LEGISLATIVE COUNCIL ─ 30 May 2007 7485 OFFICIAL RECORD OF PROCEEDINGS Wednesday, 30 May 2007 The Council met at Eleven o'clock MEMBERS PRESENT: THE PRESIDENT THE HONOURABLE MRS RITA FAN HSU LAI-TAI, G.B.S., J.P. THE HONOURABLE JAMES TIEN PEI-CHUN, G.B.S., J.P. THE HONOURABLE ALBERT HO CHUN-YAN IR DR THE HONOURABLE RAYMOND HO CHUNG-TAI, S.B.S., S.B.ST.J., J.P. THE HONOURABLE LEE CHEUK-YAN THE HONOURABLE MARTIN LEE CHU-MING, S.C., J.P. DR THE HONOURABLE DAVID LI KWOK-PO, G.B.S., J.P. THE HONOURABLE FRED LI WAH-MING, J.P. DR THE HONOURABLE LUI MING-WAH, S.B.S., J.P. THE HONOURABLE MARGARET NG THE HONOURABLE MRS SELINA CHOW LIANG SHUK-YEE, G.B.S., J.P. THE HONOURABLE JAMES TO KUN-SUN THE HONOURABLE CHEUNG MAN-KWONG 7486 LEGISLATIVE COUNCIL ─ 30 May 2007 THE HONOURABLE CHAN YUEN-HAN, J.P. THE HONOURABLE BERNARD CHAN, G.B.S., J.P. THE HONOURABLE CHAN KAM-LAM, S.B.S., J.P. THE HONOURABLE MRS SOPHIE LEUNG LAU YAU-FUN, S.B.S., J.P. THE HONOURABLE LEUNG YIU-CHUNG THE HONOURABLE SIN CHUNG-KAI, J.P. DR THE HONOURABLE PHILIP WONG YU-HONG, G.B.S. THE HONOURABLE WONG YUNG-KAN, J.P. THE HONOURABLE JASPER TSANG YOK-SING, G.B.S., J.P. THE HONOURABLE HOWARD YOUNG, S.B.S., J.P. DR THE HONOURABLE YEUNG SUM THE HONOURABLE LAU KONG-WAH, J.P. THE HONOURABLE LAU WONG-FAT, G.B.M., G.B.S., J.P. THE HONOURABLE EMILY LAU WAI-HING, J.P. THE HONOURABLE ANDREW CHENG KAR-FOO THE HONOURABLE TAM YIU-CHUNG, G.B.S., J.P. THE HONOURABLE ABRAHAM SHEK LAI-HIM, J.P. THE HONOURABLE LI FUNG-YING, B.B.S., J.P. THE HONOURABLE TOMMY CHEUNG YU-YAN, J.P. THE HONOURABLE ALBERT CHAN WAI-YIP LEGISLATIVE COUNCIL ─ 30 May 2007 7487 THE HONOURABLE FREDERICK FUNG KIN-KEE, S.B.S., J.P. THE HONOURABLE AUDREY EU YUET-MEE, S.C., J.P. THE HONOURABLE VINCENT FANG KANG, J.P. THE HONOURABLE WONG KWOK-HING, M.H. THE HONOURABLE LEE WING-TAT THE HONOURABLE LI KWOK-YING, M.H., J.P. DR THE HONOURABLE JOSEPH LEE KOK-LONG, J.P. THE HONOURABLE DANIEL LAM WAI-KEUNG, S.B.S., J.P. THE HONOURABLE JEFFREY LAM KIN-FUNG, S.B.S., J.P. THE HONOURABLE ANDREW LEUNG KWAN-YUEN, S.B.S., J.P. THE HONOURABLE ALAN LEONG KAH-KIT, S.C. THE HONOURABLE LEUNG KWOK-HUNG DR THE HONOURABLE KWOK KA-KI DR THE HONOURABLE FERNANDO CHEUNG CHIU-HUNG THE HONOURABLE CHEUNG HOK-MING, S.B.S., J.P. THE HONOURABLE WONG TING-KWONG, B.B.S. THE HONOURABLE RONNY TONG KA-WAH, S.C. THE HONOURABLE CHIM PUI-CHUNG PROF THE HONOURABLE PATRICK LAU SAU-SHING, S.B.S., J.P. THE HONOURABLE ALBERT JINGHAN CHENG 7488 LEGISLATIVE COUNCIL ─ 30 May 2007 THE HONOURABLE KWONG CHI-KIN THE HONOURABLE TAM HEUNG-MAN MEMBERS ABSENT: THE HONOURABLE LAU CHIN-SHEK, J.P. THE HONOURABLE MIRIAM LAU KIN-YEE, G.B.S., J.P. THE HONOURABLE CHOY SO-YUK, J.P. THE HONOURABLE TIMOTHY FOK TSUN-TING, G.B.S., J.P. THE HONOURABLE MA LIK, G.B.S., J.P. PUBLIC OFFICERS ATTENDING: DR THE HONOURABLE PATRICK HO CHI-PING, J.P. SECRETARY FOR HOME AFFAIRS THE HONOURABLE STEPHEN LAM SUI-LUNG, J.P. SECRETARY FOR CONSTITUTIONAL AFFAIRS THE HONOURABLE AMBROSE LEE SIU-KWONG, I.D.S.M., J.P. SECRETARY FOR SECURITY DR THE HONOURABLE YORK CHOW YAT-NGOK, S.B.S., J.P. SECRETARY FOR HEALTH, WELFARE AND FOOD CLERKS IN ATTENDANCE: MR RICKY FUNG CHOI-CHEUNG, J.P., SECRETARY GENERAL MS PAULINE NG MAN-WAH, ASSISTANT SECRETARY GENERAL MRS VIVIAN KAM NG LAI-MAN, ASSISTANT SECRETARY GENERAL LEGISLATIVE COUNCIL ─ 30 May 2007 7489 TABLING OF PAPERS The following papers were laid on the table pursuant to Rule 21(2) of the Rules of Procedure: Subsidiary Legislation/Instruments L.N. No. Fugitive Offenders (Corruption) Order..................... 100/2007 Other Paper No. 93 ─ Report of changes to the approved Estimates of Expenditure approved during the fourth quarter of 2006-2007 (Public Finance Ordinance : Section 8) ORAL ANSWERS TO QUESTIONS PRESIDENT (in Cantonese): Questions. First question. Monitoring of Mainland Companies Listed in Hong Kong 1. MR ALBERT HO (in Cantonese): I have learnt that more than one third of the companies listed in Hong Kong are registered companies on the Mainland. As there are differences between the legal systems of Hong Kong and the Mainland, local monitoring authorities may encounter difficulties in monitoring such companies, thereby undermining the interests of local investors. In this connection, will the Government inform this Council: (a) whether it knows how the relevant authorities ensure that the contents of the prospectuses of mainland companies to be listed in Hong Kong are accurate; whether they have considered strengthening the regulation of sponsors, including requiring sponsors to bear legal liability in respect of the contents of the prospectuses; (b) whether it knows how the relevant authorities in Hong Kong collect evidence and take enforcement actions in respect of cases in which 7490 LEGISLATIVE COUNCIL ─ 30 May 2007 the above companies are involved in illegal acts, such as disclosing false or misleading information, failing to disclose connected transactions and conducting insider dealings, and the offences concerned are partly or wholly committed on the Mainland; whether the Government will consider improving the regulatory framework in Hong Kong, such as by making some financial offences of a serious nature offences with extra-territorial effect, so that the persons concerned may also be convicted in Hong Kong for committing such financial crimes on the Mainland; and (c) given the discrepancies between the laws in Hong Kong and the Mainland on liquidation and receivership of companies, how the Government protects the interests of local investors when local receivers are unable to receive the assets of the above companies, which are mainly on the Mainland? SECRETARY FOR SECURITY (in the absence of Secretary for Financial Services and the Treasury) (in Cantonese): Madam President, the regulatory structure of the securities and futures industry is enshrined in the Securities and Futures Ordinance (SFO) (Cap. 571), as well as Parts II and XII of the Companies Ordinance (CO) (Cap. 32). Under this regulatory structure, the Securities and Futures Commission (SFC) is an independent statutory regulator responsible for, inter alia, maintaining and promoting the orderliness of the securities and futures industry, providing protection for members of the investing public and for minimizing crime and misconduct in the industry. To enable the SFC to discharge its statutory duties effectively, it has been vested with a wide range of investigative powers such as obtaining documents and explanations from listed companies and parties closely connected with them, and disciplinary powers in respect of its licensees, including sponsors. Our reply to parts (a) to (c) of the question is set out below. (a) The CO imposes civil and criminal liability on directors of issuers for misstatements in prospectuses. In recent years, the SFC and the Stock Exchange of Hong Kong Limited (SEHK) have stepped up measures to ensure accuracy of the contents of prospectuses. These measures are set out below: LEGISLATIVE COUNCIL ─ 30 May 2007 7491 (i) With the introduction of the SFO in 2003, under section 6 of the Securities and Futures (Stock Market Listing) Rules, the SFC may object to a listing application if, among other things, it appears to the SFC that the application is false or misleading as to a material fact or is false or misleading through the omission of a material fact. (ii) Listing applications submitted to the SEHK must also be filed with the SFC under the "dual filing regime". Any person who knowing or recklessly provides to the SFC information which is false or misleading in a material respect may commit an offence under section 384 of the SFO. Offenders are liable to criminal fines and imprisonment. (iii) Changes were made to the SEHK Listing Rules in 2005 to require a sponsor to, among other things, be closely involved in the preparation of the new applicant's listing document, and conduct reasonable due diligence inquiries having regard to the requirements of the Listing Rules to put itself in a position to be able to make the requisite declaration to the SEHK. (iv) A new sponsor regulatory regime was introduced on 1 January 2007 whereby only those intermediaries that have met the stringent eligibility requirements are allowed to continue to carry out sponsor/compliance adviser work. As of 31 March 2007, 190 Type 6 intermediaries1 were imposed with a licensing condition barring them from acting as sponsors pursuant to the new sponsor regulatory regime. The extension of prospectus liability to sponsors was explored in the SFC's Consultation Paper on Possible Reforms to the Prospectus Regime in 2005. Majority of the respondents commenting on the issue were strongly against the proposal. It was argued that to shift the burden to sponsors would misrepresent their role which was to assist the issuer with its application, not to guarantee the accuracy of the information provided by the issuer itself. In view of public 1 Intermediaries who engage in "Type 6 ― Advising on corporate finance" regulated activity. 7492 LEGISLATIVE COUNCIL ─ 30 May 2007 comments, and the introduction of the new regulatory regime on sponsors, the SFC concluded that it would be premature to impose prospectus liability on sponsors. (b) The market manipulation provisions of the SFO already have extra-territorial effect: they apply to manipulation of Hong Kong exchange traded securities and futures by a person outside Hong Kong and manipulation of foreign exchange traded securities and futures by a person in Hong Kong.