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Submission to the Securities and Futures Commission on The Proposed Investor Compensation Rules and Order

  • Consultation Papers
  • 2001.04.29


1. The Consumer Council is pleased to submit its response on the captioned consultation paper, for consideration of the Securities and Futures Commission (SFC).

2. The Council welcomes the SFC's preparation for the launch of the new compensation arrangements for the securities and futures markets in Hong Kong, and offers its support in publicising the new arrangements when they are finalised.

3. The Council previously provided comments on the public consultation paper released in March 2001 on proposals for new investor compensation arrangements, including the level of compensation per investor and the coverage of the compensation fund. The Council is pleased to note that the proposed investor compensation arrangements will enhance the existing investor protection such as the provision of a certain and transparent structure to retail investors through a secure per investor level of compensation, and the expanded coverage of compensation to include non-exchange participants.

4. In this submission, the Council has directed its response to the Securities and Futures (Investor Compensation - Miscellaneous Rules) that prescribe the manner in which a claim is to be made. The Council has some suggestions for the SFC to consider in relation to procedures directed at assisting investors to understand the claims process rules and to claim for compensation when needs arise.


5. The Securities and Futures (Investor Compensation - Miscellaneous Rules), Part II - Claims for Compensation includes:

  • Section 3. Making a claim for compensation
  • Section 4. Notice inviting claims
  • Section 5. Submission of claims

6. The Council's comments in relation to each of those sections are as follows.

Section 3. Making a claim for compensation

7. The provisions of subsections (3) & (4) have the effect that a claim not lodged in accordance with specified date or other requirements may be barred from compensation. In order to assist affected investors in this regard the Council suggests that the SFC creates a specific directory on its website, with a link to the Electronic Investor Resources Centre (eIRC), to assist affected investors to understand the role of the Investor Compensation Company (ICC), how it protects investors, investor rights under the new investor compensation arrangement; and procedures for making a claim.

8. Reference could be made to the services provided by the US Securities Investor Protection Corporation (SIPC) ( ) where a Claims Help Centre is in place to aid investors in making claims.

Section 4. Notice inviting claims

9. Section 4 stipulates that where the SFC decides to publish a notice inviting claims, the notice must be published in one or more English language daily newspapers and one or more Chinese language daily newspapers, and must specify a date on or before which claims for compensation can be made.

10. The Council notes that whether a notice appears in more than one newspaper, thereby increasing public awareness of the cut off point for making claims, is at the SFC's discretion. The Council trusts that the SFC will use its best endeavours to publicise details on making claims in as widespread a manner as possible, and will publicise information in more than one newspaper, and on more than one occasion.

11. While news stories concerning broker defaults would generally attract mass media coverage on television and radio, in addition to newspapers, the stories might not provide information on the deadline for making claims that will be specified in a SFC newspaper notice.

12. The public's confidence in the processes used by the SFC to inform them of the need to make a claim, and time limits to make claims, would be increased if there were more specific information on the extent to which publicity will be given by the SFC to this issue.

13. It may be too difficult to use legislative provisions to specify further details, given that media circumstances change from time to time, i.e. how many newspapers there are in circulation, and which newspapers have the highest circulation. However, the SFC could provide details on what its policy is from time to time in relation to its discretion; on the eIRC web site. This would provide investors with an understanding of what the SFC's policy is, and thereby allow them to act accordingly.

14. Apart from providing that policy information, and increasing the frequency and coverage of notices, the Council suggests that the SFC consider sending out individual notices and claim forms to affected investors. This is particularly important for overseas investors who may not be aware of the stories and notices that appear in the local media.

15. In the United States for example, if a brokerage firm is put into liquidation, a court-appointed trustee will notify affected investors and send a claim form and instructions to affected investors.

16. The Council suggests that the SFC consider the possibility of setting up similar formal notification procedures, as used in the United States, to assist affected investors in this respect.

Section 5. Submission of claims

17. With regard to the submission of claims forms, the Council suggests that the SFC explores more ways to facilitate distribution of information to assist affected investors in submitting their claims. For example, the relevant directory on the SFC's web site reference to making compensation claims (as referred to in paragraph 7 above) could allow for on-line submission of claims through a standard form downloadable from the site, with the necessary procedural explanations, as an alternative to mailing a claim form.

18. For example, the SIPC has provided an Online Claim Form to help affected investors making compensation claims. This procedure would be useful for investors to meet submission deadlines and to understand (from step-by-step advice) what can be claimed and how to put relevant information in the claim form.