SECURITIES (CLEARING HOUSES) ORDINANCE
SECURITIES (CLEARING HOUSES) ORDINANCE
(CHAPTER 420)
CONTENTS
Section
PART I PRELIMINARY
1. Short title
2. Interpretation
PART II DECLARATION OF CLEARING HOUSES FOR PURPOSES OF THIS
ORDINANCE AND RULES OF CLEARING HOUSES
3. Recognized clearing houses
4. Rules of recognized clearing houses, etc.
PART III MODIFICATIONS OF THE LAW OF INSOLVENCY TO SAFEGUARD
OPERATIONS AND PROCEDURES OF RECOGNIZED CLEARING HOUSES, ETC.
5. Proceedings of recognized clearing house take precedence over law of
insolvency
6. Supplementary provisions as to default proceedings
7. Duty to report on completion of default proceedings
8. Net sum payable on completion of default proceedings
9. Disclaimer of property, rescission of contracts, etc.
10. Adjustment of prior transactions
11. Right of relevant office-holder to recover certain amounts arising
from certain transactions
12. Application of market collateral not affected by certain other
interests, etc.
13. Enforcement of judgments over property subject to market charge, etc.
14. Law of insolvency in other jurisdictions
PART IV MISCELLANEOUS
15. Participant to be party to certain transactions as principal
16. Securities deposited with recognized clearing house
17. Immunity, etc.
18. Preservation of rights, etc.
19. Amendment of Schedules 1 and 2
20. (Omitted as spent)
21. Transitional
Schedule 1 Property which may be subject to a market charge or provided as
market collateral
Schedule 2 Requirements for default rules of recognized clearing houses
Schedule 3 (Omitted as spent)
Whole document:
An Ordinance to empower the Commission to declare clearing houses to be
recognized clearing houses for the purposes of this Ordinance, to provide
for the approval by the Commission of the rules of recognized clearing
houses, to make provision for safeguarding the operations and procedures
of recognized clearing houses, and to provide for matters incidental
thereto or connected therewith.
[7 October 1992] L. N. 324 of 1992
PART I PRELIMINARY
1. Short title
(1) This Ordinance may be cited as the Securities (Clearing Houses)
Ordinance.
(2) (Omitted as spent)
2. Interpretation
(1) In this Ordinance, unless the context otherwise requires-
"charge" means any form of security, including a mortgage;
"clearing house" means a person-
(a) whose activities or objects include the provision of services for the
clearing and settlement of transactions in securities effected on, or
subject to the rules of, the Unified Exchange; or
(b) who guarantees the settlement of any such transactions;
"Commission" means the Securities and Futures Commission established by
section 3 of the Securities and Futures Commission Ordinance (Cap. 24);
"constitution", in relation to a clearing house, means the memorandum and
articles of association of the clearing house;
"default proceedings" means any proceedings or other action taken by a
recognized clearing house under its default rules;
"default rules", in relation to a recognized clearing house, means such of
the rules of the clearing house which it is required to have by virtue of
section 4 (2);
"defaulter" means a participant who is the subject of any default
proceedings; "functions" includes duties and powers;
"market charge" means a charge, whether fixed or floating, granted in
favour of a recognized clearing house-
(a) over any property specified in Schedule 1 which is held by or
deposited with the clearing house; and
(b) for the purpose of securing liabilities arising directly in connection
with the clearing house's ensuring the settlement of one or more market
contracts; "market collateral" means any property specified in Schedule 1
which is held by or deposited with a recognized clearing house for the
purpose of securing liabilities arising directly in connection with the
clearing house's ensuring the settlement of one or more market contracts;
"market contract" means a contract subject to the rules of a recognized
clearing house entered into by the clearing house with a participant
pursuant to a novation which is both in accordance with those rules and
for the purposes of the clearing and settlement of transactions in
securities effected on, or subject to the rules of, the Unified Exchange;
"officer" means an officer within the meaning of section 2 of the
Companies Ordinance (Cap. 32);
"participant" means a person who, in accordance with the rules of a
recognized clearing house, may participate in one or more of the services
provided by the clearing house in its capacity as a clearing house;
"performance", in relation to a function, includes discharge and exercise;
"recognized clearing house" means a clearing house declared under section
3 (1) to be a recognized clearing house for the purposes of this
Ordinance;
"relevant office-holder" means-
(a) the Official Receiver appointed under section 75 of the Bankruptcy
Ordinance (Cap. 6);
(b) any person acting in relation to a company as its liquidator,
provisional liquidator, receiver or manager;
(c) any person acting in relation to an individual as his trustee in
bankruptcy or interim receiver of his property; or
(d) any person appointed pursuant to an order for the administration in
bankruptcy of an insolvent estate of a deceased person;
"rules", in relation to a clearing house-
(a) means the constitution, rules, regulations or directions, by whatever
name called, governing the membership, management, operations and
procedures of the clearing house; and
(b) without restricting the generality of paragraph (a), includes rules,
regulations or directions relating to-
(i) the provision of clearing and settlement services, and the suspension
or withdrawal of such services;
(ii) the provision of services other than the services referred to in
subparagraph (i);
(iii) the persons who may participate in one or more of the services
referred to in subparagraphs (i) and (ii); and
(iv) setting and levying fees and charges;
"securities" means securities within the meaning of section 2 of the
Securities Ordinance (Cap. 333);
"settlement", in relation to a market contract, includes partial
settlement; "Unified Exchange" means the Unified Exchange established
under section 27 of the Stock Exchanges Unification Ordinance (Cap. 361).
(2) Where-
(a) a charge is granted partly for the purpose specified in the definition
of "market charge" and partly for other purposes, the charge is in this
Ordinance a market charge in so far as it has effect for that specified
purpose;
(b) collateral is provided partly for the purpose specified in the
definition of "market collateral" and partly for other purposes, the
collateral is in this Ordinance market collateral in so far as it has been
provided for that specified purpose.
(3) References in this Ordinance to the law of insolvency include
references to every provision made by or under-
(a) the Bankruptcy Ordinance (Cap. 6);
(b) the Companies Ordinance (Cap. 32); and
(c) any other enactment which is concerned with or in any way related to
the insolvency of a person.
(4) References in this Ordinance to settlement in relation to a market
contract are to the discharge of the rights and liabilities of the parties
to the contract, whether by performance, compromise or otherwise.
PART II DECLARATION OF CLEARING HOUSES FOR PURPOSES OF THIS ORDI- NANCE AND RULES OF CLEARING HOUSES
3. Recognized clearing houses
(1) Where the Commission is satisfied that it is appropriate to do so in
the interest of the investing public or in the public interest, or for the
proper regulation of services for the clearing and settlement of
transactions in securities, it may, with the consent in writing of the
Financial Secretary, by notice in the Gazette, declare a clearing house to
be a recognized clearing house for the purposes of this Ordinance.
(2) Where the Commission makes a declaration under subsection (1) in
respect of a clearing house-
(a) it shall give notice thereof in writing to the clearing house; and
(b) the rules of the clearing house in operation immediately before the
declaration shall continue to have effect unless otherwise specified, or
until such time as is specified, in the notice referred to in paragraph
(a).
4. Rules of recognized clearing houses, etc.
(1) Subject to section 3 (2) (b) and subsection (4), no rules of a
recognized clearing house (including any default rules of the clearing
house) or any amendment thereto shall have effect unless approved in
writing by the Commission.
(2) A recognized clearing house shall have rules which provide for the
taking of proceedings or other action in the event of a participant
appearing to be unable, or likely to become unable, to meet his
obligations in respect of all unsettled market contracts to which he is a
party, and such rules shall comply with the requirements of Schedule 2.
(3) Where a recognized clearing house takes any default proceedings, all
subsequent proceedings or other action taken under its rules for the
purposes of the settlement of market contracts of which the defaulter
concerned is a party shall be treated as done under the default rules of
the clearing house notwithstanding that, but for this subsection, such
subsequent proceedings or other action would not be treated as done under
the default rules of the clearing house.
(4) The Commission may, by notice in the Gazette, declare any class of
rules of a recognized clearing house (except any default rules of the
clearing house) to be a class of rules which are not required to be
approved under subsection (1) and, accordingly, any rules of that clearing
house which belong to that class (including any amendment thereto) shall
have effect notwithstanding that they have not been so approved.
(5) Without prejudice to the operation of subsection (4), a recognized
clearing house shall submit or cause to be submitted to the Commission,
for the information of the Commission, any of its rules (including any
amendment thereto )-
(a) which belong to a class of rules the subject of a declaration under
subsection (4); and
(b) as soon as practicable after those rules (or amendment thereto, as the
case may be) are made.
(6) A recognized clearing house shall submit or cause to be submitted to
the Commission for its approval the rules of the clearing house and every
amendment thereto except any rules (including any amendment thereto) which
belong to a class of rules the subject of a declaration under subsection
(4).
(7) Subject to subsections (8) and (9), the Commission shall, within 6
weeks after the receipt of any submission under subsection (6) from a
recognized clearing house, give notice in writing to the clearing house
of-
(a) its approval of; or
(b) its refusal to approve,
the rules or amendment of the rules, as the case may be, or any part
thereof, the subject of the submission.
(8) The Commission may, in a particular case, with the agreement of the
recognized clearing house concerned, extend the time prescribed in
subsection (7).
(9) The Financial Secretary may, on the advice of the Commission and
either generally or in a particular case, extend the time prescribed in
subsection (7).
(10) The Commission may request in writing a recognized clearing house-
(a) to make rules-
(i) specified in the request; and
(ii) within the period specified in the request; or
(b) to amend rules-
(i) referred to in the request;
(ii) in the manner specified in the request; and
(iii) within the period specified in the request.
(11) Where the Commission is satisfied that a recognized clearing house
has not complied with a request referred to in subsection (10) within the
period specified in the request, the Commission may direct in writing the
clearing house to comply with the request within such further period as is
specified in the direction and, accordingly, the clearing house shall
comply with that request within that further period.
(12) For the purposes of subsection (10), "rules", in relation to a
recognized clearing house, do not include the constitution of the clearing
house.
PART III MODIFICATIONS OF THE LAW OF INSOLVENCY TO SAFEGUARD OPE- RATIONS AND PROCEDURES OF RECOGNIZED CLEARING HOUSES, ETC.
5. Proceedings of recognized clearing house take precedence over law of
insolvency
(1) None of the following shall be regarded as to any extent invalid at
law on the ground of inconsistency with the law relating to the
distribution of the assets of a person on insolvency, bankruptcy or
winding-up, or on the appointment of a receiver over any of the assets of
a person-
(a) a market contract;
(b) the rules of a recognized clearing house relating to the settlement of
a market contract;
(c) any proceedings or other action taken under the rules of a recognized
clearing house relating to the settlement of a market contract;
(d) a market charge;
(e) the default rules of a recognized clearing house; or
(f) any default proceedings.
(2) Subject to subsection (3), the powers of a relevant office-holder in
his capacity as such, and the powers of a court under the law of
insolvency, shall not be exercised in such a way as to prevent or
interfere with-
(a) the settlement in accordance with the rules of a recognized clearing
house of a market contract; or
(b) any default proceedings.
(3) Subsection (2) shall not operate to prevent a relevant office-holder
from seeking to recover any amount under section 11 after the completion
of a matter referred to in paragraph (a) or (b) of that subsection.
6. Supplementary provisions as to default proceedings
(1) A court may on an application by a relevant office-holder make such
order as it thinks fit altering or releasing him from compliance with such
of the functions of his office as are affected by the fact that default
proceedings are pending or could be taken, or have been or could have been
taken and, accordingly, such functions of the relevant officeholder shall
be construed subject to such order.
(2) Nothing in-
(a) section 12, 14 or 20 of the Bankruptcy Ordinance (Cap. 6); or
(b) section 166, 181, 183, 186 or 254 of the Companies Ordinance (Cap.
32), shall prevent or interfere with any default proceedings.
7. Duty to report on completion of default proceedings
(1) A recognized clearing house shall, upon the completion by it of any
default proceedings, make a report on such proceedings stating in respect
of each defaulter-
(a) the net sum, if any, certified by the clearing house to be payable by
or to the defaulter; or
(b) the fact that no sum is so payable,
as the case may be, and the clearing house may include in that report such
other particulars in respect of such proceedings as it thinks fit.
(2) A recognized clearing house which has made a report pursuant to
subsection (1) shall supply the report to-
(a) the Commission;
(b) any relevant office-holder acting in relation to-
(i) the defaulter to whom the report relates; or
(ii) that defaulter's estate;
(c) if there is no relevant office-holder referred to in paragraph (b),
the defaulter to whom the report relates.
(3) Where the Commission receives pursuant to subsection (2) a report made
pursuant to subsection (1), it may publish notice of that fact in such
manner as it thinks appropriate to bring it to the attention of creditors
of the defaulter to whom the report relates.
(4) Where a relevant office-holder or defaulter receives pursuant to
subsection (2) a report made pursuant to subsection (1), he shall, at the
request of a creditor of the defaulter to whom the report relates-
(a) make the report available for inspection by the creditor;
(b) on payment of such reasonable fee as the relevant office-holder or
defaulter, as the case may be, determines, supply to the creditor all or
any part of that report.
(5) In subsections (2), (3) and (4), "report" includes a copy of a report.
8. Net sum payable on completion of default proceedings
(1) The provisions of this section shall apply with respect to any net sum
certified under section 7 (1) (a) by a recognized clearing house, upon the
completion by it of any default proceedings, to be payable by or to a
defaulter.
(2) Where a receiving or winding-up order has been made, or a resolution
for voluntary winding-up has been passed, any net sum shall,
notwithstanding any of the provisions of section 34 or 35 of the
Bankruptcy Ordinance (Cap. 6) or section 264 of the Companies Ordinance
(Cap. 32), be-
(a) provable in the bankruptcy or winding-up or, as the case may be,
payable to the relevant office-holder; and
(b) taken into account, where appropriate, under section 35 of the
Bankruptcy Ordinance (Cap. 6) or that section as applied in the case of a
winding-up order under the Companies Ordinance (Cap. 32).
9. Disclaimer of property, rescission of contracts, etc.
(1) Neither section 59 of the Bankruptcy Ordinance (Cap. 6) nor section
268 of the Companies Ordinance (Cap. 32) shall apply in relation to-
(a) a market contract;
(b) a contract effected by a recognized clearing house for the purpose of
realizing property provided as market collateral;
(c) a market charge; or
(d) any default proceedings.
(2) Neither section 42 of the Bankruptcy Ordinance (Cap. 6) nor section
182 of the Companies Ordinance (Cap. 32) shall apply in relation to any
act, matter or thing which has been done pursuant to-
(a) a market contract;
(b) a disposition of property pursuant to a market contract;
(c) the provision of market collateral;
(d) a contract effected by a recognized clearing house for the purpose of
realizing property provided as market collateral, or any disposition of
property pursuant to such a contract;
(e) a disposition of property in accordance with the rules of a recognized
clearing house as to the application of property provided as market
collateral;
(f) a disposition of property as a result of which the property becomes
subject to a market charge, or any transaction pursuant to which that
disposition is made;
(g) a disposition of property made in enforcing a market charge;
(h) a market charge; or
(i) any default proceedings.
10. Adjustment of prior transactions
(1) No order shall be made pursuant to-
(a) section 47, 48 or 49 of the Bankruptcy Ordinance (Cap. 6);
(b) section 266 of the Companies Ordinance (Cap. 32); or
(c) section 60 of the Conveyancing and Property Ordinance (Cap. 219),
in relation to any matter to which this section applies.
(2) The matters to which this section applies are-
(a) a market contract;
(b) a disposition of property pursuant to a market contract;
(c) the provision of market collateral;
(d) a contract effected by a recognized clearing house for the purpose of
realizing property provided as market collateral;
(e) a disposition of property in accordance with the rules of a recognized
clearing house as to the application of property provided as market
collateral;
(f) a market charge; and
(g) any default proceedings.
11. Right of relevant office-holder to recover certain amounts arising
from certain transactions
(1) Where a participant ("the first participant") enters into a
transaction for the sale or purchase of securities with another
participant ("the second participant") -
(a) when-
(i) a prescribed event has occurred in relation to-
(A) the second participant; or
(B) the person who is, in respect of the transaction, the principal of the
second participant,
and the transaction is at an undervalue or an over-value; or
(ii) the first participant, or the person who is, in respect of the
transaction, the principal of the first participant, knew, or ought
reasonably to have known-
(A) in the case of the first participant, that a prescribed event was
likely to occur in relation to-
(I) the second participant; or
(II) the person who is, in respect of the transaction, the principal of
the second participant;
(B) in the case of that person, that a prescribed event was likely to
occur in relation to the person referred to in sub-subparagraph (A) (II),
and the transaction is at an undervalue or an over-value and any such
event occurs within the period of 6 months immediately following the date
on which the transaction was so entered into; and
(b) thereafter a relevant office-holder is acting in relation to-
(i) the second participant;
(ii) the person who was, in respect of the transaction, the principal of
the second participant; or
(iii) the estate of the second participant or of the person referred to in
subparagraph (ii),
then, unless a court otherwise orders, the relevant office-holder may
recover, from the first participant, or the person who was, in respect of
the transaction, the principal of the first participant, an amount equal
to the prescribed gain obtained under the transaction by the first
participant, or the person who was, in respect of the transaction, the
principal of the first participant, as the case may be, and such amount is
so recoverable notwithstanding that the transaction may have been
discharged in accordance with the rules of a recognized clearing house and
replaced by a market contract.
(2) In this section-
"prescribed event", in relation to a second participant or a person who is
or was, in respect of a transaction referred to in subsection (1), the
principal of the second participant, means-
(a) an act of bankruptcy committed by the second participant or that
person, as the case may be;
(b) the making of a statutory declaration in respect of the second
participant or that person, as the case may be, pursuant to section 228A
(1) of the Companies Ordinance (Cap. 32);
(c) a meeting of creditors summoned in relation to the second participant
or that person, as the case may be, pursuant to section 241 of the
Companies Ordinance (Cap. 32); or
(d) the presentation of a petition for the winding-up of the second
participant or that person, as the case may be, by a court;
"prescribed gain", in relation to a transaction referred to in subsection
(1), means the difference between-
(a) the market value of the securities the subject of the transaction; and
(b) the value of the consideration for the transaction,
as at the time the transaction was entered into.
12. Application of market collateral not affected by certain other
interests, etc.
(1) The provisions of this section shall have effect with respect to the
application by a recognized clearing house of property provided as market
collateral.
(2) So far as necessary to enable the property to be applied in accordance
with the rules of a recognized clearing house, it may be so applied
notwithstanding any prior equitable interest or right, or any right or
remedy arising from a breach of fiduciary duty, unless the clearing house
had notice of the interest, right or breach of duty, as the case may be,
at the time the property was provided as market collateral.
(3) No right or remedy arising subsequently to the property being provided
as market collateral may be enforced so as to prevent or interfere with
the application of the property by the recognized clearing house in
accordance with its rules.
(4) Where a recognized clearing house has power by virtue of the
provisions of this section to apply property notwithstanding an interest,
right or remedy, a person to whom the clearing house disposes of the
property in accordance with its rules takes free from that interest, right
or remedy.
13. Enforcement of judgments over property subject to market charge, etc.
(1) Where property is subject to a market charge or has been provided as
market collateral, no execution or other legal process for the enforcement
of a judgment or order may be commenced or continued, and no distress may
be levied, against the property by a person not seeking to enforce any
interest in or security over the property, except with the consent of the
recognized clearing house concerned.
(2) Where by virtue of this section a person would not be entitled to
enforce a judgment or order against any property, any injunction or other
remedy granted with a view to facilitating the enforcement of any such
judgment or order shall not extend to that property.
14. Law of insolvency in other jurisdictions
(1) A court shall not, pursuant to any enactment or rule of law, recognize
or give effect to-
(a) any order of a court exercising jurisdiction in relation to the law of
insolvency in a place outside Hong Kong; or
(b) any act of a person appointed in such a place to perform any functions
under the law of insolvency in such place,
in so far as the making of the order or the doing of the act would be
prohibited in the case of a court in Hong Kong or a relevant office-holder
by provisions made by or under this Ordinance.
(2) In this section, "law of insolvency", in relation to a place outside
Hong Kong, means any law of such place which is similar to, or serves the
same purposes as, all or any part of the law of insolvency in Hong Kong.
PART IV MISCELLANEOUS
15. Participant to be party to certain transactions as principal
(1) Where-
(a) a participant in his capacity as such enters into any transaction
(including a market contract) with a recognized clearing house; and
(b) but for this subsection, the participant would be a party to that
transaction as agent,
then, notwithstanding any other enactment or rule of law, as between, but
only as between, the clearing house and any other person (including the
participant and the person who is his principal in respect of that
transaction), the participant shall for all purposes (including any
action, claim or demand, either civil or criminal)-
(i) be deemed not to be a party to that transaction as agent; and
(ii) be deemed to be a party to that transaction as principal.
(2) Where-
(a) 2 or more participants in their capacities as such enter into any
transaction; and
(b) but for this subsection, any such participant would be a party to that
transaction as agent, then, notwithstanding any other enactment or rule of
law, any such participant to whom paragraph (b) applies shall for all
purposes
(including any action, claim or demand, either civil or criminal), except
as between, but only as between, him and the person who is his principal
in respect of the transaction-
(i) be deemed not to be a party to that transaction as agent; and
(ii) be deemed to be a party to that transaction as principal.
16. Securities deposited with recognized clearing house
(1) Subject to subsections (2) and (3), where securities are deposited-
(a) with a recognized clearing house;
(b) by a participant; and
(c) in accordance with the rules of the clearing house,
then, notwithstanding any other enactment or rule of law, no action, claim
or demand, either civil or criminal, in respect of any right, title or
interest in those securities held or enjoyed by any person lies, or shall
be commenced or allowed, against the clearing house.
(2) The operation of subsection (1) in respect of securities deposited
with a recognized clearing house shall be subject to such modifications
and exclusions as are provided in the rules of the clearing house.
(3) This section shall not operate to prejudice the operation of section
100 of the Companies Ordinance (Cap. 32).
17. Immunity, etc.
(1) Neither a recognized clearing house, nor any officer or servant or
member of the governing body of a recognized clearing house, shall be
liable in damages for anything done or omitted to be done in the
performance or purported performance of any functions to which this
subsection applies if the act or omission is shown to have been done or
omitted to be done, as the case may be, with reasonable care and in good
faith.
(2) The functions to which subsection (1) applies are the functions of a
recognized clearing house so far as relating to, or to matters arising out
of-
(a) the default rules of the clearing house; or
(b) any obligations to which it is subject by virtue of this Ordinance.
(3) Neither a person performing, by virtue of any delegation in accordance
with the default rules of a recognized clearing house, any functions of
the clearing house in connection with any default proceedings, nor any
officer or servant or member of the governing body of such a person, shall
be liable in damages for anything done or omitted to be done in the
performance or purported performance of those functions if the act of
omission is shown to have been done or omitted to be done, as the case may
be, with reasonable care and in good faith.
(4) Any failure by a recognized clearing house to comply with its rules in
respect of any matter shall not prevent that matter being treated for the
purposes of this Ordinance as done in accordance with those rules so long
as the failure does not substantially affect the rights of any person
entitled to require compliance with those rules.
(5) Where a relevant office-holder takes any action in relation to
property of a defaulter which is liable to be dealt with in accordance
with the default rules of a recognized clearing house, and believes and
has reasonable grounds for believing that he is entitled to take that
action, he is not liable to any person in respect of any loss or damage
resulting from his action except in so far as the loss or damage, as the
case may be, is caused by the office-holder's own negligence.
18. Preservation of rights, etc.
For the avoidance of doubt, it is hereby declared that, except as is
expressly provided by or under this Ordinance, the provisions of this
Ordinance shall not operate to limit, restrict or otherwise affect-
(a) any right, title, interest, privilege, obligation or liability of any
person;
(b) any investigation, legal proceeding or remedy in respect of any such
right, title, interest, privilege, obligation or liability.
19. Amendment of Schedules 1 and 2
(1) The Financial Secretary may, by notice in the Gazette, amend Schedule
1 or 2.
(2) For the avoidance of doubt, it is hereby declared that the power of
the Financial Secretary under subsection (1) to amend Schedule 2 may be
exercised in such a way as to include in that Schedule a provision which
requires a recognized clearing house to have, as part of its default
rules, rules which prohibit the clearing house from taking any proceedings
or other action specified in the provision, either generally or in a
particular case.
20. (Omitted as spent)
21. Transitional
(1) In this section, unless the context otherwise requires-
"former clearing house" means a person who was, immediately before the
relevant day, a clearing house within the meaning of section 2 of the
Stock Exchanges Unification Ordinance (Cap. 361);
"former rules", in relation to a former clearing house, means those rules,
within the meaning of section 2 of the Stock Exchanges Unification
Ordinance (Cap. 361), which, at any time before the relevant day, had
effect by virtue of section 35A (3) or 35B (1) of that Ordinance;
"relevant day" means the day of commencement of this Ordinance.
(2) A former clearing house shall be deemed to be a recognized clearing
house as if, on the relevant day, it had been declared under section 3 (1)
to be a recognized clearing house for the purposes of this Ordinance, and
the provisions of this Ordinance shall, subject to subsection (3), apply
accordingly.
(3) Subject to subsection (4), no provision of the former rules of a
former clearing house shall have effect on or after the relevant day
unless and until it is approved under section 4 (1).
(4) Where any act, matter or thing has been done-
(a) at any time before the relevant day and the former rules of a former
clearing house applied to that act, matter or thing; or
(b) under the former rules of a former clearing house at any time before
the relevant day,
then on and from the relevant day the former rules, as in force
immediately before the relevant day, shall apply to and have effect in
relation to that act, matter or thing-
(i) to the extent that, but for the enactment of this Ordinance, that act,
matter or thing would on or after the relevant day have had any force or
effect or been in operation, and
(ii) as if this Ordinance had never been enacted.
(5) In relation to any entitlement to claim compensation arising under
section 109 (1) of the Securities Ordinance (Cap. 333) occurring before
the relevant day, the amendment made to section 109 (3) of that Ordinance
by item 7 (e) (ii) of Schedule 3 shall not apply, and section 109 (3)
shall apply in relation to any such entitlement as if item 7 (e) (ii) had
never been enacted.
[ss. 2 (1) & 19 (1)]
SCHEDULE 1 PROPERTY WHICH MAY BE SUBJECT TO A MARKET CHARGE OR PROVIDED AS MARKET COLLATERAL
1. Money, letters of credit, bankers' drafts, certified cheques, and any
similar instruments.
2. Securities, including securities which are not securities within the
meaning of section 2 of the Securities Ordinance (Cap. 333).
[ss. 4 (2) & 19]
SCHEDULE 2 REQUIREMENTS FOR DEFAULT RULES OF RECOGNIZED CLEARING HOUSES
The rules of a recognized clearing house which provide for the taking of
proceedings or other action in the event of a participant appearing to be
unable, or likely to become unable, to meet his obligations in respect of
all unsettled market contracts to which he is a party shall-
(a) enable the settlement of all such contracts;
(b) for the purpose of paragraph (a), provide for there to be pay able by
or to the participant a sum of money in relation to each such contract if
that is required after taking into account all the rights and liabilities
of the participant under or in respect of the contract concerned;
(c) enable all sums of money payable by or to the participant as
determined in accordance with paragraph (b) to be aggregated or set-off so
as to produce a net sum, if any, pay able by or to the participant;
(d) if any net sum referred to in paragraph (c) is payable by the
participant, provide for that net sum to be set-off against all property
of the participant which is either subject to a market charge or which has
been provided as market collateral (or set-off against the proceeds of the
realization of such property) so as to produce a further net sum, if any,
payable by or to the participant;
(e) if any net sum referred to in paragraph (c) is payable to the
participant, provide that all property of the participant which is either
subject to a market charge or which has been provided as market collateral
shall cease to be subject to the market charge (but without prejudice to
any other form of charge to which it may be subject) or to be market
collateral (but without prejudice to its provision as any other form of
collateral), as the case may be; and
(f) provide for the certification by the clearing house of any net sum
referred to in paragraph (c) payable to the participant, or of any further
net sum referred to in paragraph (d) payable by or to the participant, as
the case may be, or, if there is no such sum, the certification by the
clearing house of that fact.
SCHEDULE 3 (Omitted as spent)
e (Cap. 6); or
(b) section 166, 181, 183, 186 or 254 of the Companies Ordinance (Cap.
32), shall prevent or interfere with any default proceedings.
7. Duty to report on completion of default proceedings
(1) A recognized clearing house shall, upon the completion by it of any
default proceedings, make a report on such proceedings stating in respect
of each defaulter-
(a) the net sum, if any, certified by the clearing house to be payable by
or to the defaulter; or
(b) the fact that no sum is so payable,
as the case may be, and the clearing house may include in that report such
other particulars in respect of such proceedings as it thinks fit.
(2) A recognized clearing house which has made a report pursuant to
subsection (1) shall supply the report to-
(a) the Commission;
(b) any relevant office-holder acting in relation to-
(i) the defaulter to whom the report relates; or
(ii) that defaulter's estate;
(c) if there is no relevant office-holder referred to in paragraph (b),
the defaulter to whom the report relates.
(3) Where the Commission receives pursuant to subsection (2) a report made
pursuant to subsection (1), it may publish notice of that fact in such
manner as it thinks appropriate to bring it to the attention of creditors
of the defaulter to whom the report relates.
(4) Where a relevant office-holder or defaulter receives pursuant to
subsection (2) a report made pursuant to subsection (1), he shall, at the
request of a creditor of the defaulter to whom the report relates-
(a) make the report available for inspection by the creditor;
(b) on payment of such reasonable fee as the relevant office-holder or
defaulter, as the case may be, determines, supply to the creditor all or
any part of that report.
(5) In subsections (2), (3) and (4), "report" includes a copy of a report.
8. Net sum payable on completion of default proceedings
(1) The provisions of this section shall apply with respect to any net sum
certified under section 7 (1) (a) by a recognized clearing house, upon the
completion by it of any default proceedings, to be payable by or to a
defaulter.
(2) Where a receiving or winding-up order has been made, or a resolution
for voluntary winding-up has been passed, any net sum shall,
notwithstanding any of the provisions of section 34 or 35 of the
Bankruptcy Ordinance (Cap. 6) or section 264 of the Companies Ordinance
(Cap. 32), be-
(a) provable in the bankruptcy or winding-up or, as the case may be,
payable to the relevant office-holder; and
(b) taken into account, where appropriate, under section 35 of the
Bankruptcy Ordinance (Cap. 6) or that section as applied in the case of a
winding-up order under the Companies Ordinance (Cap. 32).
9. Disclaimer of property, rescission of contracts, etc.
(1) Neither section 59 of the Bankruptcy Ordinance (Cap. 6) nor section
268 of the Companies Ordinance (Cap. 32) shall apply in relation to-
(a) a market contract;
(b) a contract effected by a recognized clearing house for the purpose of
realizing property provided as market collateral;
(c) a market charge; or
(d) any default proceedings.
(2) Neither section 42 of the Bankruptcy Ordinance (Cap. 6) nor section
182 of the Companies Ordinance (Cap. 32) shall apply in relation to any
act, matter or thing which has been done pursuant to-
(a) a market contract;
(b) a disposition of property pursuant to a market contract;
(c) the provision of market collateral;
(d) a contract effected by a recognized clearing house for the purpose of
realizing property provided as market collateral, or any disposition of
property pursuant to such a contract;
(e) a disposition of property in accordance with the rules of a recognized
clearing house as to the application of property provided as market
collateral;
(f) a disposition of property as a result of which the property becomes
subject to a market charge, or any transaction pursuant to which that
disposition is made;
(g) a disposition of property made in enforcing a market charge;
(h) a market charge; or
(i) any default proceedings.
10. Adjustment of prior transactions
(1) No order shall be made pursuant to-
(a) section 47, 48 or 49 of the Bankruptcy Ordinance (Cap. 6);
(b) section 266 of the Companies Ordinance (Cap. 32); or
(c) section 60 of the Conveyancing and Property Ordinance (Cap. 219),
in relation to any matter to which this section applies.
(2) The matters to which this section applies are-
(a) a market contract;
(b) a disposition of property pursuant to a market contract;
(c) the provision of market collateral;
(d) a contract effected by a recognized clearing house for the purpose of
realizing property provided as market collateral;
(e) a disposition of property in accordance with the rules of a recognized
clearing house as to the application of property provided as market
collateral;
(f) a market charge; and
(g) any default proceedings.
11. Right of relevant office-holder to recover certain amounts arising
from certain transactions
(1) Where a participant ("the first participant") enters into a
transaction for the sale or purchase of securities with another
participant ("the second participant") -
(a) when-
(i) a prescribed event has occurred in relation to-
(A) the second participant; or
(B) the person who is, in respect of the transaction, the principal of the
second participant,
and the transaction is at an undervalue or an over-value; or
(ii) the first participant, or the person who is, in respect of the
transaction, the principal of the first participant, knew, or ought
reasonably to have known-
(A) in the case of the first participant, that a prescribed event was
likely to occur in relation to-
(I) the second participant; or
(II) the person who is, in respect of the transaction, the principal of
the second participant;
(B) in the case of that person, that a prescribed event was likely to
occur in relation to the person referred to in sub-subparagraph (A) (II),
and the transaction is at an undervalue or an over-value and any such
event occurs within the period of 6 months immediately following the date
on which the transaction was so entered into; and
(b) thereafter a relevant office-holder is acting in relation to-
(i) the second participant;
(ii) the person who was, in respect of the transaction, the principal of
the second participant; or
(iii) the estate of the second participant or of the person referred to in
subparagraph (ii),
then, unless a court otherwise orders, the relevant office-holder may
recover, from the first participant, or the person who was, in respect of
the transaction, the principal of the first participant, an amount equal
to the prescribed gain obtained under the transaction by the first
participant, or the person who was, in respect of the transaction, the
principal of the first participant, as the case may be, and such amount is
so recoverable notwithstanding that the transaction may have been
discharged in accordance with the rules of a recognized clearing house and
replaced by a market contract.
(2) In this section-
"prescribed event", in relation to a second participant or a person who is
or was, in respect of a transaction referred to in subsection (1), the
principal of the second participant, means-
(a) an act of bankruptcy committed by the second participant or that
person, as the case may be;
(b) the making of a statutory declaration in respect of the second
participant or that person, as the case may be, pursuant to section 228A
(1) of the Companies Ordinance (Cap. 32);
(c) a meeting of creditors summoned in relation to the second participant
or that person, as the case may be, pursuant to section 241 of the
Companies Ordinance (Cap. 32); or
(d) the presentation of a petition for the winding-up of the second
participant or that person, as the case may be, by a court;
"prescribed gain", in relation to a transaction referred to in subsection
(1), means the difference between-
(a) the market value of the securities the subject of the transaction; and
(b) the value of the consideration for the transaction,
as at the time the transaction was entered into.
12. Application of market collateral not affected by certain other
interests, etc.
(1) The provisions of this section shall have effect with respect to the
application by a recognized clearing house of property provided as market
collateral.
(2) So far as necessary to enable the property to be applied in accordance
with the rules of a recognized clearing house, it may be so applied
notwithstanding any prior equitable interest or right, or any right or
remedy arising from a breach of fiduciary duty, unless the clearing house
had notice of the interest, right or breach of duty, as the case may be,
at the time the property was provided as market collateral.
(3) No right or remedy arising subsequently to the property being provided
as market collateral may be enforced so as to prevent or interfere with
the application of the property by the recognized clearing house in
accordance with its rules.
(4) Where a recognized clearing house has power by virtue of the
provisions of this section to apply property notwithstanding an interest,
right or remedy, a person to whom the clearing house disposes of the
property in accordance with its rules takes free from that interest, right
or remedy.
13. Enforcement of judgments over property subject to market charge, etc.
(1) Where property is subject to a market charge or has been provided as
market collateral, no execution or other legal process for the enforcement
of a judgment or order may be commenced or continued, and no distress may
be levied, against the property by a person not seeking to enforce any
interest in or security over the property, except with the consent of the
recognized clearing house concerned.
(2) Where by virtue of this section a person would not be entitled to
enforce a judgment or order against any property, any injunction or other
remedy granted with a view to facilitating the enforcement of any such
judgment or order shall not extend to that property.
14. Law of insolvency in other jurisdictions
(1) A court shall not, pursuant to any enactment or rule of law, recognize
or give effect to-
(a) any order of a court exercising jurisdiction in relation to the law of
insolvency in a place outside Hong Kong; or
(b) any act of a person appointed in such a place to perform any functions
under the law of insolvency in such place,
in so far as the making of the order or the doing of the act would be
prohibited in the case of a court in Hong Kong or a relevant office-holder
by provisions made by or under this Ordinance.
(2) In this section, "law of insolvency", in relation to a place outside
Hong Kong, means any law of such place which is similar to, or serves the
same purposes as, all or any part of the law of insolvency in Hong Kong.
PART IV MISCELLANEOUS
15. Participant to be party to certain transactions as principal
(1) Where-
(a) a participant in his capacity as such enters into any transaction
(including a market contract) with a recognized clearing house; and
(b) but for this subsection, the participant would be a party to that
transaction as agent,
then, notwithstanding any other enactment or rule of law, as between, but
only as between, the clearing house and any other person (including the
participant and the person who is his principal in respect of that
transaction), the participant shall for all purposes (including any
action, claim or demand, either civil or criminal)-
(i) be deemed not to be a party to that transaction as agent; and
(ii) be deemed to be a party to that transaction as principal.
(2) Where-
(a) 2 or more participants in their capacities as such enter into any
transaction; and
(b) but for this subsection, any such participant would be a party to that
transaction as agent, then, notwithstanding any other enactment or rule of
law, any such participant to whom paragraph (b) applies shall for all
purposes
(including any action, claim or demand, either civil or criminal), except
as between, but only as between, him and the person who is his principal
in respect of the transaction-
(i) be deemed not to be a party to that transaction as agent; and
(ii) be deemed to be a party to that transaction as principal.
16. Securities deposited with recognized clearing house
(1) Subject to subsections (2) and (3), where securities are deposited-
(a) with a recognized clearing house;
(b) by a participant; and
(c) in accordance with the rules of the clearing house,
then, notwithstanding any other enactment or rule of law, no action, claim
or demand, either civil or criminal, in respect of any right, title or
interest in those securities held or enjoyed by any person lies, or shall
be commenced or allowed, against the clearing house.
(2) The operation of subsection (1) in respect of securities deposited
with a recognized clearing house shall be subject to such modifications
and exclusions as are provided in the rules of the clearing house.
(3) This section shall not operate to prejudice the operation of section
100 of the Companies Ordinance (Cap. 32).
17. Immunity, etc.
(1) Neither a recognized clearing house, nor any officer or servant or
member of the governing body of a recognized clearing house, shall be
liable in damages for anything done or omitted to be done in the
performance or purported performance of any functions to which this
subsection applies if the act or omission is shown to have been done or
omitted to be done, as the case may be, with reasonable care and in good
faith.
(2) The functions to which subsection (1) applies are the functions of a
recognized clearing house so far as relating to, or to matters arising out
of-
(a) the default rules of the clearing house; or
(b) any obligations to which it is subject by virtue of this Ordinance.
(3) Neither a person performing, by virtue of any delegation in accordance
with the default rules of a recognized clearing house, any functions of
the clearing house in connection with any default proceedings, nor any
officer or servant or member of the governing body of such a person, shall
be liable in damages for anything done or omitted to be done in the
performance or purported performance of those functions if the act of
omission is shown to have been done or omitted to be done, as the case may
be, with reasonable care and in good faith.
(4) Any failure by a recognized clearing house to comply with its rules in
respect of any matter shall not prevent that matter being treated for the
purposes of this Ordinance as done in accordance with those rules so long
as the failure does not substantially affect the rights of any person
entitled to require compliance with those rules.
(5) Where a relevant office-holder takes any action in relation to
property of a defaulter which is liable to be dealt with in accordance
with the default rules of a recognized clearing house, and believes and
has reasonable grounds for believing that he is entitled to take that
action, he is not liable to any person in respect of any loss or damage
resulting from his action except in so far as the loss or damage, as the
case may be, is caused by the office-holder's own negligence.
18. Preservation of rights, etc.
For the avoidance of doubt, it is hereby declared that, except as is
expressly provided by or under this Ordinance, the provisions of this
Ordinance shall not operate to limit, restrict or otherwise affect-
(a) any right, title, interest, privilege, obligation or liability of any
person;
(b) any investigation, legal proceeding or remedy in respect of any such
right, title, interest, privilege, obligation or liability.
19. Amendment of Schedules 1 and 2
(1) The Financial Secretary may, by notice in the Gazette, amend Schedule
1 or 2.
(2) For the avoidance of doubt, it is hereby declared that the power of
the Financial Secretary under subsection (1) to amend Schedule 2 may be
exercised in such a way as to include in that Schedule a provision which
requires a recognized clearing house to have, as part of its default
rules, rules which prohibit the clearing house from taking any proceedings
or other action specified in the provision, either generally or in a
particular case.
20. (Omitted as spent)
21. Transitional
(1) In this section, unless the context otherwise requires-
"former clearing house" means a person who was, immediately before the
relevant day, a clearing house within the meaning of section 2 of the
Stock Exchanges Unification Ordinance (Cap. 361);
"former rules", in relation to a former clearing house, means those rules,
within the meaning of section 2 of the Stock Exchanges Unification
Ordinance (Cap. 361), which, at any time before the relevant day, had
effect by virtue of section 35A (3) or 35B (1) of that Ordinance;
"relevant day" means the day of commencement of this Ordinance.
(2) A former clearing house shall be deemed to be a recognized clearing
house as if, on the relevant day, it had been declared under section 3 (1)
to be a recognized clearing house for the purposes of this Ordinance, and
the provisions of this Ordinance shall, subject to subsection (3), apply
accordingly.
(3) Subject to subsection (4), no provision of the former rules of a
former clearing house shall have effect on or after the relevant day
unless and until it is approved under section 4 (1).
(4) Where any act, matter or thing has been done-
(a) at any time before the relevant day and the former rules of a former
clearing house applied to that act, matter or thing; or
(b) under the former rules of a former clearing house at any time before
the relevant day,
then on and from the relevant day the former rules, as in force
immediately before the relevant day, shall apply to and have effect in
relation to that act, matter or thing-
(i) to the extent that, but for the enactment of this Ordinance, that act,
matter or thing would on or after the relevant day have had any force or
effect or been in operation, and
(ii) as if this Ordinance had never been enacted.
(5) In relation to any entitlement to claim compensation arising under
section 109 (1) of the Securities Ordinance (Cap. 333) occurring before
the relevant day, the amendment made to section 109 (3) of that Ordinance
by item 7 (e) (ii) of Schedule 3 shall not apply, and section 109 (3)
shall apply in relation to any such entitlement as if item 7 (e) (ii) had
never been enacted.
[ss. 2 (1) & 19 (1)]
SCHEDULE 1 PROPERTY WHICH MAY BE SUBJECT TO A MARKET CHARGE OR PROVIDED AS MARKET COLLATERAL
1. Money, letters of credit, bankers' drafts, certified cheques, and any
similar instruments.
2. Securities, including securities which are not securities within the
meaning of section 2 of the Securities Ordinance (Cap. 333).
[ss. 4 (2) & 19]
SCHEDULE 2 REQUIREMENTS FOR DEFAULT RULES OF RECOGNIZED CLEARING HOUSES
The rules of a recognized clearing house which provide for the taking of
proceedings or other action in the event of a participant appearing to be
unable, or likely to become unable, to meet his obligations in respect of
all unsettled market contracts to which he is a party shall-
(a) enable the settlement of all such contracts;
(b) for the purpose of paragraph (a), provide for there to be pay able by
or to the participant a sum of money in relation to each such contract if
that is required after taking into account all the rights and liabilities
of the participant under or in respect of the contract concerned;
(c) enable all sums of money payable by or to the participant as
determined in accordance with paragraph (b) to be aggregated or set-off so
as to produce a net sum, if any, pay able by or to the participant;
(d) if any net sum referred to in paragraph (c) is payable by the
participant, provide for that net sum to be set-off against all property
of the participant which is either subject to a market charge or which has
been provided as market collateral (or set-off against the proceeds of the
realization of such property) so as to produce a further net sum, if any,
payable by or to the participant;
(e) if any net sum referred to in paragraph (c) is payable to the
participant, provide that all property of the participant which is either
subject to a market charge or which has been provided as market collateral
shall cease to be subject to the market charge (but without prejudice to
any other form of charge to which it may be subject) or to be market
collateral (but without prejudice to its provision as any other form of
collateral), as the case may be; and
(f) provide for the certification by the clearing house of any net sum
referred to in paragraph (c) payable to the participant, or of any further
net sum referred to in paragraph (d) payable by or to the participant, as
the case may be, or, if there is no such sum, the certification by the
clearing house of that fact.
SCHEDULE 3 (Omitted as spent)
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