The Securities and Futures Commission (SFC) has released plans to regulate electronic trading networks, otherwise known as automated trading services (ATSs) to protect investors who make transactions online.
Currently the ATSs operating in Hong Kong such as the Deutche Boerse Extra, Tradepoint Investment Exchange and the London International Financial Futures Exchange (there are around 12 in total) are not regulated by Hong Kong law. SFC executive director, Mark Dickens, told the South China Morning Post: 'Although these existing electronic trading networks did not have any big problems, it will be important to update our law to give proper regulation for these new trading facilities. The proposed new rules will be needed to bring Hong Kong in line with overseas markets and to meet with the latest development of new technology.'
The new regulations will stipulate that all stock, futures, bonds and other online portals offering trading services must be licensed by the SFC - this applies to all existing ATSs as well as new ones. They will become part of the Securities and Futures Bill, the bulk of which is currently passing through the Legislative Council. The SFC's proposals will be open for market consultations until next month.
Furthermore, over 70 brokerage houses which offer Internet trading services for investors such as Charles Schwab and TD Waterhouse would need permission from the SFC before they can continue their online business by applying for a separate licence. If networks based outside of Hong Kong were seeking the patronage of investors within the territory they will be required to apply for a licence from the SFC regardless of whether or not they have a physical presence there.
Requirements for ATS operators include that they must hire independent experts to access the integrity of their networks and they must keep trading records. 'The overseas exchange should be subject to regulation in its home country comparable to the Hong Kong and international regulation standards,' Mr Dickens said.
Applicants who establish the ATSs for individuals to trade in Hong Kong stocks must be participants of Hong Kong Exchanges & Clearing (HKEx) or have their computer terminals based in an office of an HKEx participant. Mr Dickens explained 'This is to protect the monopoly status of the HKEx as the only stock exchange in Hong Kong.' But he said this does not apply to those who operate in futures or bonds because neither market has a monopoly in Hong Kong.
The full text of the SFC proposals can be found at: http://www.hksfc.org.hk/eng/bills/html/consultation/ats%20consult_frame.html
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