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SECURITIES ORDINANCE

SECURITIES ORDINANCE (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.

(Replaced 62 of 1976 s. 32) (2) The Commission shall, in an instrument appointing an inspector, specify full particulars of the appointment including- (a) the matters into which the investigation is to be made; and (b) the terms and conditions of the appointment including terms and conditions relating to remuneration.

(3) An inspector may require a prescribed person by notice in the form prescribed by regulations given in the manner as prescribed- (a) to produce to the inspector such documents relating to a matter with which his investigation is concerned as are in the custody or under the control of that person; (b) to give to the inspector all reasonable assistance in connection with the investigation; and (c) to appear before the inspector for examination on oath, and may administer the oath referred to in paragraph (c).

(4) Where documents are produced to an inspector under this section the inspector may take possession of them for such period as he considers necessary for the purposes of his investigation, and during that period he shall permit a person who would be entitled to inspect any one or more of those documents if they were not in the possession of the inspector to inspect at all reasonable times such of them as that person would be so entitled to inspect.

(5) A prescribed person- (a) shall comply with a requirement of an inspector under subsection (3); (b) shall not knowingly furnish to the inspector, whether on examination in pursuance of such requirement or otherwise, information that is false or misleading in a material particular; or (c) when appearing before an inspector for examination in pursuance of such a requirement, shall take an oath in accordance with the requirement.

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

(7) A solicitor or counsel acting for a prescribed person- (a) may attend an examination of that person; and (b) may, to the extent that the inspector permits- (i) address the inspector; and (ii) examine that person, in relation to matters in respect of which the inspector has questioned that person. (8) A prescribed person is not excused from answering a question put to him by an inspector on the ground that the answer might , tend to incriminate him but, where that person claims, before answering the question, that the answer might tend to incriminate him, neither the question nor the answer is admissible in evidence against him in criminal proceedings other than proceedings under subsection (6) or in relation to a charge of perjury in respect of the answer.

(9) A person who complies with the requirement of an inspector under subsection (3) shall not incur any liability to any person by reason only of that compliance. (10) A person required to attend for examination under this section is entitled to such allowances and expenses as may be prescribed by regulations.

(11) Where a prescribed person fails to comply with a requirement of an inspector under subsection (3), the inspector may, unless that person proves that he had a lawful authority for his failure, certify the failure by writing under his hand to the Court. (12) Where an inspector gives a certificate under subsection (11), the Court may inquire into the case and- (a) order the prescribed person to whom the certificate relates to comply with the requirement of the inspector within such period as is fixed by the Court; or (b) if the Court is satisfied that that person failed without lawful authority to comply with the requirement of the inspector, punish him in the same manner as if he had been guilty of contempt of court.

128. Notes of examination (1) An inspector may cause notes of an examination made by him under this Part to be recorded in writing and be read to or by the person examined and may require that person to sign the notes and, subject to this section, notes signed by that person may be used in evidence in any legal proceedings against that person.

(2) A copy of the notes signed by a person shall be furnished without charge to that person upon request made by him in writing.

(3) Notes made under this section that relate to a question the answer to which a person has claimed might tend to incriminate him shall not be used as evidence in criminal proceedings other than proceedings under section 127 (6) or in relation to a charge of perjury in respect of the answer.

(4) Nothing in this section affects or limits the admissibility of other written evidence or of oral evidence.

(5) The Commission may give a copy of notes made under this section to a solicitor or counsel who satisfies the Commission that he is acting for a person who is conducting or is, in good faith, contemplating legal proceedings in respect of matters, required to be investigated by the inspector, being affairs investigated by an inspector under this Part.

(6) A solicitor or counsel to whom a copy of notes is given under subsection (5) shall not use the notes except in connection with the institution or preparation of, and in the course of, legal proceedings and shall not disclose for any other purpose the notes or any part of the contents of them to any person.

(7) Any solicitor or counsel who contravenes subsection (6) shall be guilty of an offence and shall be liable on conviction to a fine of $ 2,000.

(8) Where a report is made under section 130 any notes recorded under this section relating to that report shall be furnished with the report.

129. Delegation of powers, etc., by inspector (1) An inspector may by instrument in writing- (a) delegate all or any of his powers or functions under this Part except this power of delegation, the power to administer an oath, and the power to examine on oath; and (b) vary or revoke a delegation given by him. (2) A power or function delegated by an inspector may be exercised or performed by the delegate in accordance with the instrument of delegation as in force from time to time. (3) A delegate shall, at the request of a prescribed person, produce the instrument of delegation for inspection.

(4) A delegation under this section by an inspector of a power or function does not prevent the exercise of the power or the performance of the function by the inspector.

130. Report of inspector (1) On completion of an investigation under section 127, the inspector shall report his findings to the Commission and shall deliver a copy of the report to the Attorney General.

(2) Subject to subsection (3), the Commission shall give a copy of the inspector's report to the prescribed person whose affairs were investigated by the inspector. (3) Subject to subsection (4), the Commission shall not give a report to a prescribed person if the Attorney General believes that legal proceedings that have been, or that in its opinion might be, instituted might be prejudiced by the report.

(4) The court before which legal proceedings are brought against a prescribed person for or in respect of matters dealt with in a report under this section may order that a copy of the report be given to that person.

(5) The Commission may, if it is of the opinion that it is in the public interest to do so, cause the whole or any part of a report under this section to be printed and published.

(6) If, from a report under this section, it appears to the Attorney General that an offence may have been committed by a person and that a prosecution ought to be instituted, the Attorney General shall cause a prosecution to be instituted. (7) Where it appears to the Attorney General that a prosecution ought to be instituted, he may, by notice in writing given before or after the institution of a prosecution in accordance with subsection (6), require a prescribed person to give all assistance in connection with prosecution that he is reasonably able to give.

(8) If from a report under this section it appears to the Commission or to the Attorney General that proceedings ought in the public interest to be brought by a prescribed person for the recovery of damages in respect of a breach of trust, defalcation, fraud, or misfeasance in connection with the affairs of the prescribed person or for the recovery of property of the prescribed person, either the Commission or the Attorney General may cause proceedings to be instituted accordingly in the name of the prescribed person. (Amended 62 of 1976 s. 33) 131. Privileged communications (1) An inspector shall not require disclosure by a solicitor or counsel of any privileged communication, whether oral or written, made to or by him in that capacity, except as regards the name and address of his client.

(2) Nothing in sections 127 to 130 shall be construed as affecting section 4 of the Inland Revenue Ordinance (Cap. 112).

132. Cost of investigation (1) Subject to this section, the expenses of and incidental to an investigation by an inspector (including the expenses incurred and payable by the Commission in any proceedings brought by it in the name of a prescribed person) shall be paid out of money provided by the Legislative Council.

(2) An application referred to in subsection (3) may be made to a court by or on behalf of- (a) the Commission or the Attorney General in the course of proceedings in that court instituted in the name of a prescribed person under section 130 (8); or (b) the Attorney General on, or within 14 days after, a conviction by the court in proceedings certified by the Attorney General, for the purposes of the application, to have been instituted as a result of an investigation by an inspector, and the court may make such order with respect to the application and its subject matter as it thinks fit.

(3) The application that may be made under subsection (2) is an application for one or more of the following orders- (a) that a specified person pay the whole, or a specified part of, the expenses of and incidental to, the investigation that led to the proceedings; (b) where expenses have been paid under subsection (1), that a specified person reimburse the Commission to the extent of the payment; (c) that a specified person reimburse the Commission in respect of the remuneration of any person employed by the Commission in connection with the investigation. (4) If no proceedings under section 130 (6) are commenced against a prescribed person, or, where the prescribed person is a corporation, against any director of the corporation, within 6 months after the completion of an investigation by an inspector, the prescribed person may apply to a court for an order for the payment of costs incurred by him in connection with the investigation; and the court may, if it finds that the investigation was not warranted, order the Commission to pay to the prescribed person such sum, not exceeding the amount of costs actually incurred by the prescribed person in respect of the investigation, as it thinks just.

(5) A copy of an application made under subsection (4) shall be served on the Commission and the Commission shall be entitled to be heard at the proceedings to determine the application.

133. Concealing, etc., of books relating to securities (1) A person who- (a) conceals, destroys, mutilates, or alters a document relating to a matter which is the subject of an investigation by an inspector; (b) sends, causes to be sent, or conspires with another person to send, out of Hong Kong any such document; or (c) being a prescribed person to whom notice has been given under section 127 (3), leaves Hong Kong, shall be guilty of an offence and shall be liable on conviction to a fine of $ 20,000 and to imprisonment for 2 years.

(2) It shall be a defence to a prosecution under subsection (1) to prove that the person charged did not act with intent to defeat the purposes of section 127 or to delay or obstruct the carrying out of an investigation under that section.

134. Commission may make certain orders (1) Where an investigation is being made under section 127 and it appears to the Commission that facts concerning securities to which the investigation relates cannot be ascertained because a prescribed person referred to in that section has failed or refused to comply with a requirement of an inspector under that section, the Commission may, by order published in the Gazette, make one or more of the following orders- (a) an order restraining a specified person from disposing of any interest in specified securities; (b) an order restraining a specified person from acquiring specified securities; (c) an order restraining the exercise of any voting or other rights attached to specified securities; (d) an order directing a person who is registered as the holder of securities in respect of which an order under this section is in force to give notice in writing of that order to any person whom he knows to be entitled to exercise a right to vote attached to those shares; (e) an order directing a company not to make payment, except in the course of a winding up by the Court, of any sum due from the company in respect of specified securities; (f) an order directing a company not to register the transfer or transmission of specified securities; (g) an order directing a company not to issue shares to a person who holds shares in the company by reason of his holding those shares nor in pursuance of an offer made to such a person by reason of his holding those shares.

(2) A copy of an order under subsection (1) and of any order by which it is revoked or altered shall be served- (a) where it relates to specified securities, on the authority or body that issued them or made them available or, where the securities are rights or options, on the authority or body against whom the right is, or would be enforceable, or which issued or made available the securities to which the option relates; and (b) where it relates to a corporation, on the corporation.

(3) A person aggrieved by an order under subsection (1) may apply to the Court for revocation of the order and the Court may, if it is satisfied that it is reasonable to do so, revoke the order and any order by which it has been altered or varied. (4) Any person who contravenes an order under subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $ 5,000.

(5) Without prejudice to the powers of the Attorney General in relation to the prosecution of criminal offences, a prosecution under this section shall not be instituted except with the consent in writing of the Commission.

PART XII PREVENTION OF IMPROPER TRADING PRACTICES Offences 135. False markets and trading (1) A person shall not intentionally create or cause to be created, or do anything with the intention of creating- (a) a false or misleading appearance of active trading in any securities on the Unified Exchange; or (b) a false market in respect of any securities on the Unified Exchange.

(Amended 58 of 1985 s. 84) (2) For the purposes of subsection (1) (b), a false market is created in relation to securities when the market price of those securities is raised or depressed or pegged or stabilized by means of- (a) sales and purchases transacted by persons acting in collaboration with each other for the purpose of securing a market price for those securities that is not justified either by the assets of the corporation which issued the securities or by the profits (including anticipated profits) of the corporation; (b) any act which has the effect of preventing or inhibiting the free negotiation of market prices for the purchase or sale of the securities; or (c) the employment of any fictitious transaction or device or any other form of deception or contrivance.

(3) A person shall not with the intention of depressing, raising, or causing fluctuations in the market price of any securities effect any purchase or sale of any such securities which involves no change in the beneficial ownership of those securities.

(4) A purchase or sale of securities involves no change in beneficial ownership within the meaning of subsection (3) if a person who held an interest in the securities before the purchase or sale, or a person associated with him in relation to those securities, holds an interest in the securities after the purchase or sale. (Amended L. N. 140 of 1974) (5) A person shall not circulate or disseminate, or authorize or be concerned in the circulation or dissemination of, any statement or information to the effect that the price of any securities will or is likely to rise or fall because of the market operations of one or more persons which, to his knowledge, are conducted in contravention of subsection (1).

136. Employment of fraudulent or deceptive devices, etc.

A person shall not, directly or indirectly, in connection with any transaction with any other person involving the purchase, sale, or exchange of securities- (a) employ any device, scheme, or artifice to defraud that other person; or (b) engage in any act, practice, or course of business which operates as a fraud or deception, or is likely to operate as a fraud or deception, of that other person.

137. Restrictions on fixing, etc. prices for securities A person shall not, either alone or with one or more other persons, effect any series of transactions for the purchase or sale of securities, or the purchase and sale, of any securities for the purpose of pegging or stabilizing the price of securities of that class in contravention of any regulations made for the purposes of this section.

138. False or misleading statements about securities A person shall not, directly or indirectly, for the purposes of inducing the sale of the securities of any corporation, make with respect to those securities, or with respect to the operations or the past or future performance of the corporation- (a) any statement which is, at the time and in the light of the circumstances in which it is made, false or misleading with respect to any material fact and which he knows or has reasonable ground to believe to be false or misleading; or (b) any statement which is, by reason of the omission of a material fact, rendered false or misleading and which he knows or has reasonable grounds for knowing is rendered false or misleading by reason of the omission of that fact.

139. Offences and penalty in relation to sections 135 to 138 Any person who contravenes any of the provisions of section 135, 136, 137, or 138 shall be guilty of an offence and shall be liable on conviction on indictment to a fine of $ 50,000 and to imprisonment for 2 years.

140. (Repealed 8 of 1978 s. 7) Action in Tort 141. Liability to pay compensation (1) A person who contravenes section 135, 136, 137, or 138 shall, in addition to any liability under section 139, be liable to pay compensation by way of damages to any person who has sustained pecuniary loss as a result of having purchased or sold securities at a price affected by the act or transaction which comprises or is the subject of the contravention.

(2) An action may be brought under subsection (1) in respect of a contravention referred to in that subsection notwithstanding that no person has been charged or convicted under section 139 in respect of the contravention.

(3) Nothing in this section limits or diminishes any liability which any person may incur under the common law.

PART XII A (Repealed 62 of 1990 s. 40) PART XIII MISCELLANEOUS PROVISIONS 142. Restriction on use of title "underwriter", etc.

(1) (Repealed 58 of 1985 s. 25) (2) A person who is not an underwriter shall not- (a) take or use the title "underwriter"; or (b) take or use, or have attached to or exhibited at any place, any title that resembles the title "underwriter" or so closely resembles that title as to be calculated to deceive.

(3) Any person who contravenes subsection (2) shall be guilty of an offence and shall be liable on conviction to a fine of $ 5,000. (Amended 58 of 1985 s. 25) (4) (Repealed 58 of 1985 s. 25) (5) A person who carries on a business as an insurance underwriter does not contravene subsection (2) by reason only that he takes or uses the title "underwriter" in circumstances that make it clear that he is not holding himself out as being an underwriter within the meaning of section 2.

143. Investment advisory contracts (1) No investment adviser or investment advisers' partnership shall enter into an investment advisory contract with any person in Hong Kong (in this section referred to as his client), or extend or renew any such contract, or in any way perform any such investment advisory contract entered into, extended, or renewed after the commencement of this section, if the contract- (Amended 58 of 1985 s. 26) (a) provides for remuneration to be paid by the client to the investment adviser or investment advisers' partnership on the basis of a share of capital gains of the funds or any part of the funds of the client; (Amended 58 of 1985 s. 26) (b) does not include a provision to the effect that an assignment of the contract by the investment adviser or investment advisers' partnership shall be made only with the consent of the client; or (Amended 58 of 1985 s. 26) (c) does not include a provision- (i) if entered into by an investment advisers' partnership, to the effect that the partnership will notify the client of any change in the partners thereof; or (ii) if entered into by an investment adviser who is a corporation, to the effect that the corporation will notify the client of any change in the directors thereof, within a reasonable time after the change. (Replaced 58 of 1985 s. 26) (2) Subsection (1) (a) does not- (a) prohibit an investment advisory contract which provides for remuneration based on the total value of a fund averaged over a definite period, or on definite dates, or taken on a definite date; or (b) apply to an investment advisory contract with the manager or other representative of a unit trust or mutual fund corporation authorized by the Commission for the purposes of this Ordinance, or a company carrying on business as an investment company and registered under the Companies Ordinance (Cap. 32), which contract provides for remuneration based on the asset value of the trust, corporation, or company under management averaged over a specified period and increasing and decreasing proportionately in accordance with the performance of the trust, corporation, or company over a specified period in relation either to- (i) the investment record of an appropriate index of securities; or (ii) such other measure of investment performance as the Commission may specify in writing on the application of either party to a contract or intended contract. (3) For the purposes of subsection (1) (b) and (c), "investment advisory contract" means a contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account of a client not being a unit trust or mutual fund corporation authorized by the Commission for the purposes of this Ordinance, or a company carrying on business as an investment company and registered under the Companies Ordinance (Cap. 32).

(4) Any investment adviser who knowingly enters into any contract in contravention of any of the provisions of subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $ 2,000.

(5) Any contract entered into in contravention of any of the provisions of subsection (1) shall, notwithstanding anything in the contract, be voidable at the option of the client.

144. Court may make certain orders (1) Where, on the application of the Commission, it appears to the Court that a person has contravened this Ordinance or any conditions of registration thereunder, or is about to do an act with respect to dealing in securities that, if done, would be such a contravention, the Court may, without prejudice to any orders it would be entitled to make otherwise than pursuant to this section, make one or more of the following orders- (Amended 10 of 1989 s. 65) (a) an order restraining a person from acquiring, disposing of, or otherwise dealing with any securities specified in the order; (b) in relation to a registered dealer or registered dealing partnership, an order appointing a person to administer the property of the dealer or the partnership; (Amended 58 of 1985 s. 27) (c) an order declaring a contract relating to securities to be void or voidable; (d) for the purpose of securing compliance with any other order under this section, an order directing a person to do or refrain from doing a specified act; or (e) any ancillary order which it considers necessary in consequence of the making of an order under paragraphs (a) to (d).

(2) The Court shall, before making an order under subsection (1), satisfy itself, so far as it can reasonably do so, that the order would not unfairly prejudice any person. (3) The Court may, before making an order under subsection (1), direct that notice of the application be given to such persons as it thinks fit or direct that notice of the application be published in such manner as it thinks fit, or both.

(4) The Court may reverse, vary, or discharge an order made by it under this section or suspend the operation of such an order.

145. Miscellaneous offences Any person who- (a) obstructs the Commission or any other public officer or any person in the exercise or performance of any power, authority, duty, or function under this Ordinance; or (b) fails to produce any document that the Commission or a person authorized by the Commission has, pursuant to any provision of this Ordinance, required that person to produce for inspection by the Commission or the person so authorized, shall be guilty of an offence and shall be liable on conviction to a fine of $ 5,000 and to imprisonment for 3 months.

(Amended 10 of 1989 s. 65) 146. Regulations (1) The Commission may make rules for all or any of the following matters- (Amended 10 of 1989 s. 65) (a) - (b) (Repealed 58 of 1985 s. 28) (c) the class of persons in relation to whom, and the manner and circumstances in which, registered dealers, registered dealing partnerships and registered dealers' representatives may deal in securities; (Amended 58 of 1985 s. 28) (d) the class of persons in relation to whom, and the manner and circumstances in which, registered investment advisers, registered investment advisers' partnerships and registered investment representatives may carry on business as investment advisers or as investment representatives, as the case may be; (Amended 58 of 1985 s. 28) (e) prescribing the amount of deposit required to be made for the purposes of section 52, and providing for the application of deposits under subsections (3) and (4) of that section; (f) requiring registered dealers, registered dealing partnerships, registered investment advisers and registered investment advisers' partnerships to exhibit their certificates of registration at their places of business; (Amended 58 of 1985 s. 28) (g) prescribing the information to be notified for the purposes of section 63 (1) (b); (h)-(j) (Repealed 58 of 1985 s. 28) (k) prescribing the manner, time, or circumstances for retaining copies of circulars for the purposes of section 79 (6); (Amended 58 of 1985 s. 28) (l) prescribing the particulars to be recorded in relation to accounts kept under section 84; (m) prescribing the particulars to be recorded in relation to the profit and loss account and balance sheet and the information to be contained in the auditor's report required to be lodged under section 88; (Replaced 62 of 1976 s. 34) (n) prescribing any matters for giving better effect to section 65B and, without derogation from the generality of the foregoing, may for that purpose- (i) prescribe the returns to be made by registered dealers and registered dealing partnerships, the information to be included therein and the manner in which such information is to be verified; (ii) provide for the manner in which any assets are to be valued and for the payment by any person of the costs of valuation; (iii) provide for the manner in which records are to be kept of any assets which may be taken into account for the purposes of section 65B and the places at which such records are to be maintained; and (iv) make separate provision for different classes or categories of registered dealer or registered dealing partnership; (Replaced 58 of 1985 s. 86) (o) (Repealed 58 of 1985 s. 28) (p) (Repealed 10 of 1989 s. 65) (q) prescribing public offices for the purposes of section 122; (Amended 33 of 1988 s. 3) (r) prescribing the procedure for the holding of investigations under Part XI, and providing for the reception of evidence, whether written or oral, and for the summoning and examination of witnesses, during the course of such an investigation; (s) prescribing anything which is to be or may be prescribed by regulations. (2) Where rules are made by the Commission under subsection (1), the Governor in Council may make regulations providing that a contravention of specified provisions of the rules shall be an offence and may provide penalties therefor not exceeding a fine of $ 2,000 and imprisonment for 3 months. (Replaced 10 of 1989 s. 65) (3) Except as otherwise provided in this Ordinance, regulations made under this section may be of general or special application.

(4) Regulations made under this section may provide that, subject to such terms and conditions as may be prescribed thereby, the provisions of Parts VI to IX, or such of them as are specified in the regulations- (a) shall not have effect in relation to any specified person or to any person who is a member of a specified class of persons- (i) who is or may be a dealer or investment adviser by reason only of his doing anything that is incidental to another business; (ii) who does not deal in securities for or on behalf of any other person; or (iii) who is a dealer or investment adviser by reason only of his entering into any specified transaction or class of transactions; (b) shall not have effect in relation to a representative of any such person, or a member of any such class of persons, as is referred to in paragraph (a); (c) shall have effect in relation to any such person or member, or a representative of any such person or member, to such extent as is prescribed; or (d) shall not have effect in relation to a specified transaction or class of transaction entered into by a specified person or class of persons.

146A. Rules by the Commission (1) The Commission may make rules for all or any of the following matters- (a) the conduct of business by registered dealers, registered investment advisers, registered dealing partnerships, registered investment advisers' partnerships, registered dealers' representatives and registered investment representatives; (b) matters incidental to the registration of dealers, investment advisers, dealing partnerships, investment advisers' partnerships, dealers' representatives and investment representatives under this Ordinance; (c) prescribing the particulars to be recorded in relation to registered dealers, registered investment advisers, registered dealing partnerships, registered investment advisers' partnerships, registered dealers' representatives and registered investment representatives under section 64; (d) enabling the Commission to correct any errors in any register kept under this Ordinance; (Amended 10 of 1989 s. 65) (e) enabling the Commission, on payment of the fee (if any) prescribed under the regulations, to issue duplicate certificates of registration in the event of loss or destruction of the original certificate or any duplicate certificate; (Amended 10 of 1989 s. 65) (f) prescribing forms for the purposes of this Ordinance; (g) prescribing the manner in which applications are to be made for registration under Part VI; (h) prescribing anything which is to be or may be prescribed by rules under this section.

(2) Rules made under this section may be of general or special application. (Added 58 of 1985 s. 29) 147. Liability of directors, etc.

(1) Where an offence under this Ordinance committed by a corporation is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary, or other similar officer of the corporation, or any person who was purporting to act in any such capacity, he, as well as the corporation, shall be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) Subject to subsection (3), for the purposes of this section, a person is deemed to be a director of a corporation if he occupies the position of a director by whatever name he may be called or is a person in accordance with whose directions or instructions the directors of the corporation or any of them act.

(3) A person shall not, by reason only that the directors of a corporation act on advice given by him in a professional capacity, be taken to be a person in accordance with whose directions or instructions those directors act.

(4) Where an offence committed by a partner in a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any other partner of the partnership, that other partner shall be guilty of the offence and liable to be proceeded against and punished accordingly. (Added 58 of 1985 s. 30) 148. Commission may prosecute certain offences against this Ordinance Without prejudice to the provisions of any other enactment relating to the prosecution of criminal offences and without prejudice to the powers of the Attorney General in relation to the prosecution of such offences, the Commission may institute proceedings in respect of any offence against this Ordinance that is punishable on summary conviction.

(Amended 10 of 1989 s. 65) 148A. Limitation on commencement of proceedings (1) Notwithstanding section 26 of the Magistrates Ordinance (Cap. 227), an information or complaint relating to an offence under this Ordinance may be tried if it is laid or made, as the case may be, at any time within 3 years after the commission of the offence or within 12 months after the first discovery thereof by the prosecutor, whichever period expires first.

(2) This section shall not apply in relation to an offence committed before the commencement of the Securities (Amendment) Ordinance 1991 (6 of 1991). (Added 5 of 1991 s. 2) 149. Amendment of Schedules and certain specified amounts The Governor in Council may, by order published in the Gazette, amend- (a) Schedules 1 and 2; and (b) any amount or sum specified in Part X.

150. (Repealed 10 of 1989 s. 65) SCHEDULE 1 [ss. 72 & 149] REQUIREMENTS TO BE SATISFIED IN RELATION TO OFFERS TO ACQUIRE SECURITIES 1. If the securities to be acquired are currently listed or quoted on the Unified Exchange or a foreign stock exchange, the offer shall, subject to paragraph 2, -(Amended 58 of 1985 s. 87) (a) state this fact and specify the exchange or exchanges on which the securities are currently listed or quoted; (b) specify the last recorded price paid in respect of the securities on the Unified Exchange, or, in the case of a foreign stock exchange, listed or quoted, on the latest practicable date during the period of 3 months immediately preceding the date of the offer; (Replaced 62 of 1976 s. 35.

Amended 58 of 1985 s. 87) (c) specify the last price paid in respect of the securities on the last trading day of each of the 6 months immediately preceding the date of the offer; (d) specify the highest and the lowest prices paid in respect of the securities during the period of 6 months immediately preceding the date of the offer; (e) where the offer has been the subject of a public announcement, whether in a newspaper or in any other form of news medium or otherwise, specify the last price paid in respect of the securities on the last trading day during the period of 3 months immediately preceding the public announcement, or, if the securities were not dealt in during that period, this should be stated. (Amended 62 of 1976 s. 35) 2. If the securities proposed to be acquired are not listed or quoted on the Unified Exchange or a foreign stock exchange, the offer shall contain- (Amended 58 of 1985 s. 87) (a) any information that the offeror may have as to the number and nominal value of those securities that have been sold in Hong Kong during the period of 6 months immediately preceding the date of the offer and the prices yielded by those sales, or, where the offeror has no such information, a statement to that effect; and (b) particulars of any restriction in the constitution of the corporation which issued the securities on the right to transfer the securities which has the effect of requiring the offerees, before transferring securities held by them in the corporation, to offer those securities for purchase to members of the corporation or to any other person, and, where there is any such restriction, the arrangements (if any) being made to enable the securities to be transferred in pursuance of the offer.

3. Where the securities proposed to be acquired are those of a corporation incorporated outside Hong Kong and any holders of those securities reside in Hong Kong, and those securities are listed or quoted on a stock exchange of the country or territory in which the corporation is incorporated, the offer shall state this fact and specify the stock exchange on which they are listed or quoted.

4. The offer shall contain, in a prominent position in printing not smaller than eight point Times, a notice in the following form- "IMPORTANT If you are in doubt as to any aspect of this offer, you should consult a stockbroker or other registered dealer in securities, a bank manager, solicitor, professional accountant, or other professional adviser." SCHEDULE 2 [SS. 72 & 149] REQUIREMENTS TO BE SATISFIED IN RELATION TO OFFERS TO DISPOSE OF SECURITIES 1. If the securities offered are currently listed or quoted on the Unified Exchange or a foreign stock exchange and will be uniform in all respects with the securities so currently listed or quoted, the offer shall- (Amended 58 of 1985 s. 88) (a) state that fact and specify the exchange on which those securities, or the securities with which they will be uniform, are currently listed or quoted; (b) specify the last recorded price paid in respect of the securities on the Unified Exchange, or, in the case of a foreign stock exchange, listed or quoted, on the latest practicable date during the period of 3 months immediately preceding the date of the offer; (Replaced 62 of 1976 s. 35. Amended 58 of 1985 s. 88) (c) specify the last price paid in respect of the securities on the last trading day of each of the 6 months immediately preceding the date of the offer; (d) specify the highest and the lowest prices paid in respect of the securities during the period of 6 months immediately preceding the date of the offer; (e) where the offer has been the subject of a public announcement, whether, in a newspaper or in any other form of news medium or otherwise, specify the last price paid on the last trading day during the period of 3 months immediately preceding the public announcement, or, if the securities were not dealt in during that period, this should be stated.

(Amended 62 of 1976 s. 35) 2. Where the securities offered are those of a corporation incorporated outside Hong Kong and- (a) are listed or quoted on a stock exchange in the country or territory where the corporation was incorporated; or (b) are yet to be issued but will be in all respects uniform with the securities already so listed or quoted, the offer shall specify that fact and the name of the stock exchange on which those securities, or the securities with which they will be uniform, are so listed or quoted.

3. The offer shall, in the case of securities of a corporation which are not listed or quoted on the Unified Exchange or a foreign stock exchange, or which are not uniform in all respects with securities so listed or quoted, - (Amended 58 of 1985 s. 88) (a) give particulars of any restriction in the corporation's constitution which has the effect of requiring a holder of the corporation's securities to offer them for purchase to members of the corporation or any other person before transferring them in pursuance of the offer; (b) except where the offer is accompanied by a document which conforms with Part II or XII of the Companies Ordinance (Cap. 32) in relation to the corporation whose securities are the subject of the offer, contain the particulars specified in paragraph 4 of this Schedule or be accompanied by a statement in writing containing those particulars.

4. (1) The particulars referred to in paragraph 3 (b) are as follows- (a) (i) the year in which, and the country or territory in which, the issuing corporation was incorporated; (ii) the address of its registered or principal office in Hong Kong; and (iii) where the issuing corporation is incorporated outside Hong Kong, the address of its registered or principal office in the country or territory in which it was incorporated or is resident; (b) (i) the authorized capital of the issuing corporation; (ii) the amount of the authorized capital of the corporation that has been issued and is outstanding at the date specified as being the close of the 5 financial years of the corporation immediately preceding the date of the offer; (iii) the classes of shares into which that capital is divided; (iv) the rights of each class of shareholder in respect of capital, dividends and voting; and (v) the number and total nominal value respectively of shares issued for cash and shares issued as fully or partly paid up for a consideration other than cash; (c) (i) the number and total nominal value of shares issued since the close of the last financial year of the issuing corporation; (ii) the classes (if any) into which the shares are divided and the rights of each class of shareholder in respect of capital, dividends and voting; (iii) the number and total nominal value respectively of shares issued as fully or partly paid up for cash or as fully or partly paid up for a consideration other than cash, or both; (iv) the number of redeemable preference shares (if any) redeemed and the amounts repaid in respect of the shares so redeemed; and (v) particulars of any reduction of capital lawfully authorized in respect of the corporation; (d) particulars of any reorganization of the capital of the issuing corporation during each of its 2 financial years preceding the date of the offer; (e) (i) the amount of the net profit or loss of the issuing corporation (before taking into account any form of tax calculated by reference to the amount of profits of the corporation); (ii) the rate per cent of dividends paid by the issuing corporation and the amount distributed by way of dividends on each class of shares during each of the 5 financial years immediately preceding the offer; and (iii) where no dividend has been paid in respect of shares of any particular class during any of those years, a statement to that effect; (f) the total amount of any debentures issued by the issuing corporation and outstanding not more than 28 days before the date of the offer, and the total amount of mortgage debts, loans, or charges due from the corporation not more than 28 days before that date, together with the rate of interest payable in respect of them; (g) the names and addresses of the directors of the issuing corporation; (h) the number, description, and nominal value of the securities of the issuing corporation held by or on behalf of each of its directors or, if a director does not hold any such securities and no securities are held on his behalf, a statement to that effect; and (i) whether or not the securities offered are, or, in the case of securities to be issued, will be, fully paid up, and, if not, to what extent they are or will be paid up, and, if the issuing corporation has fixed a date and amount for payment of outstanding calls, the date and amount of each such call.

(2) If any of the particulars required by subparagraph (1) are not available by reason of the issuing corporation not having carried on business for a sufficient length of time, or for any other reason, the offer shall state that fact; and if the issuing corporation is one incorporated in Hong Kong in respect of which those particulars are not available in the returns of the corporation filed with the Registrar of Companies, the offer shall also state that fact.

5. If the securities offered are yet to be issued, the offer shall- (a) state- (i) whether or not the issue requires the authority of a resolution of the issuing corporation; (ii) the first dividend in which the securities will participate; and (iii) whether or not there has been, to the knowledge of the offeror, any material change in the financial position of the issuing corporation since the date of the balance sheet and profit and loss account of the corporation for the financial year preceding the date of the offer and, if so, particulars of the change; (b) be accompanied by copies of the balance sheet and profit and loss account of the corporation (if any) made up to the end of the last financial year of the corporation preceding the date of the offer; (c) be accompanied by copies of the memorandum and articles of association or other document constituting or defining the constitution of the issuing corporation unless the offer specifies- (i) a place in Hong Kong at which copies of those documents may be inspected by offerees; and (ii) the times at which they may be inspected; (d) in the case of securities which will be uniform in all respects with previously issued securities of the issuing corporation that are not currently listed on the Unified Exchange or a foreign stock exchange give any information that the offeror may have as to the number and nominal value of those securities which have been sold during the period of 6 months preceding the date of the offer, and the prices yielded from the sales or, if the offeror has no such information, state that fact; (Amended 58 of 1985 s. 88) (e) in the case of securities which will not be uniform in all respects with securities previously issued by the issuing corporation, state- (i) the respects in which the securities will differ from the previously issued securities; (ii) whether or not any voting rights will attach to the securities and, if so, the limitations (if any) on those rights; and (iii) whether or not application for permission to have the securities listed or quoted has been or will be made to the Unified Exchange or a foreign stock exchange and, if such an application has been made, the name of the exchange applied to. (Amended 58 of 1985 s. 88) 6. The offer shall contain in a prominent position, in printing not smaller than eight point Times, a notice in the following form- (Amended L. N. 56 of 1974) "IMPORTANT If you are in doubt as to any aspect of this offer, you should consult a stockbroker or other registered dealer in securities, a bank manager, solicitor, professional accountant, or other professional adviser." SCHEDULE 3 [ss. 141G & 141I] (Repealed 62 of 1990 s. 40)

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