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SECURITIES ORDINANCE

SECURITIES ORDINANCE (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 (Added 58 of 1985 s. 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 XI 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) (Repealed 63 of 1990 s. 4) (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 (1)- (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) (Repealed 63 of 1990 s. 4) (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 of 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 95 (1).

(Added 58 of 1985 s. 51. Amended 10 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 of registered investment advisers. (Added 58 of 1985 s. 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 (other than a market 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 - (Amended 68 of 1992 s. 20) (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; (f) 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 subsection (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 subsection (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 hold 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 circular 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 communication 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 them- (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 imprisonment 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) (Repealed 63 of 1990 s. 4) (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 1976 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 1985 s. 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 be 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 clicnts, 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 earried on by him.

84. Certain money received by dealer to be 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 subsection (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 inito, and no person to whom the money is paid shall obtain any title to it.

86. Claims and liens 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 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) 87B. Notification of change of auditors (1) A dealer shall immediately give written notice to the Commission if- (a) where the dealer is a corporation, it- (i) proposes to give notice to its shareholders of an ordinary resolution removing an auditor appointed under section 87 before the expiration of his term of office; or (ii) gives notice to its shareholders of an ordinary resolution replacing an auditor appointed under section 87 at the expiration of his term of office with another auditor; and (b) whether or not the dealer is a corporation, a person appointed under section 87 to be the auditor of the dealer ceases to be such auditor otherwise than in consequence of a resolution referred to in paragraph (a).

(2) A dealer who contravenes subsection (1) commits an offence and is liable on conviction to a fine of $ 5,000.

(Added 26 of 1992 s. 3) 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 such period as it thinks fit, where an application for the extension is made by the dealer and the Commission is satisfied there are special reasons for requiring the extension. (Amended 63 of 1990 s. 4) (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 (1) 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 65B, 81, 83 or 84, (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; 26 of 1992 s. 4) (2) An auditor of a dealer appointed under section 87 shall immediately give written notice to the Commission if he- (a) resigns before the expiration of his term of office; (b) decides not to seek re-appointment; or (c) decides to include any qualification or adverse statement in his report on the dealer's accounts. (Added 26 of 1992 s. 4) 89A. Communication by auditor with Commission (1) No duty which an auditor of a dealer may be subject to shall be regarded as contravened by reason of his communicating in good faith to the Commission, whether or not in response to a request made by the Commission, any information or opinion on a matter of which he becomes aware in his capacity as auditor and which is relevant to any function of the Commission under this Ordinance or the Securities and Futures Commission Ordinance (Cap. 24) (2) Subsection (1) applies to an auditor of a former dealer and a former auditor as it applies to an auditor of a dealer.

(3) In this section- "former auditor" means a person who was formerly the auditor of a dealer or former dealer; "former dealer" means a person who was formerly a dealer.

(Added 26 of 1992 s. 5) 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, (Added 58 of 1985 s. 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 (c) 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 be 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 1985 s. 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 be 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 31st 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 this 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- (Amended 58 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 1976 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, 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; (c) 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 or recognized clearing house to make a claim against the compensation fund. (Replaced 58 of 1985 s. 70. Amended 10 of 1989 s. 65; 68 of 1992 s. 20) (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 $ 8,000,000 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; 68 of 1992 s. 20) (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 1985 s. 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) 110. Powers of Commission to increase payments 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, the Commission considers that the assets of the fund so permit, it may be 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. (Amended L. N. 92 of 1980; 58 of 1985 s. 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 1985 s.

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) 113. Power of the committee of the Exchange 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) 114. Committee of the Exchange Company may 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) 116. Supplementary provisions relating to proceedings 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) 118. Subrogation of the Commission to rights, etc., 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) 120. Provision where fund is insufficient to meet claims 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) 121. Power of Commission to return contributions 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 XI 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.
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