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Part III Regulation of Financial Products, 7 Asset Management and Investment Products »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter presents an overview of the legal and regulatory framework for financial products and asset management in Hong Kong. The chapter discusses the regulatory framework for asset management generally and provides an overview of the legal and regulatory framework for a variety of financial products. Most financial products are largely matters of private contract and therefore governed by the common law framework, with disputes adjudicated by the courts. However, in Hong Kong a variety of statutes address an ever growing range of financial products, including: bills of exchange and cheques (Bills of Exchange Ordinance); company shares (Companies Ordinance and Listing Rules); and security interests (Companies Ordinance, Bankruptcy Ordinance, and other property related ordinances). The chapter also considers opportunities for the asset management industry in Hong Kong.

Authors and Consulting Editor »

From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)

Part II Regulation of Banking, Securities, and Insurance, 3 Banking Regulation and the Hong Kong Monetary Authority »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter explains the legal and institutional framework for banking in Hong Kong. It discusses the regulation of financial intermediaries, products, and services in the context of a framework based largely on the Banking Ordinance, the Exchange Fund Ordinance, and the Clearing and Settlements Systems Ordinance, supported by ordinances derived from international best practice. The chapter summarizes the main functions of the Hong Kong Monetary Authority (HKMA). Established in 1993, the HKMA maintains Hong Kong as an international financial centre and ensures that Hong Kong’s legal and regulatory framework for banks is comprehensive and of an international standard. At the same time, the chapter argues, the system’s many divisions allow certain risks to remain unaddressed. A specific area of concern applies to financial conglomerates, in that there is no clear division of regulatory responsibility in the case of the insolvency of a financial conglomerate.

Part V The International Dimension, 12 The China Nexus »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter focuses on the financial markets and related legal and institutional frameworks in mainland China, in the context of China’s liberalization commitments under the World Trade Organization (WTO) and the Closer Economic Partnership Arrangement (CEPA). Today, Hong Kong and its financial markets perform a number of roles in respect to China. As part of the People’s Republic of China, Hong Kong increasingly must deal directly with resulting issues and questions, both as a result of the increasing use by mainland companies of Hong Kong’s financial markets (e.g. listing on the stock exchange) as well as supporting business in China. At the same time, the resulting interconnection between the two economies and financial systems brings challenges for Hong Kong. This is especially true of questions relating to mainland companies raising money in Hong Kong and resulting issues of disclosure, corporate governance, and related enforcement problems.

Contents »

From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)

Contents—Summary »

From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)

Part IV Financial Market Conduct and Misconduct, 10 Corporate Governance »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter addresses corporate governance in Hong Kong. The chapter reviews the ways in which a company’s management is regulated in Hong Kong at common law and equity, by statutory legislation, by the company’s constitutional document (the articles), and by regulatory rules. Such a framework addresses issues such as board structure and operation, the personal interests of directors, dealings between the company and directors, limiting the power of directors, disclosure of information, and the question of when shareholders should be involved in decisions of the board. The chapter shows that due to the domination of companies in Hong Kong by either families or state-owned companies from mainland China, Hong Kong companies have the typical agency problem we see in the United States and the United Kingdom, namely weak performance by the managers, and also suffer from the misappropriation of corporate assets through connected or related party transactions.

Part III Regulation of Financial Products, 8 Financial Derivatives »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter examines the financial derivative instruments traded and used in Hong Kong. The chapter describes the current main types of financial derivatives, their uses and risks, and examines Hong Kong’s twofold approach to their regulation. It also raises questions that may not be fully addressed in any major financial jurisdiction; for example, how the law accounts for relatively new, sophisticated contracts, especially in relation to user protection; whether related areas of law such as bankruptcy may conflict with what has become customary derivative market practice; and how credit risk transfer facilitated by derivative instruments may conflict with established precepts of financial regulation. Lastly, it considers whether links between the territory’s regulators and the stock exchange are well-suited to the supervision of certain derivative activity and to investor protection.

Part I Finance in Hong Kong, 2 Financial Regulatory Structure »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter describes the overall legal and regulatory framework supporting financial markets in Hong Kong. This is developed in tandem with, and in response to, their characteristics. Regulatory reforms in the financial markets of Hong Kong have typically been developed after a financial crisis and market failure. However, while Hong Kong has not always had effective systems of financial regulation, it has been steadily strengthening its regulatory framework both for financial markets and institutions. This chapter argues that the increasing effectiveness of its legal and institutional regulatory framework has enhanced its development as an international financial centre over the past two decades and will be vital to its continued success in the future. The chapter concludes by outlining the common objectives of the Hong Kong financial regulators today.

Part VI International Markets and Exchanges, 21 Hong Kong Markets and Exchanges »

Douglas W Arner, Berry FC Hsu
From: Financial Markets and Exchanges Law (2nd Edition)
Edited By: Michael Blair, George Walker, Stuart Willey
21.01 This chapter describes the main elements of current financial sector activity in Hong Kong and the conditions under which they function. Hong Kong’s financial markets and economy did suffer a substantial downturn following the global financial crisis in 2008–09, although no major regulatory gaps were identified nor significant new regulatory changes considered necessary. Hong Kong is nevertheless expected to give effect to all of the principal new reforms adopted at the international level, in particular with regard to capital adequacy and liquidity and the...

Part I Finance in Hong Kong, 1 Hong Kong’s Financial Markets: Evolution and Overview »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
The chapter provides an in-depth discussion and analysis of finance in Hong Kong, today one of the world’s major international financial centres, focusing on historical developments along with some of the unique or unusual features of those markets. The chapter considers financial law in relation to financial activity as a whole, and within each segment of Hong Kong’s markets. Hong Kong has been a port of trade since the mid-nineteenth century and subsequent centre of commerce. However, only recently has it developed as a major financial centre. It is known for its unusual institutional foundations, the nature of which are analysed and contrasted at intervals in this book with those of other sophisticated financial hubs.

Part V The International Dimension, 13 Hong Kong’s Future as a Leading International Financial Centre »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter summarizes the main arguments and discussions of the book and presents an overview of major concerns for the future of Hong Kong’s financial markets. In addition to describing financial market law and practice in Hong Kong, this book has sought to point out related major issues, whether legal, economic, or cultural. Each chapter has concluded with an evaluation of Hong Kong’s financial markets, identifying weaknesses and where reform is most needed. This final chapter takes the analysis further, presenting an overview of major concerns for the future of Hong Kong’s financial markets and their legal and regulatory systems. These arise in two main respects: first, risks to be addressed out of concern for financial stability and the continued economic development of Hong Kong; and second, opportunities to enhance Hong Kong’s competitiveness as a financial centre, especially in the context of prospects for China and East Asia.

Index »

From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)

Part II Regulation of Banking, Securities, and Insurance, 5 Insurance Regulation, the Office of the Commissioner of Insurance, and the Insurance Authority »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter looks in detail at the legal and regulatory framework for insurance in Hong Kong. The chapter examines the regulation of financial intermediaries, products, and services in the context of insurance. It concludes that Hong Kong’s regulatory system for insurance is comprehensive and of an international standard. The legal and regulatory framework for the insurance market in Hong Kong consists of the Insurance Companies Ordinance (ICO), a statutory body called the Office of the Commissioner of Insurance (OCI), and self-regulatory measures. These are supplemented by a large body of common law. However, at the time of writing, this is set to change, with the establishment of a new independent Insurance Authority (IA) with a much broader regulatory remit.

List of Abbreviations »

From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)

Part IV Financial Market Conduct and Misconduct, 11 Market Integrity »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
The chapter evaluates Hong Kong’s regulation of market misconduct. The chapter argues that much of Hong Kong’s regulatory structure addressing market misconduct is derived from overseas jurisdictions (Australia and the United States, and reflecting the European Union and the United Kingdom). In relation to insider dealing, market misconduct, and disclosure Hong Kong’s approach largely follows the legislative, regulatory, and common law development in the United States. The chapter concludes that following the enactment of the Securities and Futures Ordinance (SFO), Hong Kong has implemented a comprehensive system addressing market misconduct, through both disclosure regulation and market conduct regulation. This is especially the case in relation to insider dealing, market manipulation, and financial fraud and deception. Regulation addressing such issues in Hong Kong is generally of an international standard.

Preface »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)

Part III Regulation of Financial Products, 6 Securities Offerings »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter looks at financial products and their regulation in relation to listings of securities on The Stock Exchange of Hong Kong (SEHK). Hong Kong’s system for listing and public offerings of securities is largely based on the pre-FSMA 2000 system of the United Kingdom. As such, it is based on a statutory framework established by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO) and the Securities and Futures Ordinance (SFO). The chapter explains how non-statutory controls on offers of securities fall into two broad classes: securities to be admitted to listing and those which are not to be listed. The legal and regulatory framework of Hong Kong addressing public offerings and listings of company securities covers: private and public companies; public offerings and prospectus requirements; the means by which a company’s securities can become listed; preparation of prospectuses and listing documents; and continuing obligations of being listed.

Part II Regulation of Banking, Securities, and Insurance, 4 Securities Regulation: The Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited »

Douglas W Arner, Berry FC Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwong-Sang Tse
From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)
This chapter outlines the evolution of the system of securities regulation in Hong Kong and the regulation of financial intermediaries, products, and services in the context of securities. Prior to 1987, capital market regulation in Hong Kong was minimal, with all the various exchanges operating largely on the basis of self-regulation in the context of the common law framework. The market crash of October 1987 triggered a review of the regulatory framework. Significantly, during the last decade the Hong Kong securities and futures market has gone through a profound transformation from a largely domestic market to an international market with active trading in equity and derivative products. The chapter concludes by stating that Hong Kong’s legal and regulatory framework for securities is comprehensive and of an international standard. However, at the same time the system’s many divisions allow certain risks to be unaddressed.

Table of Cases »

From: Financial Markets in Hong Kong (2nd Edition)
Douglas W Arner, Berry Hsu, Say H Goo, Syren Johnstone, Paul Lejot, Maurice Kwok-Sang Tse (Consulting Editor)