was aware at that time.





70.Power of Commission to require certain
information to be supplied to him
The Commission may require a person to whom this Part applies to
produce for inspection the register required to be kept pursuant to section 67,
and the Commission may make copies of or take extracts from the register.
(Amended 10 of 1989 s. 65)

71. Power of Commission to supply copy of register

The Commission may supply a copy of any such register, or a copy of an
extract from it, to the Attorney General, who may, if he has reason to believe
that an offence under this Ordinance may have been committed, deliver the
copy to any person whom he thinks fit for the purposes of an investigation or a
prosecution of the offence.
(Amended 10 of 1989 s. 65)

PART VIII

TRADING IN SECURITIES

72. Offers by dealers
(1) A dealer shall not in Hong Kong communicate an offer to acquire or
dispose of securities of a corporation unless-
(a) the offer-
(i) is written in the English or Chinese language; or
(ii) if communicated verbally, is reduced to writing in the
English or Chinese language and delivered to the person or
persons to whom it was made not later than 24 hours after
the verbal communication; and
(b) the offer-
(i)specifies the name and address of the offeror and, if any
person is making the offer on behalf of the offeror, the name
and address of that person;
(ii) contains a description of securities sufficient to identify
them;
(iii) specifies the terms of the offer (including where appropriate
the amount of consideration proposed to be paid for
securities acquired pursuant to the offer);
(iv) where a dividend has been declared or recommended in
respect of the securities, or it is anticipated that a dividend
will be so declared or recommended before the transfer of
the securities, states whether the securities are to be
transferred with or without that dividend;





(v)specifies whether, in the event of a person accepting the offer,
the offeror will pay any stamp duty which that person will
become liable to pay in respect of the contract note as a result of
the transaction;

(vi) bears a date which is not more than 3 days before the date on
which the offer is communicated;

(vii) if the offer relates to the acquisition of securities, satisfies the
requirements of Schedule 1;

(viii) if the offer relates to the disposal of securities satisfies the
requirements of Schedule 2;

(ix) where a report of an expert in connection with the offer is
included in or annexed to the offer, contains a statement to the
effect that the expert has consented to the inclusion or
annexure, and has not, before the communication of the offer,
withdrawn that consent;

(c) the offer includes a translation, as the case requires, in the

Chinese or English language of all the particulars required under
paragraph (b), except where the Commission has previously
agreed that the requirements of this paragraph may be dispensed
with in any particular case. (Amended 10 of 1989 s. 65)

(2) A document containing an offer to which subsection (1) relates which
includes a statement purporting to be made by an expert shall not be communicated
unless the expert has given and has not, before communication of a copy of the
offer, withdrawn his written consent to the communication of the offer with the
inclusion of the statement in the form and context in which it is included.

(3) Subject to subsection (5), any dealer who communicates an offer for the
acquisition or disposal of securities without having complied with subsections (1)
and (2) shall be guilty of an offence and shall be liable on conviction to a fine of
$10,000.

(4) Where any person has accepted an offer for the disposal or acquisition of
securities under this section and the offer has been made without the requirements
of subsections (1) and (2) having been complied with in a material particular, that
person may, subject to the rights of any bona fide purchaser of the securities for
value, rescind the acceptance, by notice in writing, within 14 days after the date of
the acceptance. (Replaced 62 of 1976 s. 20)

(5) Without prejudice to the provisions of section 3, this section does not
apply to

(a) any offer to dispose of securities of a corporation to persons who

already hold securities of that corporation;

(b) any offer by a dealer if the offer is made to a person with whom,

or on whose behalf, the dealer has transacted the sale or purchase of
securities on at least 3 occasions during the period of 3 years
immediately preceding the offer;





(c) any offer made to-

(i) a person whose business involves the acquisition or disposal or
holding of securities; or

(ii) a solicitor or professional accountant; or

(iii) any other person who belongs to a class of persons prescribed
in regulations for the purposes of this paragraph; or (Amended
62 of 1976 s. 20)

(d)any offer made by a stockbroker in the ordinary course of trading on
the Unified Exchange. (Amended 58 of 1985 s. 53)

(6) Where a dealer communicates an invitation which invites a person to
acquire or dispose of any security held by that person in a corporation, then for the
purposes of this section

(a) that invitation is deemed to be an offer; and

(b)an offer to acquire or dispose of that security made by that person in
response to the invitation is deemed to be an acceptance by that
person of an offer to acquire or, as the case may be, an offer to
dispose of the security,

and references in this section to 'acceptance' shall be construed accordingly.

(7) An offer to acquire or dispose of a right to acquire or dispose of a security
or an interest in a security is deemed to be an offer to acquire or dispose of a
security; and a reference to a person who holds securities includes a reference to a
person who holds a right to acquire a security or an interest in a security.

(8) For the purposes of this section 'expert' includes an engineer, valuer,
professional accountant, and solicitor, and any other person whose profession
gives authority to a statement made by him.

(9) For the purposes of this section an offer to acquire or dispose of securities
in consideration or part consideration for other securities is deemed to be both an
offer to acquire and an offer to dispose of securities.

73. Calls by registered dealers

(1) Subject to subsection (3), a dealer shall not during, or as a consequence of,
a call on any person, whether at his place of residence or his place of employment or
otherwise, enter into any contract for the sale of securities unless he

(a) calls on the person at the invitation of that person; and

(b) before entering into the contract provides the person with a

written statement containing all the information which he would have
been required to give to that person if the contract had been entered
into as a result of an offer made under section 72.

(2) Any dealer who contravenes subsection (1) shall be guilty of an offence
and shall be liable on conviction to a fine of $10,000 and to imprisonment for 2 years.





(3) Subsection (1) does not apply to

(a)any contract for the sale of securities of a corporation with a person
who already holds securities of that corporation;

(b)any contract for the sale of securities by a dealer with a person with
whom the dealer has transacted the sale or purchase of securities on
at least 3 occasions during the period of 3 years immediately
preceding the date of the contract; or

(c) any contract for the sale of securities with--
(i)a person whose business involves the acquisition or disposal or
holding of securities;

(ii) a solicitor or professional accountant;

(iii) any other person who belongs to a class of persons prescribed
in regulations for the purpose of this paragraph.

(4) Where any contract for the sale of securities is entered into in
contravention of subsection (1), the purchaser may, subject to the rights of any
bona fide purchaser of the securities for value, rescind the contract by giving notice
in writing to the seller within 28 days after the date on which the contract was
entered into.

(5) In this section 'call' includes a visit in person and a communication by
telephone.

74. Hawking of securities

(1) Subject to subsections (2) and (3), a person shall not, whether on his own
behalf or otherwise and whether by appointment or otherwise, call from place to
place

(a) making or offering to make with any person

(i) an agreement for or with a view to having that other person
purchase specific securities; or

(ii)an agreement the purpose or pretended purpose of which is to
secure a profit to that other person from the yield of specific
securities or by reference to fluctuations in the value of specific
securities; or

(b)inducing or attempting to induce any other person to enter into an
agreement of the type referred to in paragraph (a)(i) or (ii),

whether or not in calling from place to place he does any other act or thing.

(2) Subsection (1) does not apply to

(a) a person in so far as-

(i)he calls at the place of another person who is a banker, solicitor,
professional accountant, registered or exempt dealer, registered
or exempt investment adviser or registered dealer's
representative or registered investment representative; and





(ii) whether as principal or agent, he makes, or offers to make,
with that other person an agreement referred to in
subsection (1) or induces, or attempts to induce, that other
person to enter into such an agreement; or
(b)any other person calling from place to place who belongs to a
class of persons prescribed in regulations for the purpose of this
subsection. (Replaced 62 of 1976 s. 21)
(3) Nothing in this section applies to securities or any class of securities
which have been exempted by the Commission for the purposes of this section
provided that any conditions subject to which the exemption was granted have
been fulfilled.
(4) Any person who contravenes subsection (1) shall be guilty of an
offence and shall be liable on conviction to a fine of $50,000 and to
imprisonment for 2 years.
(5) If in any proceedings for an offence against subsection (4) it is proved
that the accused did any of the acts mentioned in subsection (1)(a) or (b) on 2 or
more occasions within any period of 14 days, he shall, until the contrary is
proved, be deemed to have been calling from place to place.
(6) In this section 'to call' includes to visit in person and to communicate
by telephone.

75. Issue of contract notes

(1) Every dealer (including an exempt dealer) shall, in respect of every
contract for the purchase, sale, or exchange of securities entered into by him in
Hong Kong (whether as principal or agent), not later than end of the next
trading day after the contract was entered into, make out a contract note which
complies with subsection (2) and-
(a)where the contract was entered into as agent, deliver the contract
note to the person on whose behalf he entered into the contract; or
(b)where the contract was entered into as principal, retain the
contract note for himself.
(2) A contract note made out by a dealer under subsection (1) shall
include-
(a)the name or style under which the dealer carries on his business
as a dealer and the address of the principal place at which he so
carries on business;
(b)where the dealer is acting as principal, a statement that he is so
acting;
(c)the name of the person (if any) to whom the dealer is required to
give the contract note;
(d)the date of the contract, and the date on which the contract note
is made out;





(e)the quantity and description of the securities that are being
acquired or disposed of,
except in the case of an exchange, the price per unit of the
securities;
(g)the amount of consideration payable under the contract or, in the
case of an exchange, particulars of the securities exchanged
sufficient to identify them;
(h)the rate or amount of commission (if any) payable in respect of
the contract;
(i)the amount of stamp duty (if any) payable in connection with the
contract and, where applicable, in respect of the transfer;
(j) the date of settlement.
(3) Any dealer (including an exempt dealer) who completes a contract for
the purchase, sale, or exchange of securities without having complied with
subsection (1) shall be guilty of an offence and shall be liable on conviction to a
fine of $5,000.

76. Dealers not to engage in option or forward trading
(1) Except as provided in regulations, a dealer (including an exempt
dealer) shall not transact in Hong Kong, or hold himself out as being prepared
to transact in Hong Kong-
(a)any dealing whereby the dealer confers on any person an option
to purchase from or sell to the dealer any securities listed on the
Unified Exchange; or (Amended 58 of 1985 s. 54)
(b)any dealing in any such securities which is completed later than
the end of the next trading day after the dealing was entered into.
(2) Any dealer who contravenes subsection (1) shall, subject to subsec-
tion (3), be guilty of an offence and shall be liable on conviction to a fine of
$5,000.
(3) It shall be a defence to any criminal proceedings brought under
subsection (2) in respect of a dealing mentioned in paragraph (b) of subsec-
tion (1) for the accused to prove that he took all reasonable and practicable
steps to secure completion of the transaction within the period permitted by
that paragraph.
(4) A contract entered into in contravention of subsection (1) shall not be
enforceable by either the dealer or the other contracting party.

77. Dealers to provide certain information, etc. to client
(1) Subject to subsection (2), every dealer (including an exempt dealer)
shall, on being requested to do so by any person on whose behalf he has
transacted a dealing in securities-
(a)provide that person with a copy of the contract note relating to
the dealing, and a copy of his account with the dealer; and





(b)if the Commission on the application of the person so directs, make
available for inspection by that person, at all reasonable times during
the dealer's ordinary hours of business, the dealer's copy of the
contract note and the person's account with the dealer. (Amended 10
of 1989 s. 65)

(2) Subsection (1) does not require a dealer (including an exempt dealer) to

(a)provide, or keep available for inspection, a copy of any contract note
which relates to a dealing transacted more than 2 years before the
date of the request; or

(b)provide a copy of, or keep available for inspection, any account
which relates to a dealing transacted more than 6 years before the
date of the request.

(3) Any such dealer may impose a charge not exceeding an amount prescribed
by regulations for a copy of a document provided pursuant to subsection (1).

(4) Any dealer who, without reasonable excuse, fails to comply with subsection
(1) shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

78. Certain representations prohibited

(1) A registered person shall not in any communication, whether written or oral,
represent or imply or knowingly permit to be represented or implied in any manner
to a person that the abilities or qualifications of the registered

person have in any respect been approved by the Hong Kong Government, the
Commission. (Amended 10 of 1989 s. 65)

(2) A statement made to the effect that a person is registered under this
Ordinance or is the holder of a certificate of registration is not a contravention of
subsection (1).

(3) Any registered person who, without reasonable excuse. contravenes
subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine
of $2,000.

79. Disclosure of certain interests

(1) Where, in a circular or other written communication issued in Hong Kong
by him to more than one person, a dealer or an investment adviser (including an
exempt dealer or exempt investment adviser) makes a recommendation, whether
expressly or by implication, with respect to any securities or any class of securities
of a corporation, he shall include in the circular or other communication, in type not
less bold and not less legible than that used in its text, a statement as to whether or
not he has, at the date specified in the circular or communication pursuant to
subsection (5), an interest in any of the securities of that corporation.





(2) Subsection (1) does not require in the case of a circular or other written
communication issued by a stockbroker the inclusion of a statement in relation to an
interest that consists of the right to charge commission as provided by the rules of
the Exchange Company on the sale or purchase of the securities or class of
securities that are being recommended. (Amended 58 of 1985 s. 55)

(3) For the purposes of subsection (1), a person who has entered into an
underwriting agreement in respect of any securities shall be deemed to have a
financial interest in the sale or purchase of those securities.

(4) Where an offer to the public of securities is not fully subscribed, a person
who has subscribed for or taken up, or is required to subscribe for or take up, any of
those securities under an underwriting agreement shall not, during the period of 90
days after the close of the offer, make any offer or recommendation in respect of
those securities unless the offer or recommendation contains or is accompanied by
a statement to the effect that the offer or recommendation relates to securities that
he has acquired, or is or will be required to acquire, under an underwriting
agreement as a result of the offer to the public not being fully subscribed.

(5) Every circular or other written communication to which this section relates
shall be dated and shall contain on its face the name of the dealer or investment
adviser who issued it.

(6) A dealer or investment adviser who issues a circular or communication to
which this section relates shall retain a copy of it bearing his signature in such
manner, and for such time or until the happening of such event, as may be
prescribed by regulations.

(7) For the purposes of this section, a circular or other written communication
shall be deemed to have been issued by the person whose name is contained on its
face.

(8) In this section a reference to securities does not include a reference to the
stock or debentures of, or bonds made available by, a government or a local
government authority, or to securities guaranteed by a government or a local
government authority.

(9) Without prejudice to the power to make regulations under section 146,
regulations may be made under that section

(a)requiring the lodging with the Commission of copies of any circular
or other written communication issued by a dealer or investment
adviser; and (Amended 10 of 1989 s. 65)

(b)making provision for or with respect to the keeping of records of
circulars or other similar written communications issued by a dealer
or by an investment adviser.

(10) Any dealer or investment adviser, whether registered or exempted from
registration, who--

(a)issues a cirular or other written communication in contravention of
subsection (1) or (5);





(b) contravenes subsection (4); or
(c)fails to retain a copy of a circular or other written commu-
nication as required by subsection (6),
shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.
(11) An offence against subsection (10) is not committed by reason only
that a circular or other written communication is issued to a person whose
business involves the acquisition, disposal, or holding of securities.

80. Short selling prohibited
(1) A person shall not sell securities at or through the Unified Exchange
unless, at the time he sells thern- (Amended 58 of 1985 s. 56)
(a) he has or, where he is selling as agent, his principal has; or
(b)he reasonably and honestly believes that he has or, where he is
selling as agent, that his principal has,
a presently exercisable and unconditional right to vest the securities in the
purchaser of them.
(2) Any person who contravenes subsection (1) shall be guilty of an
offence and shall be liable on conviction to a fine of $10,000 and to im-
prisonment for 6 months. (Amended L.N. 57 of 1988)
(3) For the purposes of subsection (1)--
(a) a person shall be deemed to be selling securities if he-
(i) purports to sell the securities;
(ii) offers to sell the securities;
(iii) holds himself out as entitled to sell the securities; or
(iv) instructs a dealer to sell the securities;
(b)a person who, at a particular time, has a presently exercisable and
unconditional right to have securities vested in him or in
accordance with his directions shall be deemed to have at that
time a presently exercisable and unconditional right to vest the
securities in a purchaser of them; and
(c)a right of a person to vest securities in a purchaser thereof shall
not be deemed not to be unconditional by reason only of the fact
that the securities are charged or pledged in favour of some other
person to secure the repayment of money.
(4) Subsection (1) does not apply to or in relation to-
(a)a person acting in good faith in the reasonable and honest belief
that he has a right, title, or interest to or in securities that he
purports to sell, offers for sale, or holds himself out as capable of
selling;
(b)a dealer acting in good faith for or on behalf of some other
person in the reasonable and honest belief that such other person
has a right, title, or interest to or in securities that he purports to
sell, offers for sale, or holds himself out as capable of selling;





(c)a sale of securities by a stockbroker acting as principal when he acts
as an odd lot specialist in accordance with the rules of the Exchange
Company, being a sale made solely for the purpose of- (Amended 58
of 1985 s. 56)

(i) accepting an offer to purchase an odd lot of securities; or

(ii)disposing of a parcel of securities that is less than one board lot
of securities, by means of the sale of one board lot of those
securities; or (Amended L.N. 57 of 1988)

(d)a sale of securities falling within a class of transaction prescribed by
regulations for the purposes of this paragraph.

81. Disposition of security documents

(1) Where securities that are not the property of a dealer (including an exempt
dealer) and for which the dealer, or any nominee controlled by the dealer, is
accountable are held for safe custody in Hong Kong, the dealer shall, subject to
subsection (2), either cause the securities

(a) (not being bearer securities) to be registered as soon as
practicable in the name of the person to whom the dealer or
nominee is accountable or in the name of the dealer's nominee; or
(b) to be deposited in safe custody in a designated account with the
dealer's bankers or with any other institution which provides
facilities for the safe custody of documents to the satisfaction of
the Commission.
(2) Commission may, on the application of a dealer in writing,
exempt the dealer from provisions of subsection (1), but in granting the

exemption may impose such conditions as it thinks fit.

(3) No dealer shall, without the specific authority in writing of the person to
whom he is accountable, deposit any securities of which the dealer is not the owner
as security for loans or advances made to the dealer or lend or otherwise part with
the possession of any such securities for any purpose. (Replaced 62 of 19 76 s. 22)

(4) An authority conferred under subsection (3) shall specify the period for
which it is current, but shall not in any event, subject to subsection (5), remain in
force for a period of more than 12 months.

(5) An authority conferred under subsection (3) may be renewed in writing

for one or more further periods not exceeding 12 months at any one time.

(6) Any dealer who, without lawful authority or reasonable excuse, contravenes
subsection (1) or (3) shall be guilty of an offence. .

(7) Any person guilty of an offence under subsection (6) shall be liable on
conviction
(a) in the case of a contravention of subsection (1), to a fine of
$2,000; and





(b)in the case of a contravention of subsection (3), to a fine of $20,000
and to imprisonment for 2 years.

(Amended 10 of 1989 s.
65)

PART IX

AccouNTs AND
AUDIT

82. Application and interpretation of Part IX

(1) This Part applies to the business of a registered dealer, other than a
registered dealer who is a director of a corporation when acting for or on behalf of
the corporation in its business of dealing in securities; and every reference in this
Part to the term 'dealer' shall be construed accordingly. (Replaced 62 of
1976 s.23)

(2) In this Part, unless the context otherwise requires, any reference to the
books, accounts, records, securities, trust accounts, or business of, or in relation to,
a dealer who carries on business in partnership shall be read and construed as a
reference to the books, accounts, records, securities, trust accounts, or business (as
the case requires) of or in relation to the partnership.

(2A) Any obligation imposed by this Part on a dealer shall, where a dealer is a
partner in a dealing partnership, be deemed to be imposed on the partnership; and
all the partners of the partnership, if it is a general partnership, and all the general
partners of a limited partnership shall jointly and severally be responsible for the
performance of that duty. (Added 58 of 1985s.22)

(3) The Governor in Council may, by order published in the Gazette, apply all or
any of the provisions of this Part, with or without modifications, to registered
investment advisers.

83. Accounts to he kept by dealers

(1) A dealer shall

(a)cause to be kept such accounting and other records as will
sufficiently explain the transactions, and reflect the financial
position, of the business of dealing in securities carried on by him,
and will enable true and fair profit and loss accounts and balance
sheets to be prepared from time to time; and

(b)cause those records to be kept in such a manner as will enable them
to be conveniently and properly audited.

(2) The records referred to in subsection (1) shall be kept





(a) in writing in the English language; or

(b) in such a manner as to enable them to be readily accessible and

readily converted into written form in the English language.

(3) Without affecting the generality of subsection (1), a dealer shall cause
records to be kept

(a) in sufficient detail to show particulars of

(i) all money received and paid by the dealer, including money paid
to, and disbursed from, a trust account;

(ii) all purchases and sales of securities made by the dealer, the
charges and credits arising from them, and the names of the
buyer and seller, respectively, of each of those securities;

(iii)all income received from commissions, interest, and other
sources, and all expenses, commissions, and interest paid by
the dealer;

(iv) all the assets and liabilities (including contingent liabilities) of
the dealer;

(v) all securities that are the property of the dealer, showing by
whom the security documents are held and, where they are
held by some other person, whether or not they are held as
security against loans or advances;

(vi) all securities that are not the property of the dealer and for which
the dealer or any nominee controlled by the dealer is
accountable, showing by whom, and for whom, the security
documents are held distinguishing those which are held for
safe custody, and those which are deposited with a third party
whether as security for loans or advances made to the dealer or
any related corporation or for any other purposes; and
(Amended 62 of 1976 s. 24)

(vii) all underwriting and sub-underwriting transactions entered into
by the dealer; and

(b) containing copies of acknowledgements of the receipt of

securities received by the dealer from or on behalf of clients,

clearly identifying in respect of each receipt of securities the client

and the securities. (Amended 62 of 1976 s. 24)

(4) Without prejudice to subsection (3), a dealer shall keep records in sufficient
details to show separately particulars of all transactions by the dealer with, or for
the account of

(a) clients of the dealer; and

(b) the dealer himself. (Replaced 62 of 1976 s. 24)

(4A) Without affecting the generality of subsections (1) and (3) and subject to
regulations under section 146, the dealer shall cause records to be kept which are
sufficient to readily establish whether or not section 65B has

been complied with.(Added 58 of 1985 s.57)





(5) A dealer shall retain

(a)for a period of not less than 6 years, the records referred to in
subsection (1); and

(b) for a period of not less than 2 years-

(i) each contract note received by him or made out to himself as
principal; and

(ii) a copy of each contract note made out by him as agent.

(6) An entry in the accounting and other records of a dealer kept in accordance
with this section shall be deemed to have been made by, or with the authority of, the
dealer.

(7) Where matter that is intended to be used in connection with the keeping of
a record referred to in this section is recorded or stored by means of a mechanical
device, an electronic device, or any other device in an illegible form, a person who
wilfully

(a)records or stores in that device matter that he knows to be false or
misleading in a material particular;

(b)destroys, removes, or falsifies matter that is recorded or stored in that
device; or

(c)fails to record or store matter in that device with intent to falsify any
entry made or intended to be complied, wholly or in part, from that
matter,

shall be guilty of an offence and shall be liable on conviction to a fine of $10,000
and to imprisonment for 6 months.

(8) For the purposes of this section, a record required to be kept by a dealer
may be kept either by making entries in a bound book or by recording the relevant
matters in any other manner.

(9) Where a record required by this section to be kept is not kept by making
entries in a bound book but by some other means, the dealer shall take reasonable
precautions for guarding against falsification and for facilitating discovery of any
falsification.

(10) Notwithstanding any other provision of this section, a dealer shall not be
deemed to have failed to keep a record referred to in subsection (1) by reason only
that the record is kept as a part of, or in conjunction with, the records relating to any
business other than dealing in securities that is carried on by him.

84. Certain money received by dealer

to he paid into a trust account

(1) A dealer shall establish and keep at a licensed bank one or more trust
accounts designated or evidenced as such into which he shall pay

(a)all amounts (less brokerage and other proper charges) which are
received for or on account of any person (other than a stockbroker)
from the sale of securities, except those amounts





paid to that person or in accordance with his directions within 4
bank trading days after their receipt;
(b)all amounts (less any brokerage and other proper charges) which
are received from or on account of any person (other than a
stockbroker) for the purchase of securities, except those amounts
attributable to the purchase of securities which are delivered to the
dealer within 4 bank trading days after receipt of the amounts; and
(c)subject to any agreement to the contrary, all amounts derived by
way of interest from the retention in a trust account of any
amount mentioned in paragraph (a) or (b).
(2) All amounts required to be paid into a trust account under subsec-
tion (1) shall be retained there by the dealer until they are paid to the person
on whose behalf they are being held or in accordance with his directions or, as
the case may be, until they are required to complete payment in respect of
the purchase of securities on behalf of any such person.
(3) Money required by this section to be paid into a trust account shall be
so paid within 4 bank trading days after it is received by the dealer.
(4) All sums derived by way of interest from the payment of money by a
dealer into a trust account under this section shall, subject to any agreement to
the contrary, belong to the person to whom the dealer is accountable.
(5) No amount other than an amount referred to in subsection (1)(a)
or (b) shall be paid into a trust account.
(6) Every dealer shall keep records of-
(a)all amounts paid into a trust account kept by him, specifying the
persons on whose behalf the amounts are held and the dates on
which they were paid into the account;
(b)all withdrawals from the trust account, the dates of those
withdrawals, and the names of the persons on whose behalf the
withdrawals are made; and
(c)such other particulars (if any) as may be prescribed by
regulations.
(7) A person who-
(a)without reasonable excuse, contravenes any provision of this
section shall be guilty of an offence and shall be liable on
conviction to a fine of $10,000; or
(b)with intent to defraud, contravenes any provision of this section
shall be guilty of an offence and shall be liable on conviction on
indictment to a fine of $50,000 and to imprisonment for 5 years.

85. Money in trust account not available
for payment of debts, etc.
(1) Except as otherwise provided in this Part, money held in a trust
account shall not be available for payment of the debts of a dealer or be liable





to be paid or taken in execution under the order or process of any court of
competent jurisdiction.

(2) Any payment made in contravention of subsection (1) shall be void ab
initio, and no person to whom the money is paid shall obtain any title to it.

86. Claims and hens not affected

Nothing in this Part shall be construed as taking away or affecting any lawful
claim or lien which any person has in respect of any money held in a trust account
or in respect of any money received for the purchase of securities or from the sale of
securities before the money is paid into a trust account.

87. Dealer to appoint auditor

(1) A dealer shall appoint an auditor to audit his accounts (including all trust
accounts required to be kept by the dealer under section 84) and, where for any
reason the auditor ceases to act for the dealer, the dealer shall, as soon as
practicable thereafter, appoint another auditor to replace him.

(2) A person is not eligible for appointment under subsection (1) if

(a)he is a servant of the dealer or is in the employment of any such
servant;

(b)where the dealer is a partnership, he is a member of the partnership or
in the employment of any such member;

(c)where the dealer is a corporation, he is an officer of the corporation or
is in the employment of any such officer; or

(d)he belongs to any other class of persons prescribed in regulations for
the purposes of this paragraph.

87A. Dealer's financial year

(1) A dealer shall

(a)within 1 month after the date on which this section commences; or

(b)if he is not registered at that date, within 1 month after the issue to
him of a certificate of registration under section 51,

notify the Commission in writing of the date on which his financial year ends.

(2) On application in writing by a dealer, the Commission may, subject to such
conditions as it thinks fit, grant permission to the dealer to alter his financial year.

(3) Except with the written permission of the Commission, the period of a
dealer's financial year shall not exceed 12 months.

(4) Nothing in this section shall prejudice the operation of section 122 of the
Companies Ordinance (Cap. 32).

(Added 62 of 1976 s. 25)





88. Dealer to lodge auditor's report

(1) A dealer shall, in respect of the financial year beginning before and ending
after

(a) the day on which this section commences; or

(b)the day on which the dealer commences to carry on business as a
dealer,

whichever is the later day, and in respect of each subsequent financial year, prepare
a true and fair profit and loss account and a balance sheet made up to the last day
of the financial year and cause those documents to be lodged with the Commission
not later than 4 months after the end of the financial year, together with an auditor's
report containing the information prescribed by regulations. (Amended 62 of 1976 s.
26)

(2) Notwithstanding subsection (1), the period within which the
documents referred to in subsection (1) are required to be lodged may be
extended by the Commission for a period not exceeding one month, where an
application for the extension is made by the dealer and the Commission is
satisfied there are special reasons for requiring the extension.

(3) An extension under subsection (2) may be allowed subject to such
conditions, if any, as the Commission thinks fit to impose.

(4) Any dealer who fails to lodge the documents required by this section with
the Commission within the time allowed by or under this section shall be guilty of
an offence and shall be liable on conviction to a fine of $5,000.

(Amended 10 of 1989 s. 65)

89. Auditor to send report directly to

Commission in certain cases

If, during the performance of his duties as auditor for a dealer, an auditor

(a) becomes aware of any matter which in his opinion adversely . affects
the financial position of the dealer to a material extent; or

(b)discovers evidence of a contravention by the dealer of section
6513,81,83or84, (Amended 58 of 1985 s. 58)

he shall, as soon as practicable thereafter, send to the Commission and to the dealer
a report in writing of the matter or, as the case may be, concerning the
contravention.

(Amended 10 of 1989 s. 65)

90. Power of Commission to appoint auditor

(1) Where

(a) a dealer has failed to lodge an auditor's report under section 88;

(b) the Commission has received a report under section 89; or





(c)the Commission has reason to believe that a dealer has failed to
comply with section 65B, (Added58of1985s.59)

the Commission may, if it is satisfied that it is in the interests of the dealer
concerned, the dealer's clients, or the general public, to do so, appoint in writing an
auditor to examine, audit, and report, either generally or in relation to any matter, on
the books, accounts, and records of, and securities held by, the dealer. (Amended 58
of 1985 s. 59)

(2) Where the Commission is of the opinion that the whole or any part of the
costs and expenses of an auditor appointed by it under this section should be borne
by the dealer concerned or the Exchange Company, it may, by order in writing, direct
the dealer or the Exchange Company to pay a specified amount, being the whole or
part of those costs and expenses, within the time and in the manner specified.
(Amended 58 of 1985 s. 59)

(3) Where a dealer or Exchange Company has failed to comply with an order of
the Commission under subsection (2), the amount specified in the order may be
sued for and recovered by the Commission as a debt in any court of competent
jurisdiction. (Amended 58 of 1985 s. 59)

(Amended 10 of 1989 s. 65)

91. Power of Commission to appoint an auditor

on the application of a client

(1) On receipt of an application in writing from a person who alleges that a
dealer has failed to account to him in respect of any money or securities held or
received by that dealer for him or on his behalf, the Commission may, after first
giving the dealer an opportunity to give an explanation of the failure, appoint in
writing an auditor to examine, audit, and report, either generally or in relation to any
particular matter, on the books, accounts, and records of, and securities held by,
that dealer.

(2) Every application under subsection (1) shall state

(a)particulars of the circumstances under which the dealer received the
money or securities in respect of which he is alleged to have failed to
account;

(b)particulars of that money or those securities and of the transactions
of the applicant and the dealer relating thereto; and

(c) such other particulars as may be prescribed by regulations.

(3) Every statement in any such application shall be verified by statutory
declaration made by the applicant and shall, if made in good faith and without
malice, be privileged.

(4) The Commission shall not appoint an auditor under subsection (1) unless it
is satisfied

(a)that the applicant has good reason for making the application; and





(b)that it is in the interests of the dealer or the applicant or the public
generally that the books, accounts, and records of, and securities held
by, the dealer should be examined, audited, and reported on.

(Amended 10 of 1989 s. 65)

92. Auditor to report to Commission

An auditor appointed under section 90 or 91 shall, on the conclusion of the
examination and audit in respect of which he was appointed, make a report thereon
to the Commission.

(Amended 10 of 1989 s. 65)

93. Powers of auditors

An auditor appointed by the Commission to examine and audit the books,
accounts, and records of, and securities held by, a dealer may for the purpose of
carrying out the examination and audit- (Amended 10 of 1989 s. 65)

(a)examine on oath the dealer concerned and, where the dealer carries on
business in partnership or is a corporation, any of the members of the
partnership or, as the case may be, any director of the corporation and
any of the dealer's servant and agents and any other auditor
appointed under this Ordinance in relation to those books, accounts,
records, and securities;

(b) employ such persons as he considers necessary; and

(e)by instrument in writing under his hand, authorize any person
employed by him to do, in relation to the examination and audit, any
act or thing that he could do himself as an auditor, except to examine
any person on oath or to exercise any other powers conferred by this
paragraph.

94. Right of auditors and employees
to communicate certain matters

Except for the purpose of carrying into effect the provisions of this Ordinance
or so far as may be required for the purposes of any legal proceedings, whether civil
or criminal, an auditor appointed under section 90 or 91 and an employee of any
such auditor shall not divulge any information which may come to his knowledge in
the course of performing his duties as an auditor or employee under section 90 or
91, as the case may be, to any person other than

(a) the Commission; and (Amended 10 of 1989 s. 65)

(b)-(c) (Repealed 10 of 1989 s. 65)

(d) in the case of an employee, the auditor by whom he is employed.





95. Books, accounts, and records

to he produced on demand

(1) On request by an auditor appointed under this Part or a person who
produces a written authority in that behalf under section 93(c)

(a)a dealer and, where the dealer is a corporation or carries on business
in partnership, the directors of the corporation or the other members
of the partnership, and the dealer's servants and agents, shall
produce any books, accounts, and records of any securities held by
the dealer relating to the dealer's business; and

(b)an auditor appointed by a dealer shall produce any books, accounts,
and records held by him relating to the business of the dealer.

(2) A dealer and, where the dealer is a corporation or carries on business in
partnership, the directors of the corporation or the other members of the
partnership, as the case may be, and the dealer's servants and agents and any
auditor appointed by the dealer shall answer all questions relevant to an
examination and audit which are put to him by an auditor appointed under this Part
or a person who produces a written authority in that behalf given under section
93(c).

(3) Any person mentioned in subsection (1) who, without reasonable excuse,
fails to comply with any request made to him under that subsection, or any person
mentioned in subsection (2) who, without reasonable excuse, refuses or fails to
answer any question put to him under that subsection, shall be guilty of an offence
and shall be liable on conviction to a fine of $10,000 and to imprisonment for 2 years.

96. Offence to destroy, conceal, or alter records or send

records or other property outside Hong Kong

(1) Any person who, with intent to prevent, delay, or obstruct the carrying out
of any examination and audit under this Part

(a)destroys, conceals or alters any book, account, record or document
relating to the business of a dealer; or

(b)sends or attempts to send, or conspires with any other person to
send, out of Hong Kong any such book, account, record, or
document, or any property of any description belonging to or in the
disposition of or under the control of a dealer,

shall be guilty of an offence and shall be liable on conviction to a fine of $50,000
and to imprisonment for 2 years.

(2) If, in a prosecution for an offence under subsection (1), it is proved that the
person charged

(a)destroyed, concealed, or altered any book, account, record, or
document mentioned in that subsection; or





(b)sent or attempted to send, or conspired to send, out of Hong Kong
any such book, account, record, or document or any property
mentioned in paragraph (b) of that subsection,

the onus of proving that in so doing he did not act with intent to prevent, delay, or
obstruct the carrying out of an examination and audit under this Part shall lie on
him. (3) Any person who, with intent to prevent, delay, or obstruct the

carrying out of an examination and audit under this Part, leaves, or attempts to
leave, Hong Kong shall be guilty of an offence and shall be liable on conviction to a
fine of $50,000 and to imprisonment for 2 years.

97.Right of committee to impose obligations, etc., on members of Exchange
Company not affected by this Part

Nothing in this Part shall prevent the committee of the Exchange

Company from imposing on members of the Exchange Company any further
obligations or requirements which the committee thinks necessary with respect
to-

(a) the audit of accounts;

(b) the information to be given in reports by auditors; or

(c) the keeping of accounts, books, and records.

(Amended 58 of 1985 s. 60)

PART X

COMPENSATION FUND

98. Interpretation

(1) In this Part. unless the context otherwise requires

'Committee' means the Securities Compensation Fund Committee established
under section 100(1); (Amended 10 of 1989 s. 65)

'compensation fund' means the fund established under section 99;

'default', in relation to the failure of a stockbroker to perform a legal obligation,
means a default arising from

(a) the bankruptcy, winding up or insolvency of the stockbroker;

(b) any breach of trust committed by the stockbroker; or

(c)any defalcation, fraud or misfeasance committed by the stockbroker
or partner, being a partner in a dealing partnership, or by the servant
of the stockbroker or of a dealing partnership in which he is a partner;
(Replaced 58 of 1985 s. 61)

'legal obligation' includes an obligation arising under a contract or quasicontract
or under a trust (including a constructive trust);





'stockbroking business' means

(a)a business of dealing in securities listed or quoted on the Unified
Exchange carried on by a member of the Exchange Company;

(b)the administration of any trust, or the carrying on of the business of
any company, in conjunction with, or as an adjunct to, a business
specified in paragraph (a);

(c)the retention of securities whether for safe keeping or otherwise, and
whether for specific consideration or otherwise, in conjunction with,
or as an adjunct to, a business specified in paragraph (a). (Replaced 58
of 1985 s. 61)

(2) A reference in this Part to a claimant or person making a claim includes, in
the event of his death, insolvency, or other disability, a reference to his personal
representative or any other person having authority to administer his estate.

99. Establishment of compensation fund

The Commission shall establish and maintain a compensation fund, to be
known as the Unified Exchange Compensation Fund, for the purposes set out in
this Part.

(Amended 58 of 1985 s. 62)

100. Securities Compensation Fund Committee

(1) There shall be a committee, to be known as the Securities Compensation
Fund Committee, which shall be. responsible, subject to this section, for the
administration of the compensation fund.

(2) The Committee shall consist of 5 persons appointed by the Commission, of
whom at least two shall be directors of the Commission and two shall be persons
nominated by the Exchange Company. (Amended 58 of 1985s.63)

(3) The Commission shall nominate one of the members of the Committee who
is also a director of the Commission to be chairman of the Committee.

(4) The Committee shall exercise on behalf of the Commission such of the
powers, duties, and functions of the Commission under this Part as may from time
to time be delegated to the Committee by the Commission; but the Commission may
not delegate its power of delegation under this section or its powers under section
110.

(5) Any power, duty, or function delegated under this section may be exercised
by members forming a majority of the Committee as if by this Part that power, duty,
or function had been conferred on a majority of the members of the Committee.





(6) Any delegation under this section may at any time be varied or revoked.

(7) The Commission may at any time remove any member of the Committee
appointed by it under this section and may fill any vacancy in the Committee
however arising.

(8) Subject to any direction of the Commission, the Committee may regulate its
procedure in such manner as it thinks fit.

(Amended 10 of 1989 s.
65)

101. Money constituting the compensation fund

(1) The compensation fund shall consist of

(a)all money paid to or deposited with the Commission by the Exchange
Company in accordance with the provisions of this Part; (Amended
58 of 1985 s. 64)

(b) (Repealed 58 of 1985 s. 64)

(c)all money recovered by or on behalf of the Commission by the
exercise of any right of action conferred by this Part;

(d) all money borrowed under subsection (2);

(e) all other money lawfully paid into the fund.

(2) The Commission may from time to time borrow for the purpose of the
compensation fund from any lender and may charge any investments acquired
under section 105 by way of security for any such loan; but the aggregate sum
owing at any one time in respect of any such loans shall not exceed $1,000,000.

102. Money to he kept in bank account

The Commission shall open at one or more licensed banks a separate bank

account ' or separate bank accounts and shall, pending its application in
accordance with this Part, pay into or transfer to that account or those
accounts all money forming part of the compensation fund.

103. Accounts of fund

(1) The Commission shall keep proper accounts of the compensation fund, and
shall in respect of the financial year beginning before and ending after the day on
which this section commences, and in respect of each subsequent financial year,
prepare a revenue and expenditure account, and a balance sheet made up to the last
day of that year.

(2) The Commission shall appoint an auditor to audit the compensation fund.

(3) The auditor so appointed shall annually audit the accounts of the
compensation fund and shall audit, and prepare an auditor's report in respect of,
each balance sheet and revenue and expenditure account prepared under
subsection (1) and shall submit the report to the Commission.





(4) Not later than the 31 st day of July in each year the Commission shall
cause a copy of the audited balance sheet, revenue and expenditure account, and
the auditor's report to be sent to the Exchange Company. (Amended 58 of 1985 s.
65)
104.Exchange Company to make deposits
in respect of members

(1) The Exchange Company shall, subject to the provisions of ibis Part,
deposit with the Commission and keep deposited in respect of each membership of
the Exchange Company a sum of $50,000 payable in cash.

(2) The amount referred to in subsection (1) shall be deposited

(a)in respect of every membership held on the appointed day, not later
than 1 month after that date; and

(b)in respect of every membership taken up after the appointed day, not
later than 1 month after the date on which such membership is taken
up.

(3) For the purposes of this section and section 106, each share in the
Exchange Company held by a member shall be deemed to constitute a separate
membership.

(4) Any amount due under this section may be sued for and recovered by the
Commission as a debt in any court of competent jurisdiction.

(Replaced 58 of 1985 s. 66)

105. Balance of sums in bank account may be invested

(1) The Commission may invest any money which forms part of compensation
fund and is not immediately required for any other purposes provided for by this
Part either--

(a) on fixed deposit with a licensed bank; or

(b)in securities in which trustees are authorized by law to invest trust
funds.

(2) As soon as practicable after the end of each financial year, the Commission
shall notify the Exchange Company in writing of- (Amended58 of 1985 s. 67)

(a)the rate of interest to be paid for that financial year in respect of each
sum deposited under section 104(1)(a);

(b) the manner and time of payment of that interest; and

(c)the amount to be charged to meet the expenses incurred or involved
in the administration of the compensation fund. (Replaced 62 of 19
76 s. 28)

(3) Any fixed deposit receipts or documents relating to the investment of
money in securities under subsection (1) may be kept in the office of the
Commission or deposited by the Commission for safe-keeping with a licensed

bank.(Added 62 of 1976 s.28)





106. Repayment of deposits in certain cases

(1) Where the Exchange Company has deposited a sum of money with
the Commission under section 104 in respect of any membership and that
membership for any reason ceases, the Commission shall, unless the money is
required to satisfy any claims or liabilities arising before such membership
ceased, within 6 months after the cessation of such membership, deliver to the
Exchange Company the sum deposited in respect thereof.
(2) If any money has been delivered to the Exchange Company pursuant
to subsection (1) in respect of any membership, the Exchange Company shall,
if the member has satisfied all financial obligations due in respect of such
membership from the member to the Exchange Company and is otherwise in
good standing with the Exchange Company, deliver the money-
(a) to the member;
(b)where the member has died or is bankrupt, to his personal
representative or trustee in bankruptcy, as the case may be; or
(c)where the member is a corporation in liquidation, to the
liquidator thereof.
(Replaced 58 of 1985 s. 68)

107. Replenishment of fund in certain cases

(1) Subject to subsection (2), if at any time resort has to be made to any
money deposited under section 104 in order to satisfy any claim made against
the compensation fund in relation to a stockbroker, the Exchange Company
shall, on being required to do so by the Commission, replenish the fund by
depositing with the Commission an amount that is equal to that paid in
connection with the satisfaction of the claim, including any legal and other
expenses paid or incurred in relation to the claim.
(2) The Commission may not require the Exchange Company to make a
deposit under subsection (1) in respect of any payment made to satisfy a claim
under this Part unless it has first exhausted all relevant rights of action and
other legal remedies, conferred by section 118, against the stockbroker, in
relation to whom the claim arose.
(3) Any amount required to be deposited under this section may be sued
for and recovered by the Commission as a debt in any court of competent
jurisdiction.
(Replaced 58 of 1985 s. 68)

108. Payments out of the fund

(1) Subject to this Part, there shall from time to time be paid out of the
compensation fund as required and in the following order-





(a)all legal and other expenses incurred in investigating or defending
claims made under this Part or incurred in relation to the fund or in the
exercise by the committee of the Exchange Company or the
Commission of the rights, powers, and authorities vested in them by
this Part in relation to the fund; (Amended 58 of 1985 s. 69)

(b)the expenses incurred or involved in the administration of the fund;

(e)the amounts of all claims, including costs, allowed by the committee
of the Exchange Company or established against the Exchange
Company under this Part; and (Replaced 58 of 1985 s.69)

(d)all other money payable out of the fund in accordance with this Part.

(2)-(3) (Repealed 58 of 1985 s. 69)

109. Claims against the fund

(1) Where, in consequence of any act done in the course of or in connection
with the stockbroking business of a stockbroker, a person has a cause of action
against that stockbroker in relation to any money, securities or other property
entrusted to or received by the stockbroker or any partner of the stockbroker or any
person employed by the stockbroker, that person shall be entitled, subject to this
Part, to claim compensation from the compensation fund in respect of any pecuniary
loss suffered by him. (Replaced 58 of 1985 s. 70)

(2) Subsection (1) does not entitle any stockbroker to make a claim against the
compensation fund. (Replaced 58 of 1985 s. 70. Amended 10 of 1989 s. 65)

(3) Except as otherwise provided in this Part, the total amount that may be paid
under this Part to all persons who suffer loss through any default mentioned in
subsection (1) shall not in any event exceed $2,000,000 in respect of each
stockbroker concerned in or connected with the default; but for the purposes of this
subsection any amount paid from the compensation fund shall, to the extent that
the fund is subsequently reimbursed in respect of any such payment (not being a
deposit made under section 107), be disregarded. (Amended L.N. 101 of 1980; 58 of
1985 s. 70)

(4) A person shall not have a claim against the compensation fund in respect of
a default committed before the appointed day. (Amended 58 of 1985s. 70)

(5) Subject to this Part, the amount which any claimant is entitled to claim as
compensation from the compensation fund is the amount of the actual pecuniary
loss suffered by him, including the reasonable costs of and incidental to the making
and proving of his claim. (Replaced 58 of 1985 s. 70. Amended L.N. 294 of 1988)







(6) In addition to any compensation payable under this Part, interest shall be
payable out of the compensation fund on the amount of the compensation, less any
amount attributable to costs and disbursements, at such rate as may be determined
by the Commission from time to time, which shall be calculated from the day on
which the default was committed and continue until the day on which the claim is
satisfied.

(7) For the purposes of this section

(a)'stockbroker' includes a person who has been, but, at the time of
any default mentioned in subsection (1), had ceased to be. a member
of the Exchange Company if, at the time when the claimant entered
into the transaction or course of dealing giving rise to the claim, the
claimant had reasonable grounds for believing that person to be a
member of the Exchange Company; (Amended 58 of 1985 s. 70)

(b)-(c) (Repealed 58 of 1985 s. 70)

made in respect of claims

(1) If, after consultation with the committee of the Exchange Company and after
taking into account all ascertained or contingent liabilities of the compensation fund,
the Commission considers that the assets of the fund so permit, it may by notice
published in the Gazette increase the total amount which may be claimed from the
fund under section 109; and from the date of that publication. until the notice is
revoked or varied, the amount specified in the notice shall be the maximum amount
that may be claimed under that section. (AmendedL.N.92of1980;58of1985s.71)

(2) A notice under subsection (1) may be varied or revoked by the Commission
by notice published in the Gazette.

111. Rights of innocent partner, etc. in relation to the fund

(1) Notwithstanding anything to the contrary under this Part, where all persons
submitting claims under section 109 have been fully compensated in accordance
with the provisions of this Part for the loss sustained by them as a result of the
failure of a partner in a dealing partnership or a director of a stockbroker which is a
corporation to perform a legal obligation, any other partner of that partnership who
has made payment to any person in compensation for loss sustained by him as a
result of that failure or, where a stockbroker which is a corporation or a dealing
director of such a stockbroker has made such a payment, that stockbroker, or
dealing director, shall be subrogated to the extent of the payment to all the rights
and remedies against the compensation fund if the Exchange Company considers,
having regard to all the circumstances, that he





(a)was in no way a party to the default which resulted in the failure to
perform that obligation; and

(b)acted honestly and reasonably in the matter. (Replaced 58 of 1985s.72)

(2) If any partner of the dealing partnership, or any stockbroker which is a
corporation, or any director of such a corporation, is aggrieved by the decision of
the Exchange Company under subsection (1), he or it may, within 28 days after
receipt of notice of the decision, appeal to the Commission against the decision.
(Amended 58 of 1985 s. 72)

(3) An appellant shall, on the same day as lodging a notice of appeal with the
Commission, lodge a copy of the notice with the Exchange Company. (Amended 58
of 1985 s. 72)

(4) The Commission shall inquire into and decide on the appeal and, if the
Commission considers having regard to all the circumstances that the appellant

(a) was in no way a party to the default in question; and

(b) acted honestly and reasonably in the matter, it may direct that the
appellant shall, to the extent of any payment made by him, be subrogated to all the
rights and remedies in relation to the compensation fund of the person to whom he
or it has made payment in compensation.

112. Notice calling for claims against the fund

(1) The committee of the Exchange Company may cause to be published in one
or more English language newspapers and one or more Chinese language
newspapers, published daily and circulating generally in Hong Kong, a notice
specifying a date, not being earlier than 3 months after publication of the notice, on
or before which claims for compensation from the compensation fund may be made
in relation to the person specified in the notice.

(2) Where any person wishes to claim compensation under this Part, he shall
lodge his claim in writing with the committee of the Exchange Company

(a)if a notice under subsection (1) has been published, on or before the
date specified in the notice; or

(b)if no such notice has been published, within 6 months after the
claimant became aware of the default giving rise to the claim.

(3) Any claim which is not made within the time limited by subsection (2) shall,
unless the committee of the Exchange Company otherwise determines, be barred.

(4) An action for damages shall not lie against the Exchange Company or
against the committee or any member thereof, or any employee of the Exchange
Company by reason of any notice published for the purposes of this section in
good faith and without malice. (Replaced 58 of 1985 s. 73)

(Amended 58 of 1985 s. 73)





Company in respect of claims

(1) Where the committee of the Exchange Company is satisfied that a
claim made under section 109 is a proper claim, it shall, subject to this Part,
make a determination allowing the claim.
(2) If the committee is not satisfied as to the propriety of a claim under
section 109, it shall make a determination disallowing the claim or, if it is
satisfied only as to the propriety of part of such a claim, it shall make a
determination allowing the claim as to that part.
(3) Where the committee of the Exchange Company makes a
determination under subsection (1) or (2), it shall forthwith serve notice of its
determination in writing on the claimant or on his solicitor and deliver a copy
of the notice to the Commission.
(4) If the committee of the Exchange Company disallows or only partially
allows a claim against the compensation fund, the determination of the
committee shall specify the reasons for the disallowance or, as the case may be,
partial allowance.
(5) If, in the case of any particular claim, after taking into account all
ascertained and contingent liabilities of the compensation fund, the committee
of the Exchange Company considers that the assets of the fund so permit, it
may, with the prior approval of the Commission, allow in respect of a claim
which is in excess of the total amount limited by or under section 109 such
additional sum in or towards the compensation of the claimant as it thinks fit.
(6) The receipt of a copy of a notice under subsection (3) notifying the
allowance or partial allowance of a claim is sufficient authority for the
Commission to pay to the claimant the amount allowed under this section.
(Amended 58 of 1985 s. 74)

require production of securities, etc.

(1) The committee of the Exchange Company may at any time require
any person to produce any securities, documents, or statements of evidence
necessary-
(a)in order to substantiate any claim made against the compensation
fund; or
(b)for the purpose either of exercising its rights against a
stockbroker or against any other person concerned; or
(c)for the purpose of enabling criminal proceedings to be brought
against any person in respect of a default, being a default which is
or involves the commission of a criminal offence.
(2) Where any claimant required to produce any securities, documents, or
statements of evidence under subsection (1) fails to produce them the committee





of the Exchange Company may, if it is satisfied that securities, documents, or
statements are in the possession of, or available to, the claimant, refuse to allow the
claimant's claim until such time as he produces them.

(Amended 58 of 1985 s. 75)

115. Court proceedings to establish a claim against the fund

(1) Subject to subsection (2), a person whose claim has been disallowed, or
only partially allowed, under section 113 may, at any time after the service under
that section of the notice notifying the disallowance or partial allowance commence
proceedings against the Exchange Company to establish his claim against the
compensation fund.

(2) Except with leave of the Court, no proceedings against the Exchange
Company in respect of a claim which has been disallowed, or only partially allowed,
under section 113 may be commenced after the expiration of 3 months after the
service of the notice under subsection (3) of that section.

(3) Any proceedings brought against the Exchange Company to establish a
claim against the compensation fund shall be by action as for a debt due from the
Exchange Company.

(Amended 58 of 1985 s. 76)

brought under section 115

In any proceedings brought under section 115,

(a)all defences that would have been available to the person or persons
in relation to whom the claim arose shall be available to the Exchange
Company; (Amended 58 of 1985 s. 77)

(b)all questions as to costs shall be in the discretion of the Court; and

(c)evidence which would be admissible against the stockbroker or any
other person by whom it is alleged a default was committed is
admissible to prove the commission of the default, notwithstanding
that the stockbroker or other person is not the defendant in or a
party to those proceedings.

117. Form of court order establishing claim

Where, in any proceedings brought against the Exchange Company to
establish a claim against the compensation fund, the Court is satisfied that the
default on which the claim is founded was actually committed and that the claimant
otherwise has a valid claim, the Court shall by order





(a)allow the amount of the claim or such part of the claim as it thinks
proper;

(b)declare the fact and date of the default and the amount allowed
under paragraph (a); and

(c)direct the Commission to pay to the claimant the amount declared
under paragraph (b).

(Amended 58 of 1985 s. 78)

of claimant on payment from fund

On the Commission making any payment out of the compensation fund in
respect of any claim under this Part,

(a)the Commission shall be subrogated to the extent of that payment to
all the rights and remedies of the claimant in relation to the loss
sustained by him by reason of the default on which the claim was
based; and

(b)the claimant shall have no right in bankruptcy or winding up or by
legal proceedings or otherwise to receive in respect of the loss any
sum out of the assets of the stockbroker concerned or any dealing
partnership in which he is a partner, or where the loss was caused by
the defalcation, fraud or misfeasance of a servant or partner of the
stockbroker, the assets of that servant or partner, until the
Commission has been reimbursed the full amount of its payment.
(Replaced 58 of 1985 s. 79)

119. Payment of claims only from the fund

No money or other property belonging to the Commission or to the Exchange
Company, other than the compensation fund, shall be available for the payment of
any claim under this Part, whether the claim is allowed by the committee of the
Exchange Company or is made the subject of an order of the Court or otherwise.

(Amended 58 of 1985 s. 80)

or where claims exceed total amount payable

(1) Where the amount at credit in the compensation fund is insufficient to
enable the payment of the whole amount of all claims against it which have been
allowed or in respect of which orders have been made. then the amount at credit
shall, subject to subsection (2), be apportioned between the claimants in such
manner as the committee of the Exchange Company or, as the case may be, the
Court thinks equitable; and any such claim, so far as it remains unpaid.





shall be charged against further receipts of the fund and paid out of the fund when
there is again money available in the fund.

(2) Where the aggregate of all claims against the compensation fund which
have been allowed, or in respect of which orders of the Court have been made, in
relation to the default giving rise to the claims exceeds the total amount which may
be paid under this Part in respect of the stockbroker or stockbrokers concerned in
the default, that total amount shall be apportioned between the claimants in such
manner as the committee of the Exchange Company or, as the case may be, the
Court thinks equitable; and, on payment out of the fund of that total amount in
accordance with that apportionment

(a) all such claims and any order of the Court relating to them; and

(b)all other claims which may subsequently arise or be made in
connection with the default,

shall be absolutely discharged.

(Amended 58 of 1985 s. 81)

on winding up the Exchange Company

In the event of the Exchange Company being wound up under the Companies
Ordinance (Cap. 32), the Commission may, in its absolute discretion, after the
satisfaction of all outstanding liabilities against the compensation fund, pay to the
liquidator of the Exchange Company the whole or any part of the amounts
contributed by the Exchange Company under this Part, together with any income
accrued in respect thereof, and on any such payment being made those amounts
shall form part of the assets of the Exchange Company and be available to the
liquidator for distribution in accordance with the Companies Ordinance (Cap. 32).

(Amended 58 of 1985 s. 82)

121A. Commission may act where committee fails to do so

Notwithstanding anything in this Part, where the Commission is satisfied that
the committee of the Exchange Company has

(a)failed or refused to exercise any of its powers, functions or duties
under this Part; or

(b)unreasonably delayed the making of any determination under section
113,

it may exercise all or any of the powers, functions or duties of the committee of the
Exchange Company under this Part, and any act done or determination made by the
Commission pursuant to its powers under this section shall be deemed, for the
purposes of this Part, to be an act done or determination made by the committee.
(Added 58 of 1985 s. 83. Amended 10 of 1989 s. 65)





PART Xl

INSPECTIONS AND INVESTIGATIONS

Inspections

122-125. (Repealed 10 of 1989 s. 65)

Investigations

126. Interpretation for the purposes of sections 127 to 134
In sections 127 to 134, unless the context otherwise requires-
'inspector' means an inspector appointed under section 127(1);
'investigation' means an investigation made under section 127 by an inspector;
'prescribed person' means a person suspected or believed by an inspector, on
reasonable grounds, to be capable of giving information concerning any
matter to be investigated by the inspector.

127. Investigation by inspector
(1) Where it appears to the Commission that it is desirable for the
protection of the public or of the holders of securities to appoint an inspector to
investigate-
(a) any alleged breach of trust, defalcation, fraud, or misfeasance; or
(b)any matter concerning dealing in securities or the giving of
investment advice,
the Commission may, by instrument in writing, appoint a person as an
inspector to investigate the allegation or matter and to report on it in such
manner as the Commission directs. (Replaced 62 of 1976 s. 32)
(2) The Commission shall, in an instrument appointing an inspector,
specify full particulars of the appointment including-
(a) the matters into which the investigation is to be made; and
(b)the terms and conditions of the appointment including terms and
conditions relating to remuneration.
(3) An inspector may require a prescribed person by notice in the form
prescribed by regulations given in the manner as prescribed-
(a)to produce to the inspector such documents relating to a matter
with which his investigation is concerned as are in the custody or
under the control of that person;
(b)to give to the inspector all reasonable assistance in connection
with the investigation; and
(c) to appear before the inspector for examination on oath,
and may administer the oath referred to in paragraph (c).





(4) Where documents are produced to an inspector under this section the
inspector may take possession of them for such period as he considers necessary
for the purposes of his investigation, and during that period he shall permit a person
who would be entitled to inspect any one or more of those documents if they were
not in the possession of the inspector to inspect at all reasonable times such of
them as that person would be so entitled to inspect.

(5) A prescribed person

(a)shall comply with a requirement of an inspector under subsection (3);

(b)shall not knowingly furnish to the inspector, whether on examination
in pursuance of such requirement or otherwise, information that is
false or misleading in a material particular; or

(e)when appearing before an inspector for examination in pursuance of
such a requirement, shall take an oath in accordance with the
requirement.

(6) Any person who, without reasonable excuse, contravenes any of the
provisions of subsection (5) shall be guilty of an offence and shall be liable on
conviction to a fine of $5,000.

(7) A solicitor or counsel acting for a prescribed person

(a) may attend an examination of that person; and

(b) may, to the extent that the inspector permits(i)
address the inspector; and

(ii) examine that person,

in relation to matters in respect of which the inspector has
questioned that person.

(8) A prescribed person is not excused from answering a question put to him
by an inspector on the ground that the answer might tend to incriminate him but,
where that person claims, before answering the question, that the answer might tend
to incriminate him, neither the question nor the answer is admissible in evidence
against him in criminal proceedings other than proceedings under subsection (6) or
in relation to a charge of perjury in respect of the answer.

(9) A person who complies with the requirement of an inspector under
subsection (3) shall not incur any liability to any person by reason only of that
compliance.

(10) A person required to attend for examination under this section is entitled to
such allowances and expenses as may be prescribed by regulations.

(11) Where a prescribed person fails to comply with a requirement of an
inspector under subsection (3), the inspector may, unless that person proves that
he had a lawful authority for his failure, certify the failure by writing under his hand
to the Court.

(12) Where an inspector gives a certificate under subsection (11), the Court may
inquire into the case and





(a)order the prescribed person to whom the certificate relates to
comply with the requirement of the inspector within such period
as is fixed by the Court; or
(b)if the Court is satisfied that that person failed without lawful
authority to comply with the requirement of the inspector, punish
him in the same manner as if he had been guilty of contempt of
court.

128. Notes of examination

(1) An inspector may cause notes of an examination made by him under
this Part to be recorded in writing and be read to or by the person examined
and may require that person to sign the notes and, subject to this section, notes
signed by that person may be used in evidence in any legal proceedings against
that person.
(2) A copy of the notes signed by a person shall be furnished without
charge to that person upon request made by him in writing.
(3) Notes made under this section that relate to a question the answer to
which a person has claimed might tend to incriminate him shall not be used as
evidence in criminal proceedings other than proceedings under section 127(6) or
in relation to a charge of perjury in respect of the answer.
(4) Nothing in this section affects or limits the admissibility of other
written evidence or of oral evidence.
(5) The Commission may give a copy of notes made under this section to
a solicitor or counsel who satisfies the Commission that he is acting for a person
who is conducting or is, in good faith, contemplating legal proceedings in
respect of matters, required to be investigated by the inspector, being affairs
investigated by an inspector under this Part.
(6) A solicitor or counsel to whom a copy of notes is given under sub-
section (5) shall not use the notes except in connection with the institution or
preparation of, and in the course of, legal proceedings and shall not disclose for
any other purpose the notes or any part of the contents of them to any person.
(7) Any solicitor or counsel who contravenes subsection (6) shall be guilty
of an offence and shall be liable on conviction to a fine of $2,000.
(8) Where a report is made under section 130 any notes recorded under
this section relating to that report shall be furnished with the report.

129. Delegation of powers, etc., by inspector
(1) An inspector may by instrument in writing---
(a)delegate all or any of his powers or functions under this Part
except this power of delegation, the power to administer an oath,
and the power to examine on oath; and
(b) vary or revoke a delegation given by him.





(2) A power or function delegated by an inspector may be exercised or
performed by the delegate in accordance with the instrument of delegation as in
force from time to time.

(3) A delegate shall, at the request of a prescribed person, produce the
instrument of delegation for inspection.

(4) A delegation under this section by an inspector of a power or function
does not prevent the exercise of the power or the performance of the function by
the inspector.

130. Report of inspector

(1) On completion of an investigation under section 127, the inspector shall
report his findings to the Commission and shall deliver a copy of the report to the
Attorney General.

(2) Subject to subsection (3), the Commission shall give a copy of the
inspector's report to the prescribed person whose affairs were investigated by the
inspector.

(3) Subject to subsection (4), the Commission shall not give a report to a
prescribed person if the Attorney General believes that legal proceedings that have
been, or that in its opinion might be, instituted might be prejudiced by the report.

(4) The court before which legal proceedings are brought against a prescribed
person for or in respect of matters dealt with in a report under this section may order
that a copy of the report be given to that person.

(5) The Commission may, if it is of the opinion that it is in the public interest to
do so, cause the whole or any part of a report under this section to be printed and
published.

(6) If, from a report under this section, it appears to the Attorney General that
an offence may have been committed by a person and that a prosecution ought to
be instituted, the Attorney General shall cause a prosecution to be instituted.

(7) Where it appears to the Attorney General that a prosecution ought to be
instituted, he may, by notice in writing given before or after the institution of a
prosecution in accordance with subsection (6), require a prescribed person to give
all assistance in connection with prosecution that he is reasonably able to give.

(8) If from a report under this section it appears to the Commission or to the
Attorney General that proceedings ought in the public interest to be brought by a
prescribed person for the recovery of damages in respect of a breach of trust,
defalcation, fraud, or misfeasance in connection with the affairs of the prescribed
person or for the recovery of property of the prescribed person, either the
Commission or the Attorney General may cause proceedings to be instituted
accordingly in the name of the prescribed person. (Amended 62 of 1976 s. 33)





131. Privileged communications

(1) An inspector shall not require disclosure by a solicitor or counsel of any
privileged communication, whether oral or written, made to or by him in that
capacity, except as regards the name and address of his client.

(2) Nothing in sections 127 to 130 shall be construed as affecting section 4 of
the Inland Revenue Ordinance (Cap. 112).

132. Cost of investigation

(1) Subject to this section, the expenses of and incidental to an investigation
by an inspector (including the expenses incurred and payable by the Commission in
any proceedings brought by it in the name of a prescribed person) shall be paid out
of money provided by the Legislative Council.

(2) An application referred to in subsection (3) may be made to a court by or on
behalf of

(a)the Commission or the Attorney General in the course of
proceedings in that court instituted in the name of a prescribed
person under section 130(8); or

(b)the Attorney General on, or within 14 days after, a conviction by the
court in proceedings certified by the Attorney General, for the
purposes of the application, to have been instituted as a result of an
investigation by an inspector;

and the court may make such order with respect to the application and its subject
matter as it thinks fit.

(3) The application that may be made under subsection (2) is an application for
one or more of the following orders

(a)that a specified person pay the whole, or a specified part of, the
expenses of and incidental to, the investigation that led to the
proceedings;

(b)where expenses have been paid under subsection (1), that a
specified person reimburse the Commission to the extent of the
payment;

(c)that a specified person reimburse the Commission in respect of the
remuneration of any person employed by the Commission in
connection with the investigation.

(4) If no proceedings under section 130(6) are commenced against a prescribed
person, or, where the prescribed person is a corporation, against any director of the
corporation, within 6 months after the completion of an investigation by an
inspector, the prescribed person may apply to a court for an order for the payment
of costs incurred by him in connection with the investigation; and the court may, if
it finds that the investigation was not warranted, order the Commission to pay to
the prescribed person such sum, not exceeding the amount of costs actually
incurred by the prescribed person in respect of the investigation, as it thinks just.





(5) A copy of an application made under subsection (4) shall be served
on the Commission and the Commission shall be entitled to be heard at the
proceedings to determine the application.

133. Concealing, etc., of books relating to securities
(1) A person who-
(a)conceals, destroys, mutilates, or alters a document relating to a
matter which is the subject of an investigation by an inspector;
(b)sends, causes to be sent, or conspires with another person to
send, out of Hong Kong any such document; or
(c)being a prescribed person to whom notice has been given under
section 127(3), leaves Hong Kong,
shall be guilty of an offence and shall be liable on conviction to a fine of $20,000
and to imprisonment for 2 years.
(2) It shall be a defence to a prosecution under subsection (1) to prove
that the person charged did not act with intent to defeat the purposes of section
127 or to delay or obstruct the carrying out of an investigation under that
section.

134. Commission may make certain orders
(1) Where an investigation is being made under section 127 and it appears
to the Commission that facts concerning securities to which the investigation
relates cannot be ascertained because a prescribed person referred to in that
section has failed or refused to comply with a requirement of an inspector under
that section, the Commission may, by order published in the Gazette, make one
or more of the following orders-
(a)an order restraining a specified person from disposing of any
interest in specified securities;
(b)an order restraining a specified person from acquiring specified
securities;
(c)an order restraining the exercise of any voting or other rights
attached to specified securities;
(d)an order directing a person who is registered as the holder of
securities in respect of which an order under this section is in
force to give notice in writing of that order to any person whom
he knows to be entitled to exercise a right to vote attached to
those shares;
(e)an order directing a company not to make payment, except in the
course of a winding up by the Court, of any sum due from the
company in respect of specified securities;
an order directing a company not to register the transfer or
transmission of specified securities;





(g)an order directing a company not to issue shares to a person who
holds shares in the company by reason of his holding those shares
nor in pursuance of an offer made to such a person by reason of his
holding those shares.

(2) A copy of an order under subsection (1) and of any order by which it is
revoked or altered shall be served

(a)where it relates to specified securities, on the authority or body that
issued them or made them available or, where the securities are rights
or options, on the authority or body against whom the right is, or
would be enforceable, or which issued or made available the
securities to which the option relates; and

(b) where it relates to a corporation, on the corporation.

(3) A person aggrieved by an order under subsection (1) may apply to the
Court for revocation of the order and the Court may, if it is satisfied that it is
reasonable to do so, revoke the order and any order by which it has been altered or
varied.

(4) Any person who contravenes an order under subsection (1) shall be guilty
of an offence and shall be liable on conviction to a fine of $5,000.

(5) Without prejudice to the powers of the Attorney General in relation to the
prosecution of criminal offences, a prosecution under this section shall not be
instituted except with the consent in writing of the Commission.

PART XII

PREVENTION OF IMPROPER TRADING PRACTICES

Offices

135. False markets and trading

(1) A person shall not intentionally create or cause to be created, or do
anything with the intention of creating

(a)a false or misleading appearance of active trading in any securities
on the Unified Exchange; or

(b)a false market in respect of any securities on the Unified Exchange.
(Amended 58 of 1985 s. 84)

(2) For the purposes of subsection (1)(b), a false market is created in relation to
securities when the market price of those securities is raised or depressed or
pegged or stabilized by means of

(a)sales and purchases transacted by persons acting in collaboration
with each other for the purpose of securing a market price for those
securities that is not justified either by the assets of the corporation
which issued the securities or by the profits (including anticipated
profits) of the corporation;





(b)any act which has the effect of preventing or inhibiting the free
negotiation of market prices for the purchase or sale of the securities;
or

(c)the employment of any fictitious transaction or device or any other
form of deception or contrivance.

(3) A person shall not with the intention of depressing, raising, or causing
fluctuations in the market price of any securities effect any purchase or sale of any
such securities which involves no change in the beneficial ownership of those
securities.

(4) A purchase or sale of securities involves no change in beneficial ownership
within the meaning of subsection (3) if a person who held an interest in the
securities before the purchase or sale, or a person associated with him in relation to
those securities, holds an interest in the securities after the purchase or sale.
(Amended L.N. 140 of 1974)

(5) A person shall not circulate or disseminate, or authorize or be concerned in
the circulation or dissemination of, any statement or information to the effect that
the price of any securities will or is likely to rise or fall because of the market
operations of one or more persons which, to his knowledge, are conducted in
contravention of subsection (1).

136. Employment of fraudulent or deceptive devices etc.

A person shall not, directly or indirectly, in connection with any transaction
with any other person involving the purchase, sale, or exchange of securities

(a)employ any device, scheme, or artifice to defraud that other person;
or

(b)engage in any act, practice, or course of business which operates as
a fraud or deception, or is likely to operate as a fraud or deception, of
that other person.

137. Restrictions on fixing, etc. prices for securities

A person shall not, either alone or with one or more other persons, effect any
series of transactions for the purchase or sale of securities, or the purchase and
sale, of any securities for the purpose of pegging or stabilizing the price of
securities of that class in contravention of any regulations made for the purposes of
this section.

138. False or misleading statements about securities

A person shall not, directly or indirectly, for the purposes of inducing the sale
of the securities of any corporation, make with respect to those securities, or with
respect to the operations or the past or future performance of the corporation-





(a)any statement which is, at the time and in the light of the circumstances in
which it is made, false or misleading with respect to any material fact and
which he knows or has reasonable ground to believe to be false or misleading;
or

(b)any statement which is, by reason of the omission of a material fact,
rendered false or misleading and which he knows or has reasonable grounds
for knowing is rendered false or misleading by reason of the omission of that
fact.

139. Offences and penalty in relation to sections 135 to 138

Any person who contravenes any of the provisions of section 135, 136, 137, or 138
shall be guilty of an offence and shall be liable on conviction on indictment to a fine of
$50,000 and to imprisonment for 2 years.

140. (Repealed 8 of 1978 s. 7)

Action in Tort

141. Liability to pay compensation

(1) A person who contravenes section 135, 136, 137, or 138 shall, in addition to any
liability under section 139, be liable to pay compensation by way of damages to any person
who has sustained pecuniary loss as a result of having purchased or sold securities at a price
affected by the act or transaction which comprises or is the subject of the contravention.

(2) An action may be brought under subsection (1) in respect of a contravention
referred to in that subsection notwithstanding that no person has been charged or convicted
under section 139 in respect of the contravention.

(3) Nothing in this section limits or diminishes any liability which any person may
incur under the common law.

PART XIIA

INSIDER DEALING

141A. Application of this Part

(1) This Part applies to the securities of a corporation only if they are listed on the
Unified Exchange or have been listed on the Unified Exchange or on an approved stock
exchange at any time within 5 years immediately preceding any dealing in relation to those
securities within the meaning of

section141B(1). (Replaced 58 of 1985 s. 85)





(1A) For the purposes of subsection (1), 'approved stock exchange' means a
company which was, immediately before the repeal of section 25, approved or
deemed to have been approved as a stock exchange under that section.
(Added58of1985s.85)

(2) No transaction shall be void or voidable by reason only that it is an insider
dealing within the meaning of this Part.

Definition of insider dealing

141B. When insider dealing takes place

(1) Insider dealing in relation to the securities of a corporation takes place and,
pursuant to section 141C may be culpable for the purposes of this Part

(a)when a dealing in the securities is made, procured or occasioned by a
person connected with that corporation who is in possession of
relevant information concerning the securities;

(b)when relevant information concerning the securities is disclosed by a
person connected with that corporation, directly or indirectly, to
another person and the first-mentioned person knows or has
reasonable grounds for believing that the other person will make use
of the information for the purpose of dealing, or procuring another to
deal, in those securities.

(2) A dealing in the securities of a corporation is occasioned by a person
connected with that corporation for the purposes of subsection (1)(a) when a
person who has obtained relevant information in the circumstances described in
subsection (1)(b) actually makes use of that information for the purpose of dealing,
or procuring another to deal. in those securities.

141C. Culpability of insider dealing

(1) A person who enters into a transaction which is an insider dealing within
section 141 B(I)(a) is not culpable for the purposes of this Part

(a)if his sole purpose in entering into the transaction is the acquisition
of qualification shares required by him as a director or intending
director of any corporation; or

(b) if he enters into the transaction-

(i) in the bona fide performance of an underwriting agreement with
respect to the securities to which the transaction relates; or

(ii) in the bona fide exercise of his functions as a personal
representative, liquidator, receiver or trustee in bankruptcy.





(2) A corporation which enters into a transaction which is an insider dealing
within section 141 B(1)(a) is not culpable for the purposes of this Part if, although
relevant information concerning the securities is in the possession of a director or
employee of the corporation

(a)the decision to enter into the transaction was taken on its behalf by a
person other than that director or employee; and

(b)arrangements were then in existence for securing that the information
was not communicated to that person and that no advice with respect
to the transaction was given to him by a person in possession of the
information; and

(c)the information was not in fact so communicated and advice was not
in fact so given.

(3) A person who enters into a transaction which is an insider dealing within
section 141 B(I)(a) may be held not culpable for the purposes of this Part if his
purpose is not, or is not primarily, the making of a profit or the avoiding of a loss
(whether for himself or another) by the use of relevant information.

(4) A person who, as agent for another, enters into a transaction which is an
insider dealing within section 141B(I)(a) may be held not culpable for the purposes
of this Part if he did not select or advise on the selection of the securities to which
the transaction relates.

(5) In arriving at its determination under section 141H(3) as to the culpability of
a person in relation to an insider dealing within section 141 B, the Tribunal shall
have regard, as the case may be--

(a)to the fact that such person of his own initiative disclosed the dealing
to the Commission and, where the disclosure was made after the
dealing took place, to the promptness with which the disclosure was
made; or

(b)to the fact that such person did not of his own initiative disclose the
dealing to the Commission and to the reasonableness of any
explanation offered by, such person for the fact that the dealing was
not so disclosed.

(6) Subject to this section, the culpability of any person in relation to an insider
dealing within section 141B is a matter for the Tribunal to determine under section
141H(3).

(Amended 10 of 1989 s. 65)

141D. Definitions applicable to this Part

(1) For the purposes of this Part-

'related corporation' in relation to a corporation means a corporation which is

deemed by section 4 to be related to it;

'relevant information' in relation to securities means information which is not

generally available but, if it were, would be likely to bring about a material

change in the price of those securities.





(2) Without limiting the meaning of the phrase 'dealing in relation to securities'
in section 141B(1) and notwithstanding sections 2 and 3, a person deals in securities
for the purposes of this Part if (whether as principal or agent) he buys, sells,
exchanges or subscribes for, or agrees to buy, sell, exchange or subscribe for, any
securities or acquires or disposes of, or agrees to acquire to dispose of, the right to
buy, sell, exchange or subscribe for, any securities.

141E. Definition of person connected with a corporation

(1) A person is connected with a corporation for the purposes of section 141 B
if, being an individual

(a)he is a director or employee of that corporation or a related
corporation; or

(b)he is a substantial shareholder in the corporation or a related
corporation; or

(c)he occupies a position which may reasonably be expected to give
him access to relevant information concerning the securities of the
corporation by virtue of

(i)any professional or business relationship existing between
himself (or his employer or a corporation of which he is a
director or a firm of which he is a partner) and that corporation, a
related corporation or a substantial shareholder in either of such
corporations; or

(ii) his being a director, employee or partner of a substantial
shareholder in the corporation or a related corporation; or

(d)he has access to relevant information concerning the securities of the
corporation by virtue of his being connected (within the meaning in
paragraph (a), (b) or (c)) with another corporation being information
which relates to any transaction (actual or expected) involving both
those corporations or involving one of them and the securities of the
other; or

(e)he was at any time within the 6 months preceding any dealing in
relation to securities within the meaning of section 141B(1) a person
connected with the corporation within the meaning in paragraph (a),
(b), (c) or (d).

(2) A corporation is a person connected with a corporation for the purposes of
section 141 B so long as any of its directors or employees is a person connected
with that other corporation within the meaning in subsection (1).

(3) In subsection (1) 'substantial shareholder' in relation to a corporation
means a person who has an interest in securities comprised in the equity share
capital of that corporation being securities which

(a)have a nominal value equal to more than 10% of that share capital; or





(b)entitle the holder to exercise or control the exercise of more than 10%
of the voting power at any general meeting of that corporation.

141F. Possession of relevant information by public officers

(1) A public officer who in his capacity as such obtains relevant information
concerning the securities of a corporation shall be deemed to be a person
connected with that corporation for the purposes of section 141 B.

(2) In subsection (1) 'public officer' means a member or employee, whether
temporary or permanent or paid or unpaid, of any of the following

(a) the Government;

(b) the Executive Council;

(c) the Legislative Council;

(d) the Urban Council;

(e)any board, commission, committee or other body appointed by or on
behalf of the Governor or the Governor in Council; and

(f) any body corporate that is an organ or agency of the Crown.

Insider Dealing Tribunal

141G. Insider Dealing Tribunal established

(1) There is hereby established a Tribunal to be known as the Insider Dealing
Tribunal (in this Part referred to as 'the Tribunal').

(2) The Tribunal shall consist of a chairman and 2 other members all of whom
shall be appointed by the Governor.

(3) The chairman of the Tribunal shall be a judge of the Supreme Court and the
other 2 members shall not be public officers (within the meaning of that term in
section 3 of the Interpretation and General Clauses Ordinance (Cap. 1) ).

(4) A member of the Tribunal other than the chairman may be paid, as a fee for
his services, such amount as the Financial Secretary thinks fit, and that amount may
be paid out of the general revenue of Hong Kong without further appropriation
than this subsection.

(5) The provisions in Schedule 3 shall have effect in relation to the
appointment of members and temporary members of the Tribunal, and the
procedural and other matters concerning the Tribunal and its sittings for which
provision is made therein.

Inquiries by Tribunal

141H. Inquiries into insider dealings

(1) If it appears to the Financial Secretary, whether following representations
by the Commission or otherwise, that insider dealing in relation





to the securities of a corporation has taken place or may have taken place, he may in
accordance with this section require the Tribunal to inquire into the matter (in this
Part referred to as 'an inquiry').

(2) An inquiry shall be instituted by notice in writing from the Financial
Secretary to the chairman of the Tribunal containing such particulars as are
sufficient to define the terms of reference of the inquiry.

(3) The object of an inquiry shall be to determine, within the Tribunal's terms of
reference

(a)whether culpable insider dealing in relation to the securities of a
corporation has taken place; and

(b)the identity of the persons involved therein and the extent of their
culpability.

(4) In making a determination under subsection (3)(b), the Tribunal shall not be
limited to the identity and culpability of an immediate party to an insider dealing but
may, subject to section 141 C

(a) include any other person connected with the dealing;

(b)in the case of a body corporate, include the individuals who
exercised control in the management thereof.

141I. Report of Tribunal following inquiry

(1) Upon receipt of a notice under section 141H(2) the Tribunal shall conduct
an inquiry in accordance with the provisions of this Part and Schedule 3, and
prepare a written report thereon.

(2) No person shall publish any material received by the Tribunal for the
purposes of an inquiry and which comes to his knowledge by virtue of being so
received.

(3) Any person who contravenes subsection (2) commits an offence and is
liable on conviction on indictment to a fine of $10,000 and to imprisonment for 1
year.

(4) The Tribunal shall issue its report in the following manner

(a) by first furnishing a copy to the Financial Secretary; and

(b) thereafter, subject to subsection (5), by-

(i) causing the report to be published in such manner that copies
thereof are available to the public; and

(ii)furnishing a copy, so far as is reasonably practicable, to any
person whose conduct was directly in question in the inquiry.

(5) Where the Tribunal intends to cause a report to be published which
contains a finding that a person is not culpable in respect of a dealing which has
been the subject of an inquiry, the following provisions shall apply

(a)if that person has supplied to the Tribunal an address for service for
the purposes of this subsection, the Tribunal shall cause a





copy of the proposed report, so far as it relates to the dealing in
question, to be delivered to or left for him at that address;

(b)if within 7 days after such delivery the Tribunal has received notice
in writing that the person objects to being named in relation to the
dealing in question, the Tribunal shall not name the person in the
report in respect of that dealing;

(c)if the Tribunal has not, within the said 7 days, received notice in
accordance with paragraph (b), or if the person has not supplied an
address for service under paragraph (a), the Tribunal shall name the
person in the report in respect of the said dealing.

(6) No person shall be liable to any civil or criminal proceedings by reason of
the publication by him of a true and accurate account or a fair and accurate
summary of any report of the Tribunal which has been published under subsection
(4)(b).

Powers of Tribunal
141J.Application to Tribunal of Commissions
of Inquiry Ordinance

(1) Sections 4(1) (other than paragraphs (i), (j) and (ma) ), 5, 7, 8 (other than
subsections (1)(ca), (2)(d), (2)(e) and (3)) and 9 to 14 of the Commissions of
Inquiry Ordinance (Cap. 86) shall, subject to this Ordinance, apply for the purposes
of an inquiry as if

(a) the inquiry were an inquiry to which that Ordinance applies;

(b)references therein to a Commission, the Chairman and a
Commissioner were respectively references to the Tribunal, the
chairman and a member thereof,

(c)paragraph (h) of the said section 4(1) authorized payment to a
person appearing before the Tribunal of expenses as well as sums for
loss of time;

(d)the Tribunal were a Commission with full powers to deal with
contempts under the said section 9;

(e)all necessary changes were made to Form 2 in the Schedule of the
said Ordinance.

(2) The Tribunal may order that any document or article which comes into its
possession or the possession of the Commission for the purposes of an inquiry
shall be dealt with in such manner as the justice of the case requires. (Amended 10
of 1989 s. 65)

141K. Further powers of Tribunal to obtain information

(1) Where it appears to the Tribunal that it would assist the conduct of an
inquiry to do so, the Tribunal may in writing authorize the Commission to





exercise all or any of the powers set out in subsection (2) and to report to the
Tribunal the information so obtained which is relevant to the inquiry.

(2) The powers referred to in subsection (1) are--

(a)to inspect the books and documents of any person where the
Tribunal has reasonable grounds to believe or suspect that those
books or documents may contain information relevant to the inquiry;

(b)to make copies of and take extracts from books and documents
referred to in paragraph (a) and, subject to subsection (3), to take
possession of the same for such period (not exceeding 2 days) as is
necessary for the purpose of doing so;

(c)to require any person to give any explanation or particulars
concerning books and documents referred to in paragraph (a);

(d)in writing to require from any person information as to whether or
not there is at any premises any book or document which may
contain information relevant to the inquiry, and particulars as to such
premises, book or document;

(e)to require that any information or particulars furnished pursuant to
this section be verified by statutory declaration and to take any such
declaration.

(3) Where the Commission takes possession of any book or document under
subsection (2)(b) it shall permit a person who would be entitled to inspect it if it
were not in the possession of the Commission to inspect it, and to make copies and
take extracts, at all reasonable times.

(4) A person shall produce all books and documents in his custody or under
his control, the inspection whereof is sought by the Commission under the
authority of this section.

(5) Any person who is required under this section to disclose any information
or particulars or give any explanation shall comply with that requirement so far as
lies within his power to do so and shall, if requested, verify the information,
particulars or explanation by statutory declaration.

(6) A person commits an offence who

(a) contravenes subsection (4) or (5);

(b)in purported compliance with subsection (4) or (5), makes any
statement which he knows to be false or misleading or recklessly
makes any statement which is false or misleading in a material
particular;

(c)obstructs the Commission in the exercise of its powers under this
section;

(d)conceals, destroys, mutilates or alters any book or document which
contains information which is relevant to an inquiry or sends any
such book or document out of Hong Kong or causes the same to be
so sent,





and is liable on conviction to a fine of $5,000 and to imprisonment for 3 months.

(7) An offence specified in subsection (6) shall be deemed to be a contempt of
the Tribunal and the Tribunal may deal with any such offence in accordance with
the powers referred to in section 141J(1)(d) to deal with contempts committed
otherwise than in the presence of the Tribunal and may impose the punishments
provided for by the said subsection (6).

(8) It shall be a defence to a prosecution under subsection (6)(d) if the person
charged proves that he did not act with intent to defeat the discovery of a dealing in
relation to securities within section 141B(1) or to delay or obstruct the carrying out
of an inquiry.

(9) In this section 'books' includes banker's books.

(Amended 10 of 1989 s. 65)

141L. No privilege allowed except to legal advisers

(1) Except as provided in subsection (2), a person shall not be excused on
account of privilege from complying with any requirement under section 141K or, on
appearing before the Tribunal, from answering any question or disclosing any
information or particulars or producing any book or document.

(2) Nothing in this Part shall require the disclosure by a solicitor or counsel of
any privileged communication, whether oral or written, made to or by him in that
capacity, except as regards the name and address of his client.

(3) Nothing in subsection (1) shall be construed as affecting section 4 of the
Inland Revenue Ordinance (Cap. 112).

(Part XIIA added 8 of 1978 s. 8)

PART XIII

MISCELLANEOUS
PROVISIONS

142. Restriction on use of title 'underwriter', etc.

(1) (Repealed 58 of 1985 s. 25)

(2) A person who is not an underwriter shall not

(a) take or use the title 'underwriter'; or

(b)take or use, or have attached to or exhibited at any place, any title
that resembles the title 'underwriter' or so closely resembles that title
as to be calculated to deceive.

(3) Any person who contravenes subsection (2) shall be guilty of an offence
and shall be liable on conviction to a fine of $5,000. (Amended 58 of 1985s.25)

(4) (Repealed 58 of 1985 s. 25)





(5) A person who carries on a business as an insurance underwriter does not
contravene subsection (2) by reason only that he takes or uses the title
'underwriter' in circumstances that make it clear that he is not holding himself out
as being an underwriter within the meaning of section 2.

143. Investment advisory contracts

(1) No investment adviser or investment advisers' partnership shall enter into
an investment advisory contract with any person in Hong Kong (in this section
referred to as his client), or extend or renew any such contract, or in any way
perform any such investment advisory contract entered into, extended, or renewed
after the commencement of this section, if the contract- (Amended 58 of 1985 s. 26)

(a)provides for remuneration to be paid by the client to the investment
adviser or investment advisers' partnership on the basis of a share of
capital gains of the funds or any part of the funds of the client;
(Amended 58 of 1985 s. 26)

(b)does not include a provision to the effect that an assignment of the
contract by the investment adviser or investment advisers'
partnership shall be made only with the consent of the client; or
(Amended 58 of 1985 s. 26)

(c) does not include a provision-

(i) if entered into by an investment advisers' partnership, to the
effect that the partnership will notify the client of any change
in the partners thereof; or

(ii) if entered into by an investment adviser who is a corporation, to
the effect that the corporation will notify the client of any
change in the directors thereof,

within a reasonable time after the change. (Replaced 58 of 1985
s.26)

(2) Subsection (1)(a) does not-

(a)prohibit an investment advisory contract which provides for
remuneration based on the total value of a fund averaged over a
definite period, or on definite dates, or taken on a definite date; or

(b)apply to an investment advisory contract with the manager or other
representative of a unit trust or mutual fund corporation authorized
by the Commission for the purposes of this Ordinance, or a company
carrying on business as an investment company and registered
under the Companies Ordinance (Cap. 32), which contract provides
for remuneration based on the asset value of the trust, corporation,
or company under management averaged over a specified period and
increasing and decreasing proportionately in accordance with the
performance of the trust, corporation, or company over a specified
period in relation either to





(i) the investment record of an appropriate index of securities; or

(ii) such other measure of investment performance as the
Commission may specify in writing on the application of either
party to a contract or intended contract.

(3) For the purposes of subsection (1)(b) and (c), 'investment advisory
contract' means a contract or agreement whereby a person agrees to act as
investment adviser or to manage any investment or trading account of a client not
being a unit trust or mutual fund corporation authorized by the Commission for the
purposes of this Ordinance, or a company carrying on business as an investment
company and registered under the Companies Ordinance (Cap. 32).

(4) Any investment adviser who knowingly enters into any contract in
contravention of any of the provisions of subsection (1) shall be guilty of an
offence and shall be liable on conviction to a fine of $2,000.

(5) Any contract entered into in contravention of any of the provisions of
subsection (1) shall, notwithstanding anything in the contract, be voidable at the
option of the client.

144. Court may make certain orders

(1) Where, on the application of the Commission, it appears to the Court that a
person has contravened this Ordinance or any conditions of registration
thereunder, or is about to do an act with respect to dealing in securities that, if done,
would be such a contravention, the Court may, without prejudice to any orders it
would be entitled to make otherwise than pursuant to this section, make one or more
of the following orders- (Amended 10 of 1989 s.65)

(a)an order restraining a person from acquiring, disposing of, or
otherwise dealing with any securities specified in the order;

(b)in relation to a registered dealer or registered dealing partnership, an
order appointing a person to administer the property of the dealer or
the partnership; (Amended 58 of 1985 s. 27)

(c)an order declaring a contract relating to securities to be void or
voidable;

(d)for the purpose of securing compliance with any other order under
this section, an order directing a person to do or refrain from doing a
specified act; or

(e)any ancillary order which it considers necessary in consequence of
the making of an order under paragraphs (a) to (d).

(2) The Court shall, before making an order under subsection (1), satisfy itself,
so far as it can reasonably do so, that the order would not unfairly prejudice any
person.





(3) The Court may, before making an order under subsection (1), direct that
notice of the application be given to such persons as it thinks fit or direct that
notice of the application be published in such manner as it thinks fit, or both.

(4) The Court may reverse, vary, or discharge an order made by it under this
section or suspend the operation of such an order.

145. Miscellaneous offences

Any person who

(a)obstructs the Commission or any other public officer or any person in
the exercise or performance of any power, authority, duty, or function
under this Ordinance; or

(b)fails to produce any document that the Commission or a person
authorized by the Commission has, pursuant to any provision of this
Ordinance, required that person to produce for inspection by the
Commission or the person so authorized,

shall be guilty of an offence and shall be liable on conviction to a fine of $5,000 and
to imprisonment for 3 months.

(Amended 10 of 1989 s. 65)

146. Regulations

(1) The Commission may make rules for all or any of the following matters-
(Amended 10 of 1989 s. 65)

(a)-(b) (Repealed 58 of 1985 s. 28)

(c)the class of persons in relation to whom, and the manner and
circumstances in which, registered dealers, registered dealing
partnerships and registered dealers' representatives may deal in
securities; (Amended 58 of 1985 s. 28)

(d)the class of persons in relation to whom, and the manner and
circumstances in which, registered investment advisers, registered
investment advisers' partnerships and registered investment
representatives may carry on business as investment advisers or as
investment representatives, as the case may be; (Amended 58 of
1985 s. 28)

(e)prescribing the amount of deposit required to be made for the
purposes of section 52, and providing for the application of deposits
under subsections (3) and (4) of that section;

(f)requiring registered dealers, registered dealing partnerships,
registered investment advisers and registered investment advisers'
partnerships to exhibit their certificates of registration at their

places of business;(Amended 58 of 1985 s. 28)





(g)prescribing the information to be notified for the purposes of section
63 (1)(b);

(h)-(j) (Repealed 58 of 1985 s. 28)

(k)prescribing the manner, time, or circumstances for retaining copies of
circulars for the purposes of section 79(6); (Amended 58 of 1985 s.
28)

(1)prescribing the particulars to be recorded in relation to accounts kept
under section 84;

(m)prescribing the particulars to be recorded in relation to the profit and
loss account and balance sheet and the information to be contained
in the auditor's report required to be lodged under section88;
(Replaced 62 of 1976 s. 34)

(n)prescribing any matters for giving better effect to section 65B and,
without derogation from the generality of the foregoing, may for that
purpose

(i) prescribe the returns to be made by registered dealers and
registered dealing partnerships, the information to be included
therein and the manner in which such information is to be
verified;

(ii) provide for the manner in which any assets are to be valued and
for the payment by any person of the costs of valuation; (iii)
provide for the manner in which records are to be kept of any
assets which may be taken into account for the purposes of
section 65B and the places at which such records are to be
maintained; and

(iv) make separate provision for different classes or categories of
registered dealer or registered dealing partnership; (Replaced
58 of 1985 s. 86)

(o) (Repealed 58 of 1985 s. 28)

(p) (Repealed 10 of 1989 s. 65)

(q)prescribing public offices for the purposes of section 122; (Amended
33 of 1988 s. 3)

(r)prescribing the procedure for the holding of investigations under
Part Xl, and providing for the reception of evidence, whether written
or oral, and for the summoning and examination of witnesses, during
the course of such an investigation;

(s)prescribing anything which is to be or may be prescribed by
regulations.

(2) Where rules are made by the Commission under subsection (1), the
Governor in Council may make regulations providing that a contravention of
specified provisions of the rules shall be an offence and may provide penalties
therefor not exceeding a fine of $2,000 and imprisonment for 3 months. (Replaced 10
of 1989 s. 65)





(3) Except as otherwise provided in this Ordinance, regulations made
under this section may be of general or special application.
(4) Regulations made under this section may provide that, subject to such
terms and conditions as may be prescribed thereby, the provisions of Parts VI
to IX, or such of them as are specified in the regulations-
(a)shall not have effect in relation to any specified person or to any
person who is a member of a specified class of persons-
(i) who is or may be a dealer or investment adviser by reason
only of his doing anything that is incidental to another
business;
(ii) who does not deal in securities for or on behalf of any other
person; or
(iii) who is a dealer or investment adviser by reason only of
his entering into any specified transaction or class of
transactions;
(b)shall not have effect in relation to a representative of any such
person, or a member of any such class of persons, as is referred to
in paragraph (a);
(e)shall have effect in relation to any such person or member, or a
representative of any such person or member, to such extent as is
prescribed; or
(d)shall not have effect in relation to a specified transaction or class
of transactions entered into by a specified person or class of
persons.

146A. Rules by the Commission

(1) The Commission may make rules for all or any of the following
matters-
(a)the conduct of business by registered dealers, registered
investment advisers, registered dealing partnerships, registered
investment advisers' partnerships, registered dealers' repre-
sentatives and registered investment representatives;
(b)matters incidental to the registration of dealers, investment
advisers, dealing partnerships, investment advisers' partnerships,
dealers' representatives and investment representatives under this
Ordinance;
(c)prescribing the particulars to be recorded in relation to registered
dealers, registered investment advisers, registered dealing
partnerships, registered investment advisers' partnerships,
registered dealers' representatives and registered investment
representatives under section 64;





(d)enabling the Commission to correct any errors in any register kept
under this Ordinance; (Amended 10 of 1989 s. 65)

(e)enabling the Commission, on payment of the fee (if any) prescribed
under the regulations, to issue duplicate certificates of registration in
the event of loss or destruction of the original certificate or any
duplicate certificate; (Amended 10 of 1989 s.65)

(f) prescribing forms for the purposes of this Ordinance;

(g)prescribing the manner in which applications are to be made for
registration under Part VI;

(h)prescribing anything which is to be or may be prescribed by rules
under this section.

(2) Rules made under this section may be of general or special application.

(Added 58 of 1985 s. 29)

147. Liability of directors, etc.

(1) Where an offence under this Ordinance committed by a corporation is
proved to have been committed with the consent or connivance of, or to be
attributable to any neglect on the part of, any director, manager, secretary, or other
similar officer of the corporation, or any person who was purporting to act in any
such capacity, he, as well as the corporation, shall be guilty of the offence and shall
be liable to be proceeded against and punished accordingly.

(2) Subject to subsection (3), for the purposes of this section, a person is
deemed to be a director of a corporation if he occupies the position of a director by
whatever name he may be called or is a person in accordance with whose directions
or instructions the directors of the corporation or any of them act.

(3) A person shall not, by reason only that the directors of a corporation act
on advice given by him in a professional capacity, be taken to be a person in
accordance with whose directions or instructions those directors act.

(4) Where an offence committed by a partner in a partnership is proved to have
been committed with the consent or connivance of, or to be attributable to any
neglect on the part of, any other partner of the partnership, that other partner shall
be guilty of the offence and liable to be proceeded against and punished
accordingly. (Added58of1985s.30)

148. Commission may prosecute certain
offences against this Ordinance

Without prejudice to the provisions of any other enactment relating to the
prosecution of criminal offences and without prejudice to the powers of the
Attorney General in relation to the prosecution of such offences, the





Commission may institute proceedings in respect of any offence against this
Ordinance that is punishable on summary conviction.

(Amended 10 of 1989 s. 65)

149. Amendment of Schedules and
certain specified amounts

The Governor in Council may, by order published in the Gazette, amend(a)
Schedules 1 and 2; and

(b) any amount or sum specified in Part X.

150. (Repealed 10 of 1989 s. 65)

SCHEDULE 1 [ss. 72 & 149]

REQUIREMENTS To BE SATISFIED IN RELATION TO
OFFERS To ACQUIRE SECURITIES

1 . If the securities to be acquired are currently listed or quoted on the Unified Exchange or
a foreign stock exchange, the offer shall, subject to paragraph 2,- (Amended 58 of 1985 s. 87)

(a)state this fact and specify the exchange or exchanges on which the securities are
currently listed or quoted;

(b)specify the last recorded price paid in respect of the securities on the Unified
Exchange,or, in the case of a foreign stock exchange, listed or quoted, on the latest
practicable date during the period of 3 months immediately preceding the date of
the offer; (Replaced 62 of 1976 s. 35. Amended58of1985s.87)

(c)specify the last price paid in respect of the securities on the last trading day of each
of the 6 months immediately preceding the date of the offer;

(d)specify the highest and the lowest prices paid in respect of the securities during the
period of 6 months immediately preceding the date of the offer;

(e)where the offer has been the subject of a public announcement, whether in a
newspaper or in any other form of news medium or otherwise, specify the last price
paid in respect of the securities on the last trading day during the period of 3
months immediately preceding the public announcement, or, if the securities were
not dealt in during that period, this should be stated. (Amended 62 of 1976 s. 35)

2. If the securities proposed to be acquired are not listed or quoted on the Unified Exchange
or a foreign stock exchange, the offer shall contain- (Amended 58 of 1985 s. 87)

(a)any information that the offeror may have as to the number and nominal value of
those securities that have been sold in Hong Kong during the period of 6 months
immediately preceding the date of the offer and the prices yielded by those sales, or,
where the offeror has no such information, a statement to that effect; and

(b)particulars of any restriction in the constitution of the corporation which issued the
securities on the right to transfer the securities which has the effect of
requiring the offerees, before transferring securities held by them in the corporation,
to offer those securities for purchase to members of the corporation or to any other
person, and, where there is any such restriction, the arrangements (if any) being
made to enable the securities to be transferred in pursuance of the offer.

3. Where the securities proposed to be acquired are those of a corporation incorporated
outside Hong Kong and any holders of those securities reside in Hong Kong, and those securities
are listed or quoted on a stock exchange of the country or territory in which the corporation is
incorporated, the offer shall state this fact and specify the stock exchange on which they are
listed or quoted.

4. The offer shall contain, in a prominent position in printing not smaller than eight point






Times, a notice in the following form





'IMPORTANT

If you are in doubt as to any aspect of this offer, you should consult a stockbroker or
other registered dealer in securities, a bank manager, solicitor, professional accountant, or
other professional adviser.'.

SCHEDULE 2 [ss. 72 & 149]

REQUIREMENTS TO BE SATISFIED IN RELATION TO
OFFERS To DISPOSE OF SECURITIES

1 . If the securities offered are currently listed or quoted on the Unified Exchange or a
foreign stock exchange and will be uniform in all respects with the securities so currently listed
or quoted, the offer shall- (Amended 58 of 1985 s. 88)

(a)state that fact and specify the exchange on which those securities, or the securities
with which they will be uniform, are currently listed or quoted;

(b)specify the last recorded price paid in respect of the securities on the Unified
Exchange, or, in the case of a foreign stock exchange, listed or quoted, on the latest
practicable date during the period of 3 months immediately preceding the date of
the offer; (Replaced 62 of1976 s. 35. Amended58of1985s.88)

(C)Specify the last price paid in respect of the securities on the last trading day of each
of the 6 months immediately preceding the date of the offer;

(d)specify the highest and the lowest prices paid in respect of the securities during the
period of 6 months immediately preceding the date of the offer;

(e)where the offer has been the subject of a public announcement, whether, in a
newspaper or in any other form of news medium or otherwise, specify the last price
paid on the last trading day during the period of 3 months immediately preceding
the public announcement, or. if the securities were not dealt in during that period,
this should be stated. (Amended 62 of1976 s. 35)

2. Where the securities offered are those of a corporation incorporated outside Hong Kong
and

(a)are listed or quoted on a stock exchange in the country or territory where the
corporation was incorporated; or

(b)are yet to be issued but will be in all respects uniform with the securities already so
listed or quoted,

the offer shall specify that fact and the name of the stock exchange on which those securities,
or the securities with which they will be uniform, are so listed or quoted.

3. The offer shall, in the case of securities of a corporation which are not listed or quoted on
the Unified Exchange or a foreign stock exchange, or which are not uniform in all respects with
securities so listed or quoted,- (Amended 58 of 1985 s. 88)

(a)give particulars of any restriction in the corporation's constitution which has the
effect of requiring a holder of the corporation's securities to offer them for
purchase to members of the corporation or any other person before transferring
them in pursuance of the offer;

(b)except where the offer is accompanied by a document which conforms with Part II
or XII of the Companies Ordinance (Cap. 32) in relation to the corporation whose
securities are the subject of the offer, contain the particulars specified in paragraph
4 of this Schedule or be accompanied by a statement in writing containing those
particulars.

4. (1) The particulars referred to in paragraph 3(b) are as follows

(a) (i) the year in which, and the country or territory in which, the issuing corporation

was incorporated;

(ii) the address of its registered or principal office in Hong Kong; and





(iii) where the issuing corporation is incorporated outside Hong Kong, the address
of its registered or principal office in the country or territory in which it was
incorporated or is resident;

(b) (i) the authorized capital of the issuing corporation;

(ii) the amount of the authorized capital of the corporation that has been issued
and is outstanding at the date specified as being the close of the 5 financial
years of the corporation immediately preceding the date of the offer;

(iii) the classes of shares into which that capital is divided;

(iv) the rights of each class of shareholder in respect of capital, dividends and
voting; and

(v) the number and total nominal value respectively of shares issued for cash and
shares issued as fully or partly paid up for a consideration other than cash;

(c) (i) the number and total nominal value of shares issued since the close of the last
financial year of the issuing corporation;

(ii) the classes (if any) into which the shares are divided and the rights of each
class of shareholder in respect of capital, dividends and voting;

(iii) the number and total nominal value respectively of shares issued as fully or
partly paid up for cash or as fully or partly paid up for a consideration other
than cash, or both;

(iv) the number of redeemable preference shares (if any) redeemed and the
amounts repaid in respect of the shares so redeemed; and

(v) particulars of any reduction of capital lawfully authorized in respect of the
corporation;

(d) particulars of any reorganization of the capital of the issuing corporation during
each

of its 2 financial years preceding the date of the
offer;

(e) (i) the amount of the net profit or loss of the issuing corporation (before taking
into account any form of tax calculated by reference to the amount of profits
of the corporation);

(ii) the rate per cent of dividends paid by the issuing corporation and the amount
distributed by way of dividends on each class of shares during each of the 5
financial years immediately preceding the offer; and

(iii) where no dividend has been paid in respect of shares of any particular class
during any of those years, a statement to that effect;

the total amount of any debentures issued by the issuing corporation and
outstanding not more than 28 days before the date of the offer, and the total
amount of mortgage debts, loans, or charges due from the corporation not more
than 28 days before that date, together with the rate of interest payable in respect
of them;

(g) the names and addresses of the directors of the issuing corporation;

(h) the number, description, and nominal value of the securities of the issuing
corporation

held by or on behalf of each of its directors or, if a director does not hold any such
securities and no securities are held on his behalf, a statement to that effect; and







(i) whether or not the securities offered are, or, in the case of securities to be issued,
will

be, fully paid up, and, if not, to what extent they are or will be paid up, and, if the
issuing corporation has fixed a date and amount for payment of outstanding calls,
the date and amount of each such call.

(2) If any of the particulars required by subparagraph (1) are not available by reason of the
issuing corporation not having carried on business for a sufficient length of time, or for any
other reason, the offer shall state that fact; and if the issuing corporation is one incorporated in
Hong Kong in respect of which those particulars are not available in the returns of the
corporation filed with the Registrar of Companies, the offer shall also state that fact.

5. If the securities offered are yet to be issued, the offer shall-

(a) state

(i) whether or not the issue requires the authority of a resolution of the issuing
corporation;

(ii) the first dividend in which the securities will participate; and

(iii) whether or not there has been, to the knowledge of the offeror, any material
change in the financial position of the issuing corporation since the date of
the balance sheet and profit and loss account of the corporation for the
financial year preceding the date of the offer and, if so, particulars of the
change;





(b)be accompanied by copies of the balance sheet and profit and loss account of the
corporation (if any) made up to the end of the last financial year of the
corporation preceding the date of the offer;

(c)be accompanied by copies of the memorandum and articles of association or other
document constituting or defining the constitution of the issuing corporation unless
the offer specifies

(i) a place in Hong Kong at which copies of those documents may be inspected by
offerees; and

(ii) the times at which they may be inspected;

(d)in the case of securities which will be uniform in all respects with previously issued
securities of the issuing corporation that are not currently listed on the Unified
Exchange or a foreign stock exchange give any information that the offeror may
have as to the number and nominal value of those securities which have been sold
during the period of 6 months preceding the date of the offer, and the prices
yielded from the sales or, if the offeror has no such information, state that fact;
(Amended 58 of 1985 s.88)

(e)in the case of securities which will not be uniform in all respects with securities
previously issued by the issuing corporation, state

(i) the respects in which the securities will differ from the previously issued
securities;

(ii) whether or not any voting rights will attach to the securities and, if so, the
limitations (if any) on those rights; and

(iii) whether or not application for permission to have the securities listed or
quoted has been or will be made to the Unified Exchange or a foreign stock
exchange and, if such an application has been made, the name of the exchange
applied to. (Amended 58 of 1985 s. 88)

6. The offer shall contain in a prominent position, in printing not smaller than eight point
Times, a notice in the following form- (Amended L.N. 56 of 1974)

'IMPORTANT

If you are in doubt as to any aspect of this offer, you should consult a stockbroker or
other registered dealer in securities, a bank manager, solicitor, professional accountant, or
other professional adviser.'.

SCHEDULE 3 [ss. 14 1 G&
141I]

INSIDER DEALING
TRIBUNAL

1. In this Schedule, unless the context otherwise requires'chairman' means the chairman of
the Tribunal; 'inquiry' means an inquiry under section 141 H; 'member' means a member of the
Tribunal; 'Tribunal' means the Tribunal established by section 141G.

Appointment of members

2. Subject to paragraphs 4 and 5, the chairman shall be appointed for a term of 3 years but
may from time to time, so long as he remains qualified under section 141G(3), be reappointed.

3. The other 2 members shall be appointed to act in relation to any specified inquiry or
inquiries and any such member may be so appointed more than once.





4. A member may at any time resign his office by notice in writing to the Governor.

5. The chairman shall vacate his office if at any time he ceases to hold office as a judge of
the Supreme Court.

6. A member other than the chairman may be removed from office by the Governor for
disability, bankruptcy, neglect of duty or misconduct proved to the satisfaction of the Governor.

7. If an inquiry has been commenced by the Tribunal but not completed before the expiry of
the chairman's term of office or before the resignation from or vacation of office by a member
takes effect, the Governor may authorize the chairman or member to continue as chairman or a
member of the Tribunal for the purpose of completing that inquiry.

8. An inquiry may be continued, notwithstanding any change in the membership of the
Tribunal, as if the change had not occurred; and in particular evidence taken by the Tribunal need
not be taken again on account of the change.

Temporary members

9. The Governor may appoint a temporary member of the Tribunal to act in place of any
member who is precluded by illness, absence from Hong Kong or any other cause from exercising
his functions or who considers it improper or undesirable that he should exercise his functions in
relation to any specified matter.

10. A temporary member who is appointed to act in place of the chairman shall be a person
who holds office as a judge of the Supreme Court and a temporary member who is appointed to
act for an ordinary member shall not be a person who would be disqualified under section
141G(3) from appointment as a member.

11. A temporary member who acts in place of the chairman or other member shall be
deemed for all purposes to be the chairman or other member of the Tribunal as the case may be.

Sittings and representation

12. The chairman shall convene such sittings of the Tribunal as he thinks necessary for the
efficient performance of its functions.

13. The chairman shall preside at all sittings of the Tribunal and no sitting shall be held
unless the other 2 members are also present.

14. Every question before the Tribunal shall be determined by the opinion of the majority
of the members except a question of law which shall be determined by the chairman.

15. Every sitting of the Tribunal shall be held in camera and, subject to paragraph 16, the
Tribunal shall determine which persons may be present.

16. A person whose conduct is the subject of an inquiry or who is implicated, or concerned
in the subject matter of an inquiry shall he entitled to be present in person at any sitting of the
Tribunal relating to that inquiry and to be represented by a barrister or solicitor.

17. For the purposes of paragraph 16 the Tribunal shall determine whether the conduct of
any person is the subject of the inquiry or whether a person is in any way implicated or
concerned in the subject matter of the inquiry.

18. The Tribunal may appoint a legal officer nominated by the Attorney General, a
barrister or a solicitor to act as counsel for the Tribunal.

19. In paragraph 16 'sitting' does not include any meeting of the Tribunal which is held for
the purpose of deliberating on any question before the Tribunal.

(Schedule 3 added 8 of 1978 s.
9)

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