Securities & Futures Commission of Hong Kong

Unsolicited Calls Exclusion Rules and section 174 of the SFO

Q1:

Under this section, can a customer be an “existing client” if he has been our securities customer for less than 3 years at the time the call is made?

A:

Yes, provided the firm has provided to him within that period a service in relation to dealing in securities.  

Section reference: 174, SFO

Q2:

Does s174(7)(a) of the SFO allow unsolicited calls to be made to a client who opened a securities account with an intermediary more than three years (say 6 years) before the call is made, as long as the client has not closed his securities account since then, even though no securities transaction for the purchase or sale of securities has been entered into between the client and the intermediary during the period of 3 years immediately preceding the date the call is made?

A:

Under the SFO, a client who opened a securities account with an intermediary more than three years ago, even if the client has not closed his account, will not qualify as an existing client if he has not effected any securities transaction within the preceding 3 years.  This is the case even if the intermediary still holds securities for the account of the client.  The SFO requirement is more lenient than the existing SO requirement because it now provides for clients who have merely entered into a client contract and only requires 1 transaction be effected within a period of 3 years preceding the call instead of 3 transactions.

Section reference: 174, SFO

Q3:

Does s174(7)(b) of the SFO allow unsolicited calls to be made to a client who has already closed his securities account with the intermediary within three years (say 2 years) before the call is made because the intermediary has provided a service of securities dealing to the ex-client within the 3 years period before the unsolicited call is made?

A:

The intention of s174(7)(b) is not to allow intermediaries to call clients who have closed their securities accounts but to cater for clients are professional investors who never sign client agreements in the first place. (This is now permitted under the SFC's Code of Conduct.) At any rate, based on our experience, very few clients ever bother to close their securities accounts, they merely transfer all of their assets out!

Section reference: 174, SFO

Q4:

Does s174(7)(b) of the SFO allow unsolicited calls to be made to a client utilizing only IPO (initial public offering) service for new shares within the preceding 3 years (without signing client contract)?

A:

We would like to clarify that a client utilizing only IPO service must also sign a client contract (though this can be an abridged version), unless he/she is a professional investor.

Section reference: 174, SFO

Q5:

If an intermediary gives advice or manages portfolios incidental to dealing in securities and hence does not need to be licensed or registered for such a regulated activity, can the intermediary treat the client to whom advice is provided or for whom portfolios are managed as "existing client"?

A:

Yes, as there is a genuine provision of a service the provision of which constitutes a regulated activity.

Section reference: 174, SFO

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