Intermediaries and Investment Products Division

Michael Wu was Deputy Chairman, Chief Operating Officer and Executive Director responsible for the Intermediaries Division, comprised of the Licensing and Intermediaries Supervision Departments until his departure from the SFC on 31 December 1997. He was also responsible for the Corporate Resources Division.

Andrew Procter Effective I January 1998, Andrew Procter was appointed Executive Director responsible for the restructured Intermediaries and Investment Products Division, which comprises the Licensing, Intermediaries Supervision and Investment Products Departments. He is also responsible for the Finance & Administration, Secretariat and Information Resources functions of the Corporate Resources Division.

HIGHLIGHTS
Intermediaries Supervision Department
l	Developed and enhanced its Risk Targeting System for registered and licensed intermediaries to ensure systematic integrity of markets;
l	Conducted more than 60 special inspections of brokerages and their associated finance companies to reduce margin lending exposures;
Licensing Department
l	Issued 12 restriction notices on registered intermediaries to protect client assets and safeguard interest of investors; securities worth $3.066 billion and trust money of $375 million returned from failed registrants to investors;
l	Reduced processing time for applications from principal registrants and their representatives 11 weeks and 4 weeks respectively, out-performing our pledge of 15 weeks and 10 weeks respectively
Investment Products Department
l	Issued new Fund Manager Code of Conduct in cooperation with fund management industry and issued third edition of the Code on Unit Trust and Mutual Funds; and
l	Authorised 271 unit trusts and mutual funds, bringing the total number of authorised funds to 1,526.

Divisional Structure and Reorganisation
2.1	The Intermediaries and Investment Products Division comprises three Departments: Licensing, Intermediaries Supervision, and Investment Products. The Investment Products Department, formerly under the supervision of the Executive Director of Corporate Finance, was re-grouped with the Licensing and Intermediaries Supervision Departments beginning January 1998 to facilitate synergies between the three groups' activities.
LICENSING DEPARTMENT
FUNCTIONS
2.2	Under the Ordinances administered by the SFC, securities, futures and leveraged foreign exchange intermediaries are required to register with or be licensed by the SFC before they can carry on business in Hong Kong. These requirements enable market participants and investors to have confidence that the people and organisations with which they deal are fair, efficient, honest and financially sound. The Licensing Department administers these registration and licensing requirements.
2.3	In assessing whether a person is fit and proper to be registered or licensed, the SFC is required to take into account, among other things:

	l	his financial status;
	l	his educational or other qualifications or experience having regard to the nature of the functions to be performed;
	l	his ability to perform such functions efficiently, honestly and fairly; and
	l	his reputation, character, financial integrity and reliability.

2.4	The fit and proper test extends to the directors, substantial shareholders and related persons of corporate applicants and registrants, any other company in the same group of the corporate applicants and registrants, or to any director or officer of such other company.
Application for Licences
2.5	While the resources available in the Department remained relatively constant, its efficiency in processing applications has increased substantially during the year through continuous streamlining of procedures and enhancement of office automation. The total number of applications processed has increased from 4,963 for the year ended 31 March 1997 to 6,797 for the year ended 31 March 1998, an increase of 37%. The number of applications processed per Licensing Manager and per clerical staff has also increased from 382 and 551 respectively in 1997 to 523 and 755 in 1998 respectively. The number of registrants under the regulation of Licensing has also increased from 18,525 as at 31 March 1997 to 21,472 as at 31 March 1998, an increase of 16%.
2.6	In addition to performing its regulatory functions, the Licensing Department has devoted resources to the following areas:

Survey of Registrants' Business Activities
2.7	The Licensing Department commenced a survey in January 1997 on the business activities of registered firms. The survey sought to collect pertinent information on the activities of market intermediaries to enhance the SFC's understanding of their business operations and to maintain an updated database on the registrant population. A total of 1,567 questionnaires were issued to registered securities and futures firms, of which 1,352 were returned, representing a response rate of 86%.
2.8	The survey findings revealed that :
	l	broking activities constituted the main business function of registered dealers. 85% of securities dealers cited stockbroking whereas 92% of commodity dealers cited futures/options contracts broking as their primary business activities;
	l	Stock Exchange of Hong Kong (SEHK) members accounted for 67% and 49% of the respective totals for gross operating income and transaction value, as reported by registered securities dealers;
	l	11% of commodity dealers were established primarily to act as agents for overseas futures or options business activities;
	l	38% of securities dealers and 29% of commodity dealers are dealing in overseas securities and futures products;
	l	an overwhelming majority of registered advisers were either fund managers (32% for securities investment advisers and 53% for commodity trading advisers) or plain advisers on securities (43%) or commodities (44%) to individual clients;
	l	15% of securities investment advisers were also engaged in corporate finance and 6% in financial planning functions; and
	l	the total gross operating income generated from registered intermediaries in the securities and futures industry in 1996 was around $32 billion. The industry provided employment to more than 27,000 persons, 83% of which are engaged by securities intermediaries.
2.9	Information collected from the survey has been input into the Licensing Department database which is shared among different departments within the SFC. The Licensing Department will conduct the survey annually to help the SFC formulate policies in relation to the securities and futures industries.
Licensing Information
2.10	To assist intermediaries in resolving their licensing queries, pertinent information on licensing and ongoing requirements for licensed intermediaries has been made available on the SFC's website and its 24-hour SFC Infoline. The Department has also published a Licensing Information Booklet which is available free of charge to interested parties.
Common Anniversary Date Scheme
2.11	The Department has extended the Common Anniversary Date Scheme, on an optional basis, to all registered and licensed persons, including licensed leveraged foreign exchange traders. The scheme enables registered firms to adopt a uniform anniversary date for all their registrants to aggregate all annual fees payable into one payment and to submit annual returns in bulk. Seminars were organised to brief interested parties on the scheme which serves to reduce registered firms' administrative workload in preparing annual submissions for its employees. As at 31 March 1998, a total of 572 business entities had joined the scheme which represents 35% of registrant firms.
Applications for Registration under the Securities Ordinance and the Commodities Trading Ordinance
2.12	A total of 6,801 applications for registration were received by the SFC during the year. Together with those carried forward from the preceding year, a total of 6,499 approvals were granted, 4 applications were refused and 329 applications were withdrawn. A detailed breakdown by category is in Table 1.
Intermediaries registered under the Securities Ordinance and the Commodities Trading Ordinance
2.13	As at 31 March 1998, a total of 20,180 securities and futures intermediaries were registered with the SFC. A detailed breakdown by category is in Table 2.
2.14	Table 3 shows the number of exempt dealers and exempt investment advisers. During the year, three exempt dealer applications and three exempt investment adviser applications were received by the SFC. One institution was declared an exempt dealer while two institutions were declared exempt investment advisers. One exempt dealer and one exempt investment adviser application were withdrawn. Eleven exempt dealers and six exempt investment adviser declarations were revoked during the year.