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Hong Kong SFC Issues Quarterly Report

by Mary Swire,

15 November 2006

The Hong Kong markets regulator, the Securities and Futures Commission, yesterday released its second quarterly report for the financial year, a quarter characterised by a number of high profile regulatory matters and volatile markets.

The SFC reported that it took a number of decisive actions to protect investors with restriction notices issued on two brokerage companies.

Subsequent applications were made to the Court for the appointment of administrators and several orders issued to protect the interests of affected clients.

To minimise similar cases, the SFC embarked on a three-pronged action plan including increased investor education regarding common tactics of brokers seeking to misappropriate client assets.

The SFC was also party to subsequent discussions between the administrator and a third party to restructure one of the failed brokerage businesses in a manner that would enable the return of all client assets. This agreement was successfully concluded after the quarter end.

On the enforcement front, the SFC prosecuted 13 entities and took disciplinary actions against 15 entities for various breaches.

Meanwhile, the Hang Seng Index finished the quarter on a high note at 17,543, 7.8% higher from the previous quarter, after reaching a six-year high of 17,620 on 21 September. The H-shares index and red chips index rose 4.6% and 15.0% respectively during the quarter.

While average daily turnover fell 22.2% from the previous quarter to $26.5 billion, the SFC said that on a monthly basis the average daily turnover had increased progressively throughout the quarter. The average daily turnover of HSI constituent stocks decreased 22.3% during the quarter to $8.0 billion, while those of H-shares and red chips fell by almost one-third to $6.7 billion and $3.3 billion respectively.

On the Growth Enterprise Market, the S&P/HKEx GEM index closed 6.4% lower than the previous quarter at 1,103 on 30 September. The average daily turnover was $134.6 million, a 30.7% decrease from the previous quarter.

There were nine IPOs on the Main Board and one on GEM. The total amount of funds raised was $32.6 billion, compared with $93.7 billion, as the IPO of Bank of China alone raised $86.7 billion during the previous quarter.

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