Regulatory framework and structure of the Hong Kong securities and futures markets
Domain 1 examines the architecture of the Hong Kong market: which statute creates each regulator, which body supervises which conduct, and how statutory regulation, exchange self-regulation and government oversight interlock. Questions typically ask who supervises a bank selling funds, or whether a Code of Conduct has legal force.
The statutory layer
The Securities and Futures Ordinance (Cap. 571) took effect on 1 April 2003 and consolidated ten earlier ordinances. It governs securities, futures contracts, leveraged foreign exchange trading and offers of investments. Operating detail sits in subsidiary legislation, including the Financial Resources Rules, Client Money Rules, Client Securities Rules, Keeping of Records Rules, Professional Investor Rules and the Contract Notes, Statements of Account and Receipts Rules. Below these sit codes and guidelines - the Code of Conduct, Fund Manager Code, Corporate Finance Adviser Code, Code on Unit Trusts and Mutual Funds and Takeovers Code. They are not subsidiary legislation: breach is not of itself an offence or a civil cause of action, but the SFC uses them as the benchmark for fitness and properness and for discipline.
The market layer
HKEX is the exchange controller. Its subsidiaries are SEHK (Main Board and GEM), HKFE (futures) and the clearing houses HKCC and SEOCH. The SFC authorises exchange companies and clearing houses and approves their rules. Under the dual filing regime, listing documents filed with SEHK are also treated as filed with the SFC, so misleading disclosure attracts statutory, not merely Listing Rule, consequences.
The perimeter
The HKMA is front-line supervisor of registered institutions - banks conducting regulated activities - while the SFC retains statutory powers over them. The Insurance Authority covers insurance products, the MPFA governs MPF schemes, the Companies Registry registers prospectuses, the FRC oversees PIE auditors, and the Takeovers Panel administers the Takeovers Code.
Worked example
A customer complains about a fund sold in a bank branch. The bank is a registered institution, so the HKMA supervises it day to day, but the SFC may still investigate and discipline. The fund, offered to the public, required SFC authorisation. The sales process is measured against the Code of Conduct. Authorisation is not a guarantee of the fund's performance.
Traps
Treating codes as law; saying the HKMA licenses corporations; crediting SEHK with market-misconduct enforcement; equating SFC authorisation with endorsement.