1 financial market 6097

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Professional Development Programme onContemporary Perspectives of

Personal Financial Management

Part I: Fundamentals of Financial Market

Connie Lo

Manager

External Relations


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Contents

1. Structure of Financial Market Different sectors and participants

Different types of markets

2. Investor Protection in Hong Kong

Roles of different financial regulators Investors compensation regime

Rights and responsibilities of investorsand consumers of financial services


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1) Structure of

Financial Market


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What are the major sectors of the HK financial market?

Sector

Banking

Insurance

Securities andFutures

Activities

Deposits & loans, insurance,

investment, etc.

Life, medical, travel,investment-linked and otherinsurance

Fund raising, trading of

different investment products,e.g. stocks, bonds, funds,warrants, options, futures, etc.


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Different markets

Money vs. Capital Market

Listed exchanges vs. Over-the-counter

(OTC)

Primary vs. Secondary Market


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Money Market ( ) The market for short-term debt

securities with a maturity of one year orless such as commercial papers,

certificates of deposit (CDs), ExchangeFund Bills, etc.

Instruments can be converted into casheasily without substantial loss in value.


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Capital Market ()A market where debts or securities are

traded.

Instruments generally have longer term

E.g. stocks, bonds, funds, etc.


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Listed exchanges vs. OTC

Stock exchanges

Stocks need to meet the

listing requirements of astock exchange in order toget listed

Stocks are traded through

the trading system of thatparticular stock exchange

Only qualifiedintermediaries can access

to the trading system A more transparent market

Over-the-counter (OTC)

() A decentralized market

where brokers/dealersnegotiate with each other

directly by phone orthrough computersystems

Stocks traded there canbe listed or unlisted


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Capital Market- Stock Market What is a stock?

Definition A cert ificate representing a

unit of ownership in a company

ABC Company


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Common types of stock

Ordinary shares (

)

Voting right

Receive Dividend

Preference shares (

)

Fixed dividend

Preferential distributionof profits prior to theordinary shareholder


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Classifications of stock By business nature

Finance, utilities, properties, consolidatedenterprises, & Industrials and hotels

H-shares () / A / B shares

Hang Seng Index (): 39 constituents

Several commonly used terms:

Blue-chips (), Red-chips (), Second/ Third liners (), Concept stocks ()


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Roles of different participants

Clearing House

ListedCompanies

SEHK

RegulatorsInvestors

Stockbrokers

Share

Registrars


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Stock Exchange of Hong Kong (SEHK)

Hong Kong Exchanges and Clearing Limited(HKEx) operates an efficient, transparent and

orderly securities marketplace through itswholly-owned subsidiary, The StockExchange of Hong Kong Limited (SEHK).

Investors can buy and sell a wide range ofproducts on the SEHK, including: equities,equity/derivative warrants, debt securities,exchange traded funds (ETFs), unit

trusts/mutual funds and structured products.


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SEHK

StockExchange

(SEHK)

Companies

Go public ()

issuer receives proceedsfrom the sale

PRIMARY MARKET

( ) An open and public market

for exchanging stocks Existing owner sells toanother party

SECONDARY MARKET( )

Investors


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SEHK

There are two markets on the SEHK

Main Board ():For more establishedcompanies with previoustrading and profit records

Grow th Enterprise Market

(GEM) ():For growth companies that maynot have a track record of profits


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Listed Companies

Comply with the Listing Rules

Continuing disclosure obligations Price-sensitive information

Financial informationAnnual, interim, quarterly

(only for GEM companies) reports

Failure to publish reports on time may lead totrading suspension

Corporate actions

Notifiable transactions ()


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2020

Listed Companies

New rules to boost corporategovernance standards

Interested directors cannot vote toapprove certain corporate transactions atshareholder meetings

Directors are subject to a tradingblackout period () 1 month prior to publication of results

announcement and ending on the date ofannouncement


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Share Registrars

Maintain the share register () of alisted company

Issue new share certificates and replace lostcertificates, distribute dividends andcorporate documents to shareholders

Listed

CompaniesInvestors


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Stockbrokers

9 Regulated Activities under the SingleLicensing Regime

RA1Dealing in securities RA4Advising on securities

RA8Securities margin financing

Act as a bridge between buyers and sellers File monthly returns on Financial Resources

Rules requirements to report financial health On-site inspections by SFC on rules

compliance


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Stockbrokers

AMS/3

SEHKBuyer

Seller

Brokers


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Institutional Investors

Substantial shareholders () holding 5% or more of the voting shares

disclose of interests requirements

Controlling shareholders () generally referred to those holding 30%

or more of the voting shares, alone ortogether with concerted parties

may trigger a general offer under certaincircumstances


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2) Investor Protection

in Hong Kong


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Roles of Different

Financial Regulators


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Regulatory Framework of Hong Kong

Major regulatory bodies:

Securities and Futures Commission

(SFC) Stock Exchange of Hong Kong Ltd

(SEHK) Hong Kong Monetary Authority (HKMA)

Office of the Commissioner of Insurance(OCI)


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SFC

Stock Exchange of

Hong Kong Ltd.

Hong Kong

FuturesExchange Ltd.

1. SEHK Options Clearing House Ltd

2. Hong Kong Securities ClearingCompany Ltd.

3. HKFE Clearing Corporation Ltd.

Listing Matters,

ExchangeParticipants ExchangeParticipants

Licensed Corporations

& Individuals (Stock

brokers, Investment

Advisors, etc)

Takeovers &

Share

repurchases

All participants in

trading activities

Collective

Investment

Schemes

ClearingParticipants


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SEHK

Front-line regulator of listing-relatedmatters

Administer the Listing Rules () Pass listing applications and listed

company disclosure materials to the SFCunder the Dual Filing mechanism (

)


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HKMA

Front-line regulator of banks securitiesoperations

Banks must register with the SFC asRegistered Institutions to carry out

securities business Maintain currency stability

Manage the exchange fund

Ensure safety and stability of thebanking system


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OCI

To protect the interests of policyholdersand to promote the general stability of

the insurance industry. Major duties and powers of IA:

Authorization Regulation of insurers

Regulation of insurance intermediaries

Liaison with the insurance industry

Emphasis self-regulation by the players

InsuranceSelf Regulatory Organizations


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(SROs)

Complaints on the conduct of an insuranceagent/broker:

Insurance Agent Registration Board() The Hong Kong Confederation of Insurance Brokers

(

)

Professional Insurance Brokers Association Limited()

Complaints relating to claims arising out ofpersonal insurance policies: Insurance Claims Complaints Bureau ()


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Investors Compensation Regime

I t C ti F d (ICF)


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Investor Compensation Fund (ICF)

ICF is administered by the InvestorCompensation Company Limited ("ICC"), awholly-owned subsidiary of the SFC.

ICF is set up for compensating investors who

suffer pecuniary losses as a result ofdefault of a licensed intermediary orauthorized financial institution in relation to

their trading of exchange-traded products inHong Kong.

I t C ti F d (ICF)


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"Default" covers insolvency, bankruptcy or winding up,breach of trust, defalcation, fraud or misfeasance.

The source of money used to come mainly from theInvestor Compensation Levy:

Securities transaction : 0.002% on transaction amount,

payable by buyers and sellers Futures contracts:

HK$0.5 per side of a contract or

HK$0.1 per side of a mini contract or stock futures contract.But the Levy was suspended since 19 December 2005

as the net asset value of the ICF exceeded HK$1.4 billion.


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The ICC is responsible for vettingand determining the claims against

the ICF.

Compensation is applied on a per-investor basis with a limit ofHK$150,000 for trading securities

and futures respectively.

D it P t ti S h (DPS)


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Deposit Protection Scheme (DPS)

The Hong Kong Deposit ProtectionBoard is a statutory body established

under the Deposit Protection SchemeOrdinance to oversee the operation ofthe DPS.

DPS aims to protect depositors and helpto maintain stability of the banking

system in HK.


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Deposit Protection Scheme


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Deposit Protection Scheme

The scheme does not cover Common investment products like stocks,

bonds, warrants, mutual funds, unit trusts and

insurance policies Time deposits with a maturity longer than 5

years

Structured deposits (equity/currency linkeddeposits)

Secured/offshore deposits

Bearer instruments (such as bearer certificate ofdeposits)


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Rights and Responsibilities

of Investors

Rights of Investors as Shareholders


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Rights of Investors as Shareholders

Right to be informedListed companies are required to send

financial reports to registered shareholders Right to receive entitlements, e.g.

dividends, bonus shares

Right to vote in shareholders meetings

Right to raise questions with the seniormanagement

Rights of Consumers of Financial Services


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Right to be informed of the licencestatus, fees and charges

Right to choose a client agreement inthe language you prefer

Right to receive transaction documentse.g. contract notes, account statements



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Right to ask for sufficient information tofacilitate you to manage your investment

Monitor your accountChoose the right products

Right to complain in case of mishandlingof investments

Fees & Charges


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Fees & Charges

Transaction costs on stock tradingBrokerage commission

SFCs Transaction levy(0.004%)SEHKs Trading fee (0.005%)

Stamp duty (0.1%)Investor compensation levy (0.002%)

(suspended since Dec 2005)

Transaction Documents


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Transaction Documents

Contract Notes They are issued by the second trading day

after the dealing day (i.e. T+2)

Statements of account

They are issued on a monthly basis unlessthere have been no transactions and a

zero cash and stock balance in youraccount during the statement period.

Responsibilities of Investors


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Do your homework, e.g. read theproduct offering documents

Know your investments, e.g. understandthe features and risks of an investment

before committing your money Dont follow the crowd. Bank on facts,

not rumors

Dont commit beyond your means



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Know your financial services provider Check the Public Register of Licensed

Persons and Registered InstitutionsLicence Details Types of regulated activities

Licensing conditions

AddressesComplaint Officers

Public Disciplinary Actions

Read the client agreement beforesigning



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Choose an appropriate account that suitsyour needs

Cash / Margin/ Discretionary account

Investor Participant (IP) account at CCASS

Place clear instructions

Settle transactions directly with your financialservices provider on time

Read transaction documents to monitor youraccount

Dont lend your account to others to trade

Tips on Order Placing


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Tips on Order Placing

When you place a buy/sell order, youhave to specify clearly

the code or name of the stock the purchase/sale price

Quantity (no. of board lots or no. ofshares)

Know Your Risks


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Know Your Risks

Price volatility

Business failures

Corporate misgovernance Liquidity risk

Trading suspension Brokerage failure / fraud

Pooling risk (), misappropriation Leverage risk

kn

risk

yuow

Risk Management


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Risk Management

Diversification

Dont chase rumours

Read corporate news issued by thelisted companies you have invested in

Think twice before engaging in daytrading ()

Invest Wisely


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y

Visit the SFCs investor education portal,

@www.InvestEd.hk to learn more !

Flash Videos


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Flash Videos

Useful links


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Useful links

http://www.dps.org.hk/DPS

http://www.hkicc.org.hk/ICF

http://www.oci.gov.hk/OCI

http://www.info.gov.hk/hkma/index.htm

HKMA

www.InvestEd.hkInvestEd

http://www.sfc.hk/sfc/html/EN/SFC

http://www.hkex.com.hk/index.htmHKEX


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Questions and Answers