Since the Securities & Futures Ordinance implementation, no intermediaries or their representatives have been penalised by civil sanctions or convicted for 'market misconduct' so far.

Responding to legislators' questions today, Secretary for Financial Services & the Treasury Frederick Ma said there were 105 and 86 cases in 2001-02 and 2002-03 respectively, in which the Security & Futures Commission took disciplinary action against intermediaries and their representatives for breaches of the code and guidelines. In 2003-04, up to February 29, there were 77 cases.

'Market misconduct', including market manipulation and insider dealing, is defined under the ordinance. Before the law was launched last April, 'market misconduct' was governed by the repealed Commodities Trading, Securities and Securities (Insider Dealing) Ordinances.

Under the old legal regime, the commission resorted to the criminal route to deal with 'market misconduct', save for insider dealing.

In the past three years, no intermediaries or representatives of the cases were penalised by civil sanctions or convicted for having engaged in 'market misconduct' (other than market manipulation).

In 2001-02, no people were convicted for having engaged in market manipulation in the above cases while in 2002-03, one person was convicted. In 2003-04, up to February 29 this year, one person was convicted.

Measures to address conflicts of interest

The Securities & Futures Commission conducted a survey on investment research activities of securities firms in 2003. It found that 62 firms, which employed 529 analysts, had conducted research activities and published reports.

Of these, 30 firms were the larger ones with investment banking and research business, employing 442 analysts (about 84% of the analysts employed by the respondent firms).

For these larger ones, 28 firms (93% of the group) had segregated their research function from the sales, dealing and corporate finance functions, with a view to addressing the potential and actual conflicts of interest relating to analysts.

The remaining 32 smaller firms which did not engage in investment banking business and employed less than three analysts on average to provide retail investors with investment advice, 14 (44% of the group) had segregated the relevant functions.