Legal Services Division

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LEGISLATION
Composite Securities and Futures Bill
6.1	This is a major legislative exercise on the part of the SFC seeking to consolidate a number of existing ordinances currently under its purview into a single piece of legislation. Many of the provisions contained in these ordinances, some enacted over twenty years ago, are considered to be outdated and falling short of a modern-day legislative framework necessary to underpin the regulation of Hong Kong's financial markets. The new legislation will provide an effective and efficient regulatory platform on which to build Hong Kong's reputation as a regional financial centre and an important member of the global market.
6.2	On 16 April 1996, the SFC published a Consultation Paper on a Draft for a composite Securities and Futures Bill. This was followed by a period of consultation which lasted seven months. After consideration of views expressed at the many private briefings and public seminars held and through written representations, the SFC published a further paper entitled the Main Proposed Revisions to the Draft Bill.
6.3	On some of the more important and far-reaching provisions, the Legal Services Division staff continue to participate in discussions with interested parties and at the same time work actively with the Financial Services Bureau through the contents of the new Bill. Subject to the agenda of the Legislative Council, it is hoped that the formal legislative process may begin within the tenure of the first Legislative Council.
Securities (Disclosure of Interests) Ordinance
6.4	The Securities (Disclosure of Interests) Ordinance provides a statutory framework to ensure market transparency in the holding of interests in listed companies. Developments in the market, particularly in derivative products with their inherent diversity and complexity in product structure and usages, have given rise to the need to review the Ordinance.
6.5	The Legal Services Division has worked actively with the Corporate Finance Division in the preparation of a public consultation paper which is anticipated to be published during the course of 1998.
Securities (Insider Dealing) Ordinance
6.6	Views have been expressed by various concerned parties, including a former Chairman of the Insider Dealing Tribunal, that certain provisions in the Securities (Insider Dealing) Ordinance inhibit the Tribunal from more effectively discharging its enquiry function as intended by the Ordinance.
6.7	The Legal Services Division has commenced a review of the Ordinance, working with other operating Divisions, with a view to updating the provisions taking into account market and product developments that have taken place in recent years and examining ways to enhance the effectiveness of the enquiry powers of the Insider Dealing Tribunal.
Personal Data (Privacy) Ordinance
6.8	In August 1997, the Office of the Privacy Commissioner for Personal Data issued a public Consultation Paper on a Draft Code of Practice on Personal Identifiers, which aimed to give practical guidance on the collection, use, retention and other matters relating to personal identifiers. This would create significant impact on the work of the Licensing, Intermediaries Supervision and Enforcement Divisions. After discussion with the operating Divisions, the Legal Services Division submitted representations to the Office of the Privacy Commissioner.
6.9	In December 1997, the Code of Practice on the Identity Card number and other Personal Identifiers was issued. A provision in the Code permits the collection of copies of the identity card where such collection is required by any code, guidelines, rules or regulations applicable to a data user and where such requirement has been endorsed by the Privacy Commissioner. Pursuant to a request made by the SFC, the Privacy Commissioner has signified his endorsement of the requirements on registrants set out in the Code of Conduct, the Guidelines on Money Laundering and the Internal Control Guidelines. Provisions of the Code will come into force in June 1998. The Legal Services Division worked with the operating Divisions to review their processes to ensure that they were in compliance with the Code.
6.10	Also in 1997 the SFC launched a website on the Internet which had implications under the Personal Data (Privacy) Ordinance. Discussion took place with the Office of the Privacy Commissioner on the contents of the site to ensure compliance.

Other Amendments and Subsidiary Legislation
6.11	The Securities & Futures Commission (Fees) Rules were amended to revise the level of fees payable to the SFC with certain items increased and others reduced. The amendments were tabled before the Provisional 1egislative Council but were repealed.
6.12	The SFC also approved eight amendments to the Options Trading Rules and the Operational Trading Procedures for Options Trading Members of the Stock Exchange of Hong Kong to include eight new option classes. Due to constraints imposed on the type of legislative amendments that were permitted to be tabled before the Provisional Legislative Council, these amendments have not, as at the date of this Annual Report, been tabled and therefore have not yet come into operation.
CIVIL LITIGATION AND OTHER NON-CRIMINAL CONTENTIOUS PROCEEDINGS
Mandarin Resources Corporation
6.13	In June 1996, the SFC filed a petition against Mandarin Resources Corporation Ltd and its controlling shareholder seeking redress for minority shareholders arising from the manner in which the affairs of the company were alleged to have been conducted and/or the winding-up of the company.
6.14	In April 1997, the Company's appeal to the Court of Appeal against the re-appointment of the provisional liquidators was dismissed. In June 1997, the controlling shareholder's appeal to the Court of Appeal seeking to strike out the petition was also dismissed. The trial of the petition has since been set down for hearing commencing in September 1998.
6.15	In April 1997, an action brought by the controlling shareholder against two senior executives of the SFC alleging misfeasance in public office was dismissed.
Nomura International (Hong Kong) Ltd
6.16	Judicial review proceedings were issued by Nomura in the High Court in November 1997, whereby a stay was obtained of the SFC's disciplinary proceedings against Nomura and certain of its employees. The SFC is appealing to the Court of Appeal against this decision. (For details, see paragraphs 3.58 to 3.60)
CA Pacific Securities Ltd
6.17	Following a period monitoring the trading activities of CA Pacific Securities Ltd, the SFC on 20 January 1998 successfully made an emergency application to the High Court to appoint provisional liquidators in the winding-up of the company. The winding-up petition was presented to the Court under section 45 of the Securities Ordinance on the ground that it was in the public interest that the company should be wound up. The proceedings are continuing. (For further details, see paragraphs 2.61 to 2.63)
Securities and Futures Appeals Panel hearings
6.18	During the year under review, there have been ten appeals to the Panel, of which two were dismissed, one allowed and another two withdrawn before hearing. The remaining five appeals have yet to be heard by the Panel.
Tsang Hing Leung
6.19	Mr Tsang appealed the SFC's decision to suspend his registration as a dealer's representative for misconduct for a period of two years. The Panel dismissed Mr Tsang's appeal and ordered costs against him.
Choy Kwong Wa, Christopher
6.20	Mr Choy appealed the SFC's decision to revoke his registration as an investment adviser. The appeal was allowed with costs awarded against the SFC.
Mak Chung Kong
6.21	Mr Mak appealed the SFC's decision to suspend his registration as a dealer's representative for misconduct for three years. The appeal was dismissed and costs were awarded against Mr Mak.
Judicial Review
Goldwyn Capital Ltd.
6.22	Goldwyn Capital Ltd commenced proceedings in the High Court against the SFC seeking to judicially review the decision of the Takeovers Executive to refuse to approve a draft announcement submitted by Goldwyn, which was acting as sole financial adviser to the proposed offeror in an intended takeover transaction, on the ground that Goldwyn had not satisfied the Executive as to the standard of conduct required of financial advisers by the Takeovers Code. The application was dismissed by the Court and costs were awarded against Goldwyn. (For details, see paragraph 1.23)

CRIMINAL PROSECUTIONS
6.23	During the year, the Legal Services Division has advised extensively on and conducted in court numerous cases for prosecution, including offences of unregistered dealing in securities, commodities trading and unlicensed forex trading, short-selling of securities, and non-disclosure of interests in shares of listed companies by shareholders and directors. (For details and statistics, see Enforcement Section).
OTHER ADVISORY SERVICES
6.24	Throughout the year under review, the Legal Services Division advised the operating Divisions, in particular the Licensing Department and Enforcement Division, on numerous disciplinary matters resulting in the issuance of Letters of Mindedness and Statements of Decision against registrants found to have committed misconduct, acted contrary to the interest of the investing public or failed in their obligation to fully comply with the fit and proper criteria expected of all registrants. The more significant issue was the status of ax-registrants who had left the industry during misconduct inquiries, thereby avoiding disciplinary proceedings against them and subsequently applying for re-registration.
6.25	The Division also advised on a wide range of investigative matters, including insider dealing investigations which resulted in referrals to the Financial Secretary with recommendations that the matters be referred to the Insider Dealing Tribunal for further enquiry. (For details, see paragraphs 3.42 to 3.56).
6.26	The Division worked closely with the relevant operating divisions on various projects, including the Internal Control Guidelines, the Unified Exchange Compensation Fund, Offer Mechanism for global offerings of securities and the establishment of the Hong Kong Securities Institute.
CHINA RELATED WORK
6.27	Upon resumption of sovereignty over Hong Kong by the People's Republic of China on 1 July 1997, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards no longer applies as between Mainland China and the Hong Kong SAR. Doubts have arisen as to the enforceability in Mainland China of awards made by the Hong Kong International Arbitration Centre, and, correspondingly, difficulty is envisaged with respect to enforcement in Hong Kong of awards made by the China International Economic and Trade Arbitration Commission. This significantly affects the effectiveness of the H-Share dispute resolution mechanism.
6.28	The Division is working closely with the Government and relevant agencies in Mainland China with a view to establishing a new statutory structure for the mutual enforcement of arbitral awards.
6.29	The Division continues to maintain close contact with its legal counterparts in the China Securities Regulatory Commission and exchange views and information on matters of mutual interest.