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CHAPTER -13

CAPITAL MARKET REGULATOR OF OTHER COUNTRIES

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1 INTRODUCTION

In the present scenario of globlisation and liberalizations, the study of other

countries regulatory measure are very essential. The liberalization process

attracts other countries company and people to invest their money in securities

market. Therefore, the countries face competition in this financial sector also.

The studies of market regulator of those countries, who have top market

capitalization in securities market, are very useful. Stock trading is being done

all around the world, all the time, in various markets. Here’s a list of the top

10 largest stock exchanges in the world, as of June 2009, according to

the World Federation of Exchanges391.

2(i) New York Stock Exchange: $9.57 trillion in market value

The New York Stock Exchange (NYSE) is located on famous Wall Street in

lower Manhattan, New York City, and has been around since 1792. Although

it is a listed exchange with physical trading floors and rooms, all stocks on the

NYSE can now be traded electronically, electronic transactions representing

most of the trades performed. In October 2008, it was merged with the

American Stock Exchange (AMEX), and is now the largest stock exchange in

existence. It is open Monday through Friday from 9:30 to 16:00 Eastern Time,

except on holidays.

(ii) Tokyo Stock Exchange: $3.10 trillion in market value

The TSE, or Tokyo Stock Exchange, was created in 1878. More than 2000

companies are listed on the TSE and its main indices are the TSE and the

famous Nikkei 225. Most security transactions in Japan are done through the

TSE, which operates entirely on electronic stock trading. It is open from 9:00

to 11:00 and from 12:30 to 15:30 (GMT + 9 hours).

391 Published under Stock Market Today, Stock Market Trading, Stock Trading Basics

390

(iii) NASDAQ Stock Exchange: $2.77 trillion in market value

The NASDAQ, or National Association of Securities Dealers Automated

Quotations, is the largest virtual stock trading market in America. Unlike the

NYSE, the young Nasdaq (founded in 1971) doesn’t have a history of trading

floors and rooms to physically trade stocks. Stock trading is done entirely

through an electronic network of dealers; it is an electronic screen-based stock

market. It is open Monday through Friday from 9:30 to 16:00 Eastern Time

(minus holidays) and offers pre-market and post-market trading sessions

extending these hours from 7AM to 8PM, Eastern Time.

(iv) Euronext: $2.26 trillion in market value

Based in Paris and with branches across Europe, Euronext was born in 2000

from the merger of the Amsterdam Stock Exchange, Brussels Stock Exchange

and Bourse de Paris. It subsequently went on to perform other mergers and

share acquisitions, to today become the fourth largest stock exchange in the

world. It merged in 2006 with the NYSE to create the NYSE Euronext

corporation, which now oversees both exchanges. Its opening hours in Europe

are from 9:00 to 17:30, local time to the branch in question.

(v) London Stock Exchange: $2.20 trillion in market value

Founded in 1801, the London Stock Exchange (LSE) is located in London and

lists over 3000 British and overseas companies. It has a number of indices, the

most common being the FTSE 100 and FTSE 250. Opening hours are 08:00 to

16:30 on weekdays.

(vi) Shanghai Stock Exchange: $2.07 trillion in market value

(vii) Hong Kong Stock Exchange: $1.77 trillion in market value

(viii) Toronto Stock Exchange: $1.35 trillion in market value

(ix) Frankfurt Stock Exchange (Deutsche Börse): $1.13 trillion in market

value

(x) Madrid Stock Exchange: $1.08 trillion in market value

Other notable big stock trading markets are the Bombay Stock Exchange

($1.03 trillion), the National Stock Exchange of India ($968 million), the Sao

Paulo Stock Exchange ($920 million), the Swiss Exchange ($854 million) and

the Australian Securities Exchange ($839 million).

In this chapter, we will study some of the world’s top countries’ market

regulator. These Market regulators are of USA, U K and HONG KONG.

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3. SECURITES AND EXCHANGE COMMISSION- SECURITIES

MARKET REGULATOR OF USA (SEC)392

As more and more first-time investors turn to the markets to help secure their

futures, pay for homes, and send children to college, therefore investor

protection mission is more compelling than ever. As the nation's securities

exchanges mature into global for-profit competitors, there is even greater need

for sound market regulation. And the common interest of all Americans in a

growing economy that produces jobs, improves our standard of living, and

protects the value of our savings means that all of the SEC's actions must be

taken with an eye toward promoting the capital formation that is necessary to

sustain economic growth.

The world of investing is fascinating and complex and it can be very fruitful.

But unlike the banking world, where deposits are guaranteed by the federal

government, stocks, bonds and other securities can lose value. There are no

guarantees. That's why investing is not a spectator sport. By far the best way

for investors to protect the money they put into the securities markets is to do

research and ask questions.

The laws and rules that govern the securities industry in the United States

derive from a simple and straightforward concept: all investors, whether large

institutions or private individuals, should have access to certain basic facts

about an investment prior to buying it, and so long as they hold it. To achieve

this, the SEC requires public companies to disclose meaningful financial and

other information to the public. This provides a common pool of knowledge

for all investors to use to judge for themselves whether to buy, sell, or hold a

particular security. Only through the steady flow of timely, comprehensive,

and accurate information can people make sound investment decisions.

The result of this information flow is a far more active, efficient, and

transparent capital market that facilitates the capital formation so important to

our nation's economy. To insure that this objective is always being met, the

SEC continually works with all major market participants, including especially

the investors in our securities markets, to listen to their concerns and to learn

from their experience. The SEC oversees the key participants in the securities

392 http://www.sec.gov/about.shtml

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world, including securities exchanges, securities brokers and dealers,

investment advisors, and mutual funds. Here the SEC is concerned primarily

with promoting the disclosure of important market-related information,

maintaining fair dealing, and protecting against fraud. Crucial to the SEC's

effectiveness in each of these areas is its enforcement authority. Each year the

SEC brings hundreds of civil enforcement actions against individuals and

companies for violation of the securities laws. Typical infractions include

insider trading, accounting fraud, and providing false or misleading

information about securities and the companies that issue them.

One of the major sources of information on which the SEC relies to bring

enforcement action is investors themselves — another reason that educated

and careful investors are so critical to the functioning of efficient markets. To

help support investor education, the SEC offers the public a wealth of

educational information on Internet website, which also includes the EDGAR

database of disclosure documents that public companies are required to file

with the Commission.

Though it is the primary overseer and regulator of the U.S. securities markets,

the SEC works closely with many other institutions, including Congress, other

federal departments and agencies, the self-regulatory organizations (e.g. the

stock exchanges), state securities regulators, and various private sector

organizations. In particular, the Chairman of the SEC, together with the

Chairman of the Federal Reserve, the Secretary of the Treasury, and the

Chairman of the Commodity Futures Trading Commission, serves as a

member of the President's Working Group on Financial Markets.

This chapter is an overview of the SEC's history, responsibilities, activities,

organization, and operation.

The U. S. Securities and Exchange Commission (SEC) has a three-part

mission:

(I) Protect investors , (II) Maintain fair, orderly, and efficient markets , (III)

Facilitate capital formation.

3.1 History of SEC : When the stock market crashed in October 1929, so did

public confidence in the U.S. markets. Congress held hearings to identify the

problems and search for solutions. Based on its findings, Congress – in the

peak year of the Depression – passed the Securities Act of 1933. The

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following year, it passed the Securities Exchange Act of 1934, which created

the Securities and Exchange Commission to protect the interest of

investors, to maintain fair, orderly and efficient markets and Facilitate capital

formation.

The main purposes of these laws can be reduced to two common-sense

notions:

Companies offering securities for sale to the public must tell the truth about

their business, the securities they are selling, and the risks involved in

investing in those securities, those who sell and trade securities – brokers,

dealers, and exchanges must treat investors fairly and honestly.

A. Creation of the SEC393

The SEC's foundation was laid in an era that was ripe for reform. Before the

Great Crash of 1929, there was little support for federal regulation of the

securities markets. This was particularly true during the post-World War I

surge of securities activity. Proposals that the federal government require

financial disclosure and prevent the fraudulent sale of stock were never

seriously pursued.

Tempted by promises of "rags to riches" transformations and easy credit, most

investors gave little thought to the systemic risk that arose from widespread

abuse of margin financing and unreliable information about the securities in

which they were investing. During the 1920s, approximately 20 million large

and small shareholders took advantage of post-war prosperity and set out to

make their fortunes in the stock market. It is estimated that of the $50 billion

in new securities offered during this period, half became worthless. When the

stock market crashed in October 1929, public confidence in the markets

plummeted. Investors large and small, as well as the banks who had loaned to

them, lost great sums of money in the ensuing Great Depression. There was a

consensus that for the economy to recover, the public's faith in the capital

markets needed to be restored. Congress held hearings to identify the problems

and search for solutions.

393 This Act may be cited as the ‘‘Securities Exchange Act of 1934’’. (June6, 1934, ch. 404, title I, Sec. 1, 48 Stat. 881.

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Based on the findings in these hearings, Congress — during the peak year of

the Depression — passed the Securities Act of 1933. This law, together with

the Securities Exchange Act of 1934, which created the SEC, was designed to

restore investor confidence in the capital markets of USA by providing

investors and the markets with more reliable information and clear rules of

honest dealing. The main purposes of these laws can be reduced to two

common-sense notions:

Companies publicly offering securities for investment dollars must tell the

public the truth about their businesses, the securities they are selling, and the

risks involved in investing.

People who sell and trade securities, brokers, dealers, and exchanges must

treat investors fairly and honestly, putting investors' interests first.

Monitoring the securities industry requires a highly coordinated effort.

Congress established the Securities and Exchange Commission in 1934 to

enforce the newly-passed securities laws, to promote stability in the markets

and, most importantly, to protect investors. President Franklin Delano

Roosevelt appointed Joseph P. Kennedy, President John F. Kennedy's father,

to serve as the first Chairman of the SEC.

3.2 Necessity of Regulations394- For the reasons hereinafter enumerated,

transactions in securities as commonly conducted upon securities exchanges

and over-the-counter markets are effected with a national public interest which

makes it necessary to provide for regulation and control of such transactions

and of practices and matters related thereto, including transactions by officers,

directors, and principal security holders, to require appropriate reports, to

remove impediments to and perfect the mechanisms of a national market

system for securities and a national system for the clearance and settlement of

securities transactions and the safeguarding of securities and funds related

thereto, and to impose requirements necessary to make such regulation and

control reasonably complete and effective, in order to protect interstate

commerce, the national credit, the Federal taxing power, to protect and make

more effective the national banking system and Federal Reserve System, and

to insure the maintenance of fair and honest markets in such transactions.

394 Sec 2 of the Securities Exchange Act of 1934

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3.3 Organization of the Securities Exchange Commission395

The SEC consists of five presidentially-appointed Commissioners, with

staggered five-year terms. One of them is designated by the President as

Chairman of the Commission — the agency's chief executive. By law, no

more than three of the Commissioners may belong to the same political party,

ensuring non-partisanship. The agency's functional responsibilities are

organized into five Divisions and 18 Offices, each of which is headquartered

in Washington, DC. The Commission's approximately 3,500 staff is located in

Washington and in 11 Regional Offices throughout the country.

3.4 It is the responsibility of the Commission to:

1) interpret federal securities laws; issue new rules and amend existing

rules;

2) oversee the inspection of securities firms, brokers, investment advisers,

and ratings agencies;

3) oversee private regulatory organizations in the securities, accounting,

and auditing fields; and

4) coordinate U.S. securities regulation with federal, state, and foreign

authorities.

5) The Commission convenes regularly at meetings that are open to the

public and the news media unless the discussion pertains to

confidential subjects, such as whether to begin an enforcement

investigation.

3.5 Divisions of SEC

3.5.1 Division of Corporation Finance

The Division of Corporation Finance assists the Commission in executing

its responsibility to oversee corporate disclosure of important information to

the investing public. Corporations are required to comply with regulations

pertaining to disclosure that must be made when stock is initially sold and then

on a continuing and periodic basis. The Division's staff routinely reviews the

disclosure documents filed by companies. The staff also provides companies

with assistance interpreting the Commission's rules and recommends to the

Commission new rules for adoption.

395 Section 4(a) of the SECURITIES EXCHANGE ACT OF 1934

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The Division of Corporation Finance reviews documents that publicly-held

companies are required to file with the Commission. The documents include:

registration statements for newly-offered securities;

annual and quarterly filings (Forms 10-K and 10-Q);

proxy materials sent to shareholders before an annual meeting;

annual reports to shareholders;

documents concerning tender offers (a tender offer is an offer to buy a

large number of shares of a corporation, usually at a premium above

the current market price); and

filings related to mergers and acquisitions.

These documents disclose information about the companies' financial

condition and business practices to help investors make informed investment

decisions. Through the Division's review process, the staff checks to see if

publicly-held companies are meeting their disclosure requirements and seeks

to improve the quality of the disclosure. To meet the SEC's requirements for

disclosure, a company issuing securities or whose securities are publicly

traded must make available all information, whether it is positive or negative,

that might be relevant to an investor's decision to buy, sell, or hold the

security.

Corporation Finance provides administrative interpretations of the

Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust

Indenture Act of 1939, and recommends regulations to implement these

statutes. Working closely with the Office of the Chief Accountant, the

Division monitors the activities of the accounting profession, particularly the

Financial Accounting Standards Board (FASB), that result in the formulation

of generally accepted accounting principles (GAAP). Increasingly, the

Division also monitors the use by U.S. registrants of International Financial

Reporting Standards (IFRS), promulgated by the International Accounting

Standards Board.

The Division's staff provides guidance and counseling to registrants,

prospective registrants, and the public to help them comply with the law. For

example, a company might ask whether the offering of a particular security

requires registration with the SEC. Corporation Finance would share its

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interpretation of the relevant securities regulations with the company and give

it advice on compliance with the appropriate disclosure requirement.

The Division uses no-action letters to issue guidance in a more formal

manner. A company seeks a no-action letter from the staff of the SEC when it

plans to enter uncharted legal territory in the securities industry. For example,

if a company wants to try a new marketing or financial technique, it can ask

the staff to write a letter indicating whether it would or would not recommend

that the Commission take action against the company for engaging in its new

practice.

How the SEC Rule making Process Works

Rulemaking is the process by which federal agencies implement legislation

passed by Congress and signed into law by the President. Major pieces of

legislation, such as the Securities Act of 1933, the Securities Exchange Act of

1934, the Investment Company Act of 1940, and the Sarbanes-Oxley Act,

provide the framework for the SEC's oversight of the securities markets. These

statutes are broadly drafted, establishing basic principles and objectives. To

ensure that the intent of Congress is carried out in specific circumstances —

and as the securities markets evolve technologically, expand in size, and offer

new products and services — the SEC engages in rulemaking.

Rulemaking can involve several steps: concept release, rule proposal, and rule

adoption.

Concept Release: The rulemaking process usually begins with a rule

proposal, but sometimes an issue is so unique and/or complicated that the

Commission seeks out public input on which, if any, regulatory approach is

appropriate. A concept release is issued describing the area of interest and the

Commission's concerns and usually identifying different approaches to

addressing the problem, followed by a series of questions that seek the views

of the public on the issue. The public's feedback is taken into consideration as

the Commission decides which approach, if any, is appropriate.

Rule Proposal: The Commission publishes a detailed formal rule proposal for

public comment. Unlike a concept release, a rule proposal advances specific

objectives and methods for achieving them. Typically the Commission

provides between 30 and 60 days for review and comment. Just as with a

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concept release, the public comment is considered vital to the formulation of a

final rule.

Rule Adoption: Finally, the Commissioners consider what they have learned

from the public exposure of the proposed rule, and seek to agree on the

specifics of a final rule. If a final measure is then adopted by vote of the full

Commission, it becomes part of the official rules that govern the securities

industry.

3.5.2 Division of Trading and Markets

The Division of Trading and Markets assists the Commission in executing

its responsibility for maintaining fair, orderly, and efficient markets. The staff

of the Division provides day-to-day oversight of the major securities market

participants: the securities exchanges; securities firms; self-regulatory

organizations (SROs) including the Financial Industry Regulatory Authority

(FInRA), the Municipal Securities Rulemaking Board (MSRB), clearing

agencies that help facilitate trade settlement; transfer agents (parties that

maintain records of securities owners); securities information processors; and

credit rating agencies.

The Division also oversees the Securities Investor Protection Corporation

(SIPC), which is a private, non-profit corporation that insures the securities

and cash in the customer accounts of member brokerage firms against the

failure of those firms. It is important to remember that SIPC insurance does

not cover investor losses arising from market declines or fraud.

The Division's additional responsibilities include:

carrying out the Commission's financial integrity program for broker-

dealers;

reviewing (and in some cases approving, under authority delegated

from the Commission) proposed new rules and proposed changes to

existing rules filed by the SROs;

assisting the Commission in establishing rules and issuing

interpretations on matters affecting the operation of the securities

markets; and

surveilling the markets.

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3.5.3 Division of Investment Management

The Division of Investment Management assists the Commission in executing

its responsibility for investor protection and for promoting capital formation

through oversight and regulation of America's $26 trillion investment

management industry. This important part of the U.S. capital markets includes

mutual funds and the professional fund managers who advise them; analysts

who research individual assets and asset classes; and investment advisers to

individual customers. Because of the high concentration of individual

investors in the mutual funds, exchange-traded funds, and other investments

that fall within the Division's purview, the Division of Investment

Management is focused on ensuring that disclosures about these investments

are useful to retail customers, and that the regulatory costs which consumers

must bear are not excessive.

The Division's additional responsibilities include:

assisting the Commission in interpreting laws and regulations for the

public and SEC inspection and enforcement staff;

responding to no-action requests and requests for exemptive relief;

reviewing investment company and investment adviser filings;

assisting the Commission in enforcement matters involving investment

companies and advisers; and

advising the Commission on adapting SEC rules to new circumstances.

3.5.4 Division of Enforcement

First and foremost, the SEC is a law enforcement agency. The Division of

Enforcement assists the Commission in executing its law enforcement function

by recommending the commencement of investigations of securities law

violations, by recommending that the Commission bring civil actions in

federal court or before an administrative law judge, and by prosecuting these

cases on behalf of the Commission. As an adjunct to the SEC's civil

enforcement authority, the Division works closely with law enforcement

agencies in the U.S. and around the world to bring criminal cases when

appropriate.

The Division obtains evidence of possible violations of the securities laws

from many sources, including market surveillance activities, investor tips and

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complaints, other Divisions and Offices of the SEC, the self-regulatory

organizations and other securities industry sources, and media reports.

All SEC investigations are conducted privately. Facts are developed to the

fullest extent possible through informal inquiry, interviewing witnesses,

examining brokerage records, reviewing trading data, and other methods. With

a formal order of investigation, the Division's staff may compel witnesses by

subpoena to testify and produce books, records, and other relevant documents.

Following an investigation, SEC staff present their findings to the

Commission for its review. The Commission can authorize the staff to file a

case in federal court or bring an administrative action. In many cases, the

Commission and the party charged decide to settle a matter without trial.

Common violations that may lead to SEC investigations include:

misrepresentation or omission of important information about

securities;

manipulating the market prices of securities;

stealing customers' funds or securities;

violating broker-dealers' responsibility to treat customers fairly;

insider trading (violating a trust relationship by trading on material,

non-public information about a security); and

selling unregistered securities.

Whether the Commission decides to bring a case in federal court or within the

SEC before an administrative law judge may depend upon the type of sanction

or relief that is being sought. For example, the Commission may bar someone

from the brokerage industry in an administrative proceeding, but an order

barring someone from acting as a corporate officer or director must be

obtained in federal court. Often, when the misconduct warrants it, the

Commission will bring both proceedings.

Civil action: The Commission files a complaint with a U.S. District Court and

asks the court for a sanction or remedy. Often the Commission asks for a court

order, called an injunction, that prohibits any further acts or practices that

violate the law or Commission rules. An injunction can also require audits,

accounting for frauds, or special supervisory arrangements. In addition, the

SEC can seek civil monetary penalties, or the return of illegal profits (called

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disgorgement). The court may also bar or suspend an individual from serving

as a corporate officer or director. A person who violates the court's order may

be found in contempt and be subject to additional fines or imprisonment.

Administrative action: The Commission can seek a variety of sanctions

through the administrative proceeding process. Administrative proceedings

differ from civil court actions in that they are heard by an administrative law

judge (ALJ), who is independent of the Commission. The administrative law

judge presides over a hearing and considers the evidence presented by the

Division staff, as well as any evidence submitted by the subject of the

proceeding. Following the hearing the ALJ issues an initial decision that

includes findings of fact and legal conclusions. The initial decision also

contains a recommended sanction. Both the Division staff and the defendant

may appeal all or any portion of the initial decision to the Commission. The

Commission may affirm the decision of the ALJ, reverse the decision, or

remand it for additional hearings. Administrative sanctions include cease and

desist orders, suspension or revocation of broker-dealer and investment

advisor registrations, censures, bars from association with the securities

industry, civil monetary penalties, and disgorgement.

3.5.5 Division of Risk, Strategy, and Financial Innovation

The Division of Risk, Strategy, and Financial Innovation was established

in September 2009 to help further identify developing risks and trends in the

financial markets.

This new Division is providing the Commission with sophisticated analysis

that integrates economic, financial, and legal disciplines. The Division's

responsibilities cover three broad areas: risk and economic analysis; strategic

research; and financial innovation.

The emergence of derivatives, hedge funds, new technology, and other factors

have transformed both capital markets and corporate governance. The

Division of Risk, Strategy, and Financial Innovation is working to advise the

Commission through an interdisciplinary approach that is informed by law and

modern finance and economics, as well as developments in real world

products and practices on Wall Street and Main Street.

Among the functions being performed by the Division are: (1) strategic and

long-term analysis; (2) identifying new developments and trends in financial

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markets and systemic risk; (3) making recommendations as to how these new

developments and trends affect the Commission's regulatory activities; (4)

conducting research and analysis in furtherance and support of the functions of

the Commission and its divisions and offices; and (5) providing training on

new developments and trends and other matters.

3.6 Offices of the Securities and Exchange Commission

3.6.1Office of Investor Advocate396- The head of the Office shall be the

Investor Advocate, who shall report directly to the Chairman and be

appointed by the Chairman, in consultation with the Commission, from among

individuals having experience in advocating for the interests of investors in

securities and investor protection issues, from the perspective of investors. The

annual rate of pay for the Investor Advocate shall be equal to the highest rate

of annual pay for other senior executives who report to the Chairman of the

Commission. An individual who serves as the Investor Advocate may not be

employed by the Commission during the 2-year period ending on the date of

appointment as Investor Advocate; or during the 5-year period beginning on

the date on which the person ceases to serve as the Investor Advocate. The

Investor Advocate has following functions to protect the interest of investors:

– the investor Advocate shall assist-

(a) assist retail investors in resolving significant problems such investors

may have with the Commission or with self-regulatory organizations;

(b) identify areas in which investors would benefit from changes in the

regulations of the Commission or the rules of self-regulatory

organizations;

(c) identify problems that investors have with financial service providers

and investment products;

(d) analyze the potential impact on investors of—

a. proposed regulations of the Commission; and

b. proposed rules of self-regulatory organizations registered under

this title; and

(e) to the extent practicable, propose to the Commission changes in the

regulations or orders of the Commission and to Congress any

396 Section 4 (g) of the Securities Exchange Commission Act, 1934

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legislative, administrative, or personnel changes that may be

appropriate to mitigate problems identified under this paragraph and to

promote the interests of investors.

3.6.2 Office of the General Counsel

The General Counsel is appointed by the Chairman as the chief legal officer of

the Commission, with overall responsibility for the establishment of agency

policy on legal matters. The General Counsel serves as the chief legal advisor

to the Chairman regarding all legal matters and services performed within, or

involving, the agency, and provides legal advice to the Commissioners, the

Divisions, the Offices, and other SEC components as appropriate.

The General Counsel represents the SEC in civil, private, or appellate

proceedings as appropriate, including appeals from the decisions of the federal

district courts or the Commission in enforcement matters, and appeals from

the denial of requests under the Freedom of Information Act. Through its

amicus curiae program, the General Counsel often intervenes in private

appellate litigation involving novel or important interpretations of the

securities laws, and the Office is responsible for coordinating with the

Department of Justice in the preparation of briefs on behalf of the United

States involving matters in which the SEC has an interest.

The General Counsel is also responsible for determining the adherence by

attorneys in the SEC to appropriate professional standards, as well as for

providing advice on standards of conduct to Commissioners and staff, as

appropriate. It is responsible for the final drafting of all proposed legislation

that the Chairman or the Commission choose to submit for consideration to the

Congress or the states, and for coordinating the SEC staff positions on such

legislation.

3.6.3 Office of the Chief Accountant

The Chief Accountant is appointed by the Chairman to be the principal adviser

to the Commission on accounting and auditing matters. The Office of the

Chief Accountant assists the Commission in executing its responsibility under

the securities laws to establish accounting principles, and for overseeing the

private sector standards-setting process. The Office works closely with the

Financial Accounting Standards Board, to which the SEC has delegated

authority for accounting standards setting, as well as the International

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Accounting Standards Board and the American Institute of Certified Public

Accountants.

In addition to its responsibility for accounting standards, the Commission is

responsible for the approval or disapproval of auditing rules put forward by

the Public Company Accounting Oversight Board, a private-sector regulator

established by the Sarbanes-Oxley Act to oversee the auditing profession. The

Commission also has thorough-going oversight responsibility for all of the

activities of the PCAOB, including approval of its annual budget. To assist the

Commission in the execution of these responsibilities, the Office of the Chief

Accountant is the principal liaison with the PCAOB. The Office also consults

with registrants and auditors on a regular basis regarding the application of

accounting and auditing standards and financial disclosure requirements.

Because of its expertise and ongoing involvement with questions concerning

the financial books and records of public companies registered with the SEC,

the Office of the Chief Accountant is often called upon to assist in addressing

issues that arise in the context of Commission enforcement actions.

3.6.4 Office of Compliance Inspections and Examinations

The Office of Compliance Inspections and Examinations administers the SEC's

nationwide examination and inspection program for registered self-regulatory

organizations, broker-dealers, transfer agents, clearing agencies, investment

companies, and investment advisers. The Office conducts inspections to foster

compliance with the securities laws, to detect violations of the law, and to

keep the Commission informed of developments in the regulated community.

Among the more important goals of the examination program is the quick and

informal correction of compliance problems. When the Office finds

deficiencies, it issues a "deficiency letter" identifying the problems that need

to be rectified and monitor the situation until compliance is achieved.

Violations that appear too serious for informal correction are referred to the

Division of Enforcement.

3.6.5 Office of International Affairs

The SEC works extensively in the international arena to promote cooperation

among national securities regulatory agencies, and to encourage the

maintenance of high regulatory standards worldwide. The Office of

International Affairs assists the Chairman and the Commission in the

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development and implementation of the SEC's international regulatory and

enforcement initiatives. The Office negotiates bilateral and multilateral

agreements for Commission approval on such subjects as regulatory

cooperation and enforcement assistance, and oversees the implementation of

such arrangements. It is also responsible for advancing the Commission's

agenda in international meetings and organizations. The Office also conducts a

technical assistance program for countries with emerging securities markets,

which includes training both in the United States and in the requesting

country. Over 100 countries currently participate in this program.

3.6.6 Office of Investor Education and Advocacy

The Office of Investor Education and Advocacy has three main functional

areas:

The Office of Policy has responsibility for reviewing agency action from the

perspective of the individual investor, including conducting investor surveys

and focus groups. It also plays a role in the Commission's efforts to help

ensure that investor disclosures are written in plain English.

The Office of Investor Advocacy responds to questions, complaints, and

suggestions from the members of the public. Tens of thousands of investors

contact the SEC each year using the agency's online forms or our (800) SEC-

0330 hotline (toll-free in U.S.) to ask questions on a wide range of securities-

related topics, to complain about problems with their investments or their

financial professionals, or to suggest improvements to the agency's regulations

and procedures.

The Office of Investor Education carries out the SEC's investor education

program, which includes producing and distributing educational materials,

participating in educational seminars and investor-oriented events, and

partnering with federal agencies, state regulators, and others on investor

literacy initiatives.

Office of Information Technology

The Office of Information Technology supports the Commission and staff of

the SEC in all aspects of information technology. The Office has overall

management responsibility for the Commission's IT program including

application development, infrastructure operations and engineering, user

support, IT program management, capital planning, security, and enterprise

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architecture. The Office operates the Electronic Data Gathering Analysis and

Retrieval (EDGAR) system, which electronically receives, processes, and

disseminates more than 500,000 financial statements every year. The Office

also maintains a very active website that contains a wealth of information

about the Commission and the securities industry, and also hosts the EDGAR

database for free public access.

3.6.7 Office of FOIA and Records Management Services.

The Office of FOIA and Records Management Services (OFRMS) is

responsible for the processing of requests under the Freedom of Information

and Privacy Acts, and the management of all agency records in accordance

with the Federal Records Act. The creation of OFRMS combines the teams

responsible for managing and providing access to agency records into one

office.

The Office of FOIA Services (OFS) is responsible for receiving and

responding to requests for non-public records under the Freedom of

Information Act (FOIA, 5 USC 552) and the Privacy Act (5 USC 552a).

Additionally, OFS responds to requests for public information which has not

been published to the SEC website under the FOIA (5 USC 552(a)). These

requests are routinely for older paper registration filings and other routine

releases of the Commission which pre-date 1996.

The Office of Records Management Services (RMS) develops, evaluates, and

issues policies, procedures, records schedules, and systems that allow the

agency to meet federal statutory and regulatory requirements. The work

includes identifying, creating, authenticating, and managing active SEC

records, as well as disposing of inactive records. RMS also provides certified

copies of SEC records supporting enforcement activities, other legal

proceedings, and performs records management training for SEC staff.

3.6.8 Office of the Executive Director

The Office of the Executive Director assists the Chairman in developing and

executing the management policies of the SEC. The Office formulates budget

and authorization strategies, supervises the allocation and use of SEC

resources, promotes management controls and financial integrity, manages the

administrative support offices, and oversees the development and

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implementation of the SEC's automated information systems. The Office has

three main functional areas:

The Office of Financial Management administers the financial management

and budget functions of the SEC. The Office assists the Chairman and the

Executive Director in formulating budget and authorization requests, monitors

the utilization of agency resources, and develops, oversees, and maintains SEC

financial systems. These activities include cash management, accounting, fee

collections, travel policy development, and oversight and budget justification

and execution.

The Office of Human Resources assists the Chairman in recruiting and

retaining the best and the brightest professional staff in the federal workforce,

and in ensuring that the SEC remains the employer of choice within the

federal government. The Office has overall responsibility for the strategic

management of the SEC's human capital. In addition, it is responsible for

ensuring compliance with all federal regulations for the following areas:

recruitment, staffing, retention, and separation; position management and

classification; compensation and benefits counseling and processing;

leadership and employee development; performance management and awards;

employee relations; labor relations; the SEC's disability, work/life, and

telework programs; employee records processing and maintenance; and

employee financial disclosure. The Office also represents the Commission as

the liaison to the U.S. Office of Personnel Management and other Federal

Government agencies, various public and private-sector professional human

resources organizations, and educational institutions in matters relating to

human capital management.

The Office of Administrative Services assists the Chairman and the Executive

Director in managing the agency's facilities and assets, and provides a wide

range of support services to the SEC staff. The Office serves the Headquarters

Office and all Regional Office locations on matters including procurement and

contracting, physical security, emergency management, property management,

office lease acquisition and administration, space renovation, supplies and

office equipment management, transportation, mail distribution, publications,

printing, and desktop publishing.

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3.6.9 Office of Legislative Affairs and Intergovernmental Relations

The Office of Legislative Affairs and Intergovernmental Relations serves as

the agency's formal liaison with the Congress, other Executive Branch

agencies, and state and local governments. The staff carefully monitors

ongoing legislative activities and initiatives on Capitol Hill that affect the

Commission and its mission. Through regular communication and

consultation with House and Senate members and staff, the Office

communicates legislators' goals to the agency, and communicates the agency's

own regulatory and management initiatives to the Congress.

The Office is responsible for responding to congressional requests for

testimony of SEC officials, as well as requests for documents, technical

assistance, and other information. In addition, the Office monitors legislative

and oversight hearings that pertain to the securities markets and the protection

of investors, even when an SEC witness is not present.

3.6.10 Office of Public Affairs

The Office of Public Affairs assists the Commission in making the work of the

SEC open to the public, understandable to investors, and accountable to

taxpayers. It helps every other SEC Division and Office accomplish the

agency's overall mission — to protect investors, maintain fair, orderly, and

efficient markets, and facilitate capital formation. The Office coordinates the

agency's relations with the media and the general public, in this country and

around the world.

In addition to publicizing the work of the Commission and its staff, the Office

assists in the enforcement of the Commission's policy concerning the

confidentiality of law enforcement and investigative information, which is

designed to protect the privacy rights of American citizens. The Office

reviews and distributes within the agency press coverage of the SEC and of

Commission-related issues, including the securities industry and the financial

markets. It also provides limited research where policy and public affairs goals

overlap.

3.6.11 Office of Administrative Law Judges

The Commission's Office of Administrative Law Judges consists of

independent judicial officers who conduct hearings and rule on allegations of

securities law violations in cases initiated by the Commission. When the

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Commission initiates a public administrative proceeding, it refers the cases to

the Office, where it is assigned to an individual Administrative Law Judge

(ALJ). The ALJ then conducts a public hearing that is similar to a non-jury

trial in the federal courts. Just as a federal judge can do, an ALJ issues

subpoenas, rules on motions, and rules on the admissibility of evidence. At the

conclusion of the hearing, the parties submit proposed findings of fact and

conclusions of law. The ALJ prepares an initial decision that includes factual

findings and legal conclusions that are matters of public record. Parties may

appeal an initial decision to the Commission, which can affirm, reverse,

modify, set aside or remand for further proceedings. Appeals from

Commission action are to a United States Court of Appeals.

Thus the SEC has established various Divisions and office to carry out its

work towards the protection of interest of investors. The SEC has also prohibit

Manipulative trade practices397, it requires regulation of securities market in

various mode. The SECURITIES EXCHANGE ACT OF 1934 requires the

registration of stock broker, sub brokers, intermediaries etc. The act has fixed

liabilities for misleading statements398, liability of controlling persons who aid

and Abet violations399, liability to contemporaneous trades for Insider

trading400etc. The SEC has given wide powers under the Act for Investigation,

Injunctions and prosecution401 of offences through public prosecutors etc. The

most important feature of the Act is the advisory committee (section 39) and

Compensation Committee402. The Advisory committee shall advise and

consult with the Commission on (i) regulatory priorities of the Commission;

(ii) issues relating to the regulation of securities products, trading strategies,

and fee structures, and the effectiveness of disclosure; (iii) initiatives to protect

investor interest; and (iv) initiatives to promote investor confidence and the

integrity of the securities marketplace; and (B) submit to the Commission such

findings and recommendations as the Committee determines are appropriate,

including recommendations for proposed legislative changes.

397 Section 9 of The SECURITIES EXCHANGE ACT OF 1934398 Section 18 of The SECURITIES EXCHANGE ACT OF 1934399 Section 20 of The SECURITIES EXCHANGE ACT OF 1934400 Section 20 A of The SECURITIES EXCHANGE ACT OF 1934401 Section 21 ibid402 Section 10 C ibid

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3.7 Compensation committee- The Commission shall, by rule, direct the

national securities exchanges and national securities associations to prohibit

the listing of any equity security of an issuer, other than an issuer that is a

controlled company, limited partnership, company in bankruptcy proceedings,

open ended management investment company that is registered under the

Investment Company Act of 1940, or a foreign private issuer that provides

annual disclosures to shareholders of the reasons that the foreign private issuer

does not have an independent compensation committee, that does not comply

with the requirements of this subsection.

4. SECURITIES MARKET REGULATOR IN UK: The Financial

Services Authority (FSA)403

The history, board, its management structure and Funding to the FSA are as

under:

4.1 History - The Chancellor of the Exchequer announced the reform of

financial services regulation in the UK and the creation of a new regulator on

20 May 1997.The Chancellor announced his decision to merge banking

supervision and investment services regulation into the Securities and

Investments Board (SIB). The SIB formally changed its name to the Financial

Services Authority in October 1997. The first stage of the reform of financial

services regulation was completed in June 1998, when responsibility for

banking supervision was transferred to the FSA from the Bank of England. In

May 2000 the FSA took over the role of UK Listing Authority from the

London Stock Exchange. The Financial Services and Markets Act, which

received Royal Assent in June 2000 and was, implemented on 1 December

2001, transferred to the FSA the responsibilities of several other organisations:

1. Building Societies Commission

2. Friendly Societies Commission

3. Investment Management Regulatory Organisation

4. Personal Investment Authority

5. Register of Friendly Societies

6. Securities and Futures Authority

403 http://www.fsa.gov.uk/Pages/About/Who/index.shtm

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In addition, the legislation gives the FSA some new responsibilities – in

particular taking action to prevent market abuse. In October 2004, following a

decision by the Treasury, it took on responsibility for mortgage regulation. In

January 2005, to implement the Insurance Mediation Directive and in

accordance with a Government announcement in 2004 we took on regulation

of general insurance business.

4.2 The Board - The FSA is governed by a Board appointed by the Treasury.

The majority of the Board members are non-executive. The Deputy Governor

(Financial Stability) of the Bank of England, is an ex officio director. One of

the non-executive members is Deputy Chairman and 'lead' non-executive. The

non-executive directors check that it operate efficiently and economically,

oversee mechanisms of financial control and set the pay of the executive

members of the Board. The management structure of the FSA is designed to

support the regulatory approach. FSA’s outcomes-based approach recognises

that it will now intervene proactively when it believe the results of a firm’s

actions will pose a risk to the statutory objectives. The management structure

of the board is as :

The Board, chaired by Adair, Lord Turner.

1. The Chief Executive, Hector Sants.

2. Two Managing Directors and a chief operating officer leading:

3. Conduct

4. Prudential; and

5. Operations

6. A number of functions report directly to the Chief Executive (the

Direct Reports Business Unit).

4.2.1 Funding to the Board– The board is an independent body and does not

receive any funding from the government. To finance the work, it charge fees

to all authorised firms that carry out activities to regulate, as well as other

bodies such as recognised investment exchanges. The Board’s general powers

to raise these fees are set out in Schedule 1, Part III, paragraph 17 of the

Financial Services and Markets Act (FSMA). FSMA also gives the power to

maintain sufficient reserves.

As well as FSA fees, it also invoice on behalf of the Financial Services

Compensation Scheme (FSCS), the Financial Ombudsman Service (FOS) and

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the Financial Reporting Council (FRC). This means that firms can see in one

place what their regulatory costs are.

The FSA charges firms:

(a) periodic fees (paid yearly), which provide most of the funding needed

to carry out our statutory functions;

(b) application fees, which recover some of the costs we incur in

processing certain applications under our rules or FSMA; and

(c) special project fees where we undertake regulatory activity at the

request of fee-payers, and the benefit of that activity primarily accrues

to them.

4.3 The functions of the FSA – The FSA is the independent body that

regulates the financial services industry in the UK. It has been given a wide

range of rule-making, investigatory and enforcement powers in order to meet

its four statutory objectives. In meeting these, it are also obliged to have

regard to the Principles of Good Regulation.

4.3.1 The applicability of the powers (Whom they Regulate) – It is an

independent organization responsible for regulating financial services in the

UK. The FSA was set up by government. The government is responsible for

the overall scope of our regulatory activities and powers. It regulates most

financial services markets, exchanges and firms. It set the standards that they

must meet and can take action against firms if they fail to meet the required

standards.

4.3.2 Regulatory Approach – The FSA is the single regulator for financial

services in the UK since December 2001, when the statutory powers were

given by the Financial Services and Markets Act 2000 (FSMA).

It has a wide range of rule-making, investigatory and enforcement powers to

enable us to meet four statutory objectives. It currently regulates over 29,000

firms that have a diverse range of sizes and activities. And publish a

single Handbook of rules and guidance for all authorised firms carrying out

business in the UK.

In recent years, the government has increased the scope of its work: since

November 2004 it has regulated mortgage business and since January 2005,

general insurance activities. Since November 2009 we have regulated banks’

and building societies’ conduct of business, including payments services.

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In January 2000, FSA sets out our proposed approach for regulation in A New

Regulator for the New Millennium. This explained the operating framework

that intended to put in place to enable it to meet the statutory objectives. This

framework is more commonly known as ARROW, which stands for the

Advanced, Risk-Responsive Operating framework, and it is at the heart of the

risk-based approach to regulation. It has reviewed and updated ARROW after

its first few years in operation. The current framework, ARROW II, was rolled

out in 2006. It explains more about how specifically apply ARROW II when

supervising firms in 'how to supervise firms'. As a risk-based regulator, its

approach is based on a clear statement of the realistic aims and limits of

regulation. Its approach recognizes the proper responsibilities of consumers

and of firms' own management, as well as the impossibility and undesirability

of removing all risk and failure from the financial system.

4.3.3 Fighting financial crime- The another main function of the FSA is to

fight financial crime for example Market abuse, Money laundering, fraud,

sanctions etc .

(i) Market abuse - Market Abuse, defined in section 118 of the Financial

Services and Markets Act 2000 and in the Market Abuse Directive, consists

primarily of Insider Information and Market Manipulation. The Market Abuse

Directive provides an EU wide market abuse regime aimed at reducing the

incidence of market abuse.

(ii) Money laundering- Firms and organisations in the financial services

industry can be used, wittingly or unwittingly, by criminals seeking to launder

the proceeds of crime (money laundering), thereby concealing the illegitimate

origins. Under FSMA, the FSA is charged with reducing the extent to which

regulated firms are used in connection with financial crime, including money

laundering.

(iii) Fraud - Fraud is a type of financial crime that has an effect on all parts

of the economy. It commonly involves the perpetrator making personal gains

or avoiding losses through the deception of others. Fraud can take a variety of

forms including phishing, skimming, carousel fraud, identity theft and advance

fee fraud. It falls within the FSA's statutory objective of reducing the risk of

financial crime and also impacts on our consumer protection objectives.

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(iv) Sanctions- The Government’s foreign policy objectives. It is also

used by the government to prevent and suppress the financing of terrorism and

terrorist acts. In 2007 the Government issued its new anti-money laundering

and terrorist finance strategy, and HM Treasury set up a dedicated Asset

Freezing Unit, which has increased the expertise and operational focus that the

Government is able to bring to bear on asset freezing.

Legal requirements - Each financial sanctions order is set out in a statutory

instrument and/or EC Regulation. These make up the HMT list. The relevant

legislation will specify the services a firm may or may not provide. While one

of the statutory objectives is to reduce the extent to which it is possible for an

authorised firm to be used for a purpose connected with financial crime, HMT

is responsible for implementing, administering and enforcing compliance with

UK financial sanctions. Firms must inform HMT's Asset Freezing Unit as

soon as practicable where it has identified an actual match with a person or

entity on the HMT list, or where it knows or suspects that a customer or a

person with whom the firm has had business dealings has committed a breach,

and supply any information that would facilitate compliance.

Anti financial crime requirements - Principle 3 of the Principles for Business

provides that "a firm must take reasonable care to organise and control its

affairs responsibly and effectively, with adequate risk management systems".

The Handbook rule SYSC 6.1.1R states that "a firm must establish,

implement and maintain adequate policies and procedures sufficient to ensure

compliance of the firm including its managers, employees and appointed

representatives (or where applicable, tied agents) with its obligations under the

regulatory system and for countering the risk that the firm might be used to

further financial crime". Our Handbook also requires that firms' relevant

systems and controls must be "comprehensive and proportionate in nature,

scale and complexity of its activities". Firms should therefore have

proportionate systems and controls in place to reduce the risk of a breach of

UK financial sanctions occurring. Although there is no specific obligation in

the Handbook requiring firms to notify a financial sanctions breach, Principle

11 requires firms to keep us advised of any relevant issues of which we would

normally expect notice.

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4.4 Corporate Responsibility at the FSA – The corporate responsibility at

the FSA under four key headings:

Work: how we achieve our three strategic aims of: helping retail consumers

achieve a fair deal; promoting efficient, orderly and fair markets; and

improving our business capability and effectiveness.

People: how it treat employees.

Environment: The FSA’s impact on the environment.

Community: impact on the local and wider community.

The corporate Responsibility of the FSA include the concept of diversity. The

concept of ‘diversity’ is about valuing and respecting differences and

understanding that people have varied needs. Understanding diversity is

essential to the FSA being an employer of choice and an effective regulator.

Its Executive Diversity Committee takes strategic decisions on issues affecting

Equality, Diversity and Inclusion at the FSA, and has Senior Executive level

responsibility for taking forward the agenda in this important area. It has

published a Single Equality Scheme which demonstrates our commitment to

promoting equality and diversity in all areas of our work, both as an employer

and as a regulator. It will steer the good work already undertaken at the FSA

and further enhance our dedication to diversity and equality. The singly

equality scheme means - the Scheme demonstrates how it will promote equal

opportunities across the eight protected characteristics: age, disability, gender,

gender reassignment (transgender), pregnancy and maternity, race, religion

and belief, and sexual orientation. The Action Plan sets out commitments that

go beyond our statutory obligations as a public body. Each action identifies

areas for improvement. The FSA is keen to achieve its diversity objectives by

monitoring, reviewing and updating the boards performance annually across

all Business Units.

4.5 Regulatory reform- In June 2010, the Chancellor announced the

government’s intention to replace the FSA as a single financial services

regulator with two new successor bodies, and restructure the UK’s financial

regulatory framework.

In 2013, the FSA will be replaced by two new regulatory bodies that will carry

forward our philosophy of outcomes-based regulation, intensive firm

supervision and credible deterrence:

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The Prudential Regulation Authority (the PRA), which will be a subsidiary of

the Bank of England, will be responsible for promoting the stable and prudent

operation of the financial system through regulation of all deposit-taking

institutions, insurers and investment banks.

The Financial Conduct Authority (the FCA) will be responsible for regulation

of conduct in retail, as well as wholesale, financial markets and the

infrastructure that supports those markets. The FCA will also have

responsibility for the prudential regulation of firms that do not fall under the

PRA’s scope.

To ensure a smooth transition it has changed the organisational structure to

help in evolving over the next two years from one unitary regulator to the

proposed new structure. These changes began on 4 April when we replaced

the Supervision and Risk business units with a Prudential Business Unit

(PBU) and a Conduct Business Unit (CBU) within the continuing FSA. As

has previously been announced, Hector Sants will be the chief executive of the

PRA as well as head of the PBU. He will be supported by a new arrival to the

FSA, Andrew Bailey, who joined the FSA on 4 April as a secondee from the

Bank of England to act as the deputy head of the PBU. As the government has

recently confirmed, Martin Wheatley will be chief executive of the FCA as

well as head of the CBU.

4.6 Aims and objectives – The FSA has been given by the act aims and

objective to achieve. As the FSA is a statutory body set up under the Financial

Services and Markets Act 2000 (FSMA). FSMA sets out our four statutory

objectives, which are supported by a set of principles of good regulation that

must have regard to when discharging its functions.

(A) Statutory objectives- The Financial Services and Markets Act 2000

(FSMA) gives four statutory objectives:

1) market confidence – maintaining confidence in the UK financial

system;

2) financial stability - contributing to the protection and enhancement of

stability of the UK financial system

3) consumer protection - securing the appropriate degree of protection for

consumers; and

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4) the reduction of financial crime - reducing the extent to which it is

possible for a regulated business to be used for a purpose connected

with financial crime.

(B) Other incidental objectives :

Provide political and public accountability - our annual report contains an

assessment of the extent to which we have met these objectives. Scrutiny of

the FSA by Parliamentary Committees may focus on how we achieve our

objectives.

Govern the way we carry out our general functions - e.g. rule-making, giving

advice and guidance, and determining our general policy and principles. So,

for example, we are under a duty to show how the draft rules we publish relate

to our statutory objectives.

Assist in providing legal accountability - where we interpret the objectives

wrongly, or fail to consider them, we can be challenged in the courts by

judicial review.

4.7 Principles of good regulations.

In discharging our functions under the Financial Services and Markets Act

2000 (FSMA), the Board is required to have regard to the following additional

matters, which has been refer to as 'principles of good regulation'.

Efficiency and Economy: The need to use our resources in the most efficient

and economic way.

The non-executive committee of our board is required, among other things, to

oversee our allocation of resources and to report to the Treasury every year.

The Treasury is able to commission value-for-money reviews of our

operations. These are important controls over our efficiency and economy.

Role and Management : The responsibilities of those who manage the affairs of

authorised persons.

A firm’s senior management is responsible for its activities and for ensuring

that its business complies with regulatory requirements. This principle is

designed to secure an adequate but proportionate level of regulatory

intervention by holding senior management responsible for risk management

and controls within firms. Accordingly, firms must take reasonable care to

make it clear who has what responsibility and to ensure that the affairs of the

firm can be adequately monitored and controlled.

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Proportionality - The burdens or restrictions we impose on the industry should

be proportionate to the benefits that are expected to result from those burdens

or restrictions. In making judgements in this area, we take into account the

costs to firms and consumers. One of the main techniques we use is cost-

benefit analysis of proposed regulatory requirements. This approach is shown,

in particular, in the different regulatory requirements we apply to wholesale

and retail markets.

Innovation - The desirability of facilitating innovation in connection with

regulated activities. This involves, for example allowing scope, where

appropriate, for different means of compliance so as not to unduly restrict

market participants from launching new financial products and services.

International Character : The international character of financial services and

markets and the desirability of maintaining the competitive position of the UK.

It takes into account the international aspects of much financial business and

the competitive position of the UK. This involves cooperating with overseas

regulators, both to agree international standards and to monitor global firms

and markets effectively.

Competition- The need to minimise the adverse effects on competition that

may arise from the board’s activities and the desirability of facilitating

competition between the firms it regulate. These two principles cover avoiding

unnecessary regulatory barriers to entry or business expansion. Competition

and innovation considerations play a key role in our cost-benefit analysis

work. Under the Financial Services and Markets Act, the Treasury, the Office

of Fair Trading and the Competition Commission all have a role to play in

reviewing the impact of our rules and practices on competition.

Public Awareness - The desirability of enhancing the understanding and

knowledge of members of the public of financial matters (including the UK

financial system).

4.8 Guidance

In Chapter 2 of the FSA's Enforcement Guide, it makes clear that the

approach to regulation and enforcement involves a combination of high-level

principles, detailed rules, guidance and supporting material, with an increasing

emphasis on the FSA's Principles for Businesses ('the Principles'). This is

because it believes that an approach that is based less on detailed rules and that

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focuses more on outcomes will allow it to achieve the regulatory objectives in

a more efficient and effective way.

The outcomes of FSA focused approach includes encouraging firms to

exercise judgement about, and take responsibility for, what the Principles

mean for them in terms of how they conduct their business. To assist firms in

this, it recognise that it is important that they can understand what expectation

from them. So, in some areas, its aim to provide greater clarity about

expectations of firms by using guidance and supporting material (such as case

studies, examples of good and bad practice, and FSA speeches) to supplement

the Principles and support the rules and guidance in the Handbook. The

emerging regulatory architecture provides practical examples and other

material to support firms. Some of this material comes through industry

solutions.

The FSA will not take action against a person for behaviour that it considers to

be in line with FSA guidance, supporting material or FSA-confirmed industry

guidance which were current at the time of the behaviour in question. Rights

conferred on third parties (such as a firm's clients) are not affected by FSA

guidance or supporting material, and it does not bind the courts (e.g. in

relation to an action for damages for breach of a rule).

Guidance and supporting material are not binding on those to whom the FSA's

rules apply. Rather, such materials are intended to illustrate ways (but not the

only ways) in which a person can comply with the relevant rules. Guidance

and supporting material do not set out the minimum standard of conduct

needed to comply with a rule, nor is there any presumption that departing from

guidance indicates a breach of a rule. If a firm has complied with the

Principles and other rules, then it does not matter whether it has also complied

with other material the FSA has issued.

FSA guidance and supporting material are potentially relevant to an

enforcement case, for example to help assess whether it could reasonably have

been understood or predicted at the time that the conduct in question fell

below the standards required by the Principles or rules. The extent to which

we may take guidance and supporting material into account when considering

a matter will depend on all the circumstances of the case.

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The FSA is a member of the "level 3" European committees of regulators

(CESR, CEBS and CEIOPS). These committees issue "level 3" material

relevant to applicable EU regulatory standards. "Level 3" material is not

binding on firms or the FSA, but may be relied on by firms and may be

relevant in an enforcement case in a similar way to the FSA's own guidance.

4.9 Other facts about the Financial Services Authority

FSA has regulate some 29,000 firms, which includes EEA firms passporting

into the UK, ranging from global investment banks to very small businesses,

and around 165,000 individuals. This industry contributes 6.8% of UK GDP

and employs over 1.1 million people, providing products and services to

millions of consumers.

Its powers derive, ultimately, from Parliament; in practice, are accountable in

a number of ways to the public, industry, government and Parliament. The

independent Practitioner and Consumer Panels, whose status is set out in

FSMA, exist to ensure that the views of consumers and the industry are taken

into account. It is required to respond formally to their representations.

Complaints against FSA may be investigated by an independent Complaints

Commissioner, whose findings are published.

There is scope for judicial review of FSA decisions. Its rules are subject to

scrutiny by competition authorities; it has to make an annual report to

Parliament, which is published, and the chairman and other senior directors

make regular appearances before the Commons Treasury Select Committee.

Preventive measures of FSA - The consumers should be provided with the

information that they need to make informed decisions about their financial

arrangements; that this information should be fair, clear and not misleading;

and that customers have the right to expect that any professional advice they

receive is appropriate for their individual circumstances.

With these rights, however, come responsibilities to ensure that the

information they provide to their advisers is accurate and complete; to give

proper consideration to the products or services being offered to them; and to

make sure that they fully understand any risks associated with the product

before they buy.

In a competitive market, firms must not be prevented from offering innovative

or high-risk products to those investors who are prepared, on the basis of an

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informed judgement, to accept the risks. It can intervene where it sees the risk

or reality of products being mis-sold.

The FSA can issue consumer warnings, via our web site and the media; recent

examples have included warnings on high-income bonds, venture capital trusts

and equity release schemes. It has a group which identifies potential risk and

takes action to, in effect, nip potential problems in the bud. Finally, where

individual instances of mis-selling have occurred, it can take enforcement

action and secure redress for customers.

FSA doesn't investigate customers' complaints and pay them compensation –

It is only one part of a regulatory framework that also provides a free

complaint resolution service and a 'safety net' to provide compensation to

individual customers when financial firms go out of business.

The Financial Ombudsman Service adjudicates on complaints that have not

been resolved by the relevant firms. FSA does not duplicate this service by

investigating individual complaints itself, but will undertake investigations

where it appears that a particular firm or product is attracting a

disproportionate number of complaints.

The Financial Services Compensation Scheme steps in when financial firms

go out of business owing money to their individual customers. It does not

compensate customers for poor investment performance.

FSA does not provide compensation to consumers. In some enforcement

cases, it is able to secure compensation from firms for customers who have

lost out as a result of the firms' behaviour. This compensation is paid directly

by the firm, not via the FSCS.

4.10 FSA Complaints Scheme

The FSA Complaints Scheme is separate from and NOT an alternative to the

Financial Ombudsman Service (FOS) or the Financial Services Compensation

Scheme (FSCS).

As the UK financial regulator the FSA does not investigate individual

consumer complaints and do not pay redress.

The separate roles of the FSA and the Financial Ombudsman Service

The Financial Services and Markets Act 2000 (FSMA) requires the FSA to

have arrangements for investigating complaints made against it. The FSA's

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Complaints Scheme is one of our key accountability mechanisms established

under FSMA.

Complaints are investigated independently and impartially by the Complaints

Team located within the Corporate Services Dept, in accordance with the rules

of the FSA Complaints Scheme. All valid complaints are investigated

thoroughly and within service standards, with lessons learnt from the

investigations passed back to senior management and to the business to ensure

that the FSA continually improves its performance. This helps create an

environment of continuous performance improvement within the FSA, and

provides accessibility and transparency in our activities, making us easier to

do business with.

The Complaints Team takes the matters raised by complainants seriously -

focusing its efforts on handling and resolving complaints quickly and

impartially, while treating complainants with courtesy and sensitivity,

respecting confidentiality at all times. Where a complainant states that he or

she has a disability, and that the nature of the disability will require reasonable

adjustments to be made to the way in which his or her complaint is handled

(for example, as concerns communications), the FSA's complaints team will

consider with the complainant what reasonable adjustments might be made to

assist the complainant. However, in order to do so, the complaints team will

first require a full explanation as to the nature of the complainant's disability

(they may, in certain circumstances, also require a medical certificate),

together with an explanation of the types of adjustment that the complainant

considers might be appropriate.

The Complaints Scheme operates within the requirements of the Data

Protection Act, and complies with the Freedom of Information Act and

ISO10002/2004. Senior management regularly monitor and review the

effectiveness of the system and ensure that all staff are aware and trained

appropriately. The FSA Complaints Scheme (Scheme) was set up in

September 2001 in accordance with the Financial Services Markets Act 2000

(FSMA), which requires the FSA to have arrangements in place to investigate

independently complaints made against its actions/inactions under FSMA. The

Scheme has two stages:

Stage 1, where complaints are investigated by the FSA; and

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Stage 2, where – if the complainant remains dissatisfied – complaints are

investigated by the Independent Complaints Commissioner.

4.11 The Financial Services Act 2010.

The Financial Services Act 2010 (the Act) was passed by Parliament on 8

April 2010. The Act makes a number of changes to its objectives, powers and

duties. The main changes are:

New consumer financial education body- The Act removed our public

awareness objective and required us to set up an independent body to take

forward consumer education work, such as the Moneymadeclear website,

guides and comparative tables. The Consumer Financial Education Body

(CFEB) was established in April 2010. The Act provides for more funding to

be made available for consumer education work.

Financial stability - The Act gives us a new objective to contribute to

protecting and enhancing UK financial stability. We are required to co-operate

appropriately with the Treasury, the Bank of England and other relevant

bodies in pursuing this objective. The Act requires us to have and review a

financial stability strategy. It enables us to gather information from entities

including unregulated entities for financial stability purposes. It also requires

us to consider the impact that international events and circumstances could

have on financial stability in the UK.

Regulatory powers - The Act extends the scope of the key regulatory powers

to make rules and to alter authorised firms regulatory permissions, so that the

powers may be used in pursuit of any of our regulatory objectives, including

the new financial stability objective.

Remuneration - The Act requires us to make rules to ensure that firms have

and follow a remuneration policy. These remuneration policies must be

consistent with effective risk management. The rules may prohibit firms from

remunerating staff in specific ways.

Recovery and Resolution Plans - The Act requires us to make rules requiring

certain firms to prepare Recovery and Resolution plans (sometimes referred to

as ‘living wills’).

Short selling - The Act enhances our powers in the field of short selling in

financial markets. It gives us the power to make rules to ban short selling in

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financial instruments and to require any person to disclose information about

their short selling.

Enforcement- The Act enhances our enforcement powers. It gives us the

power to suspend firms and individuals for disciplinary reasons, so supporting

our credible deterrence strategy. It also enables us to take action against

persons performing controlled functions without the required FSA approval,

and alters the operation of some of our existing disciplinary powers

Consumer redress -The Act contains provisions which, when commenced,

would enable to write rules which put in place consumer redress schemes.

This would allow to make sure that consumers receive redress in cases

involving large-scale consumer mis-selling or other failures.

FSCS- The Act contains provisions which, when commenced, would enable

the Financial Services Compensation Scheme (FSCS) to act as a single point

of contact and to pay redress to consumers where redress is due to them under

other schemes, such as schemes established outside the UK.

Different parts of the Act will take effect at different times. The parts of the

Act that come into effect immediately include the financial stability objective

and the duty to create a consumer financial education body. Parts that come

into force two months after the Act is passed include the duty to make rules

that will require firms to have a remuneration policy, the duty to make rules in

relation to recovery and resolution plans (‘living wills’), the financial stability

information-gathering powers, the power to make rules on short selling, and

the enforcement powers.

The removal of power to make consumer redress scheme rules is a provision

of the Act that takes effect only after a commencement order is made by the

Treasury.

Therefore, the FSA in UK has different approach from that adopted by

regulators in many other countries and, comment suggests, contributes to it’s

attractiveness to international financial firms. For example, one benefit of

being an integrated regulator, covering both prudential and conduct of

business regulation and combining banking, insurance and securities, is that a

large firm that was previously regulated by a number of different regulators

now has a single regulator at the FSA looking after all aspects of their

business. This eliminates the need for compliance staff, and senior

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management, to develop duplicative relationships with each regulator

individually. The aim is that the FSA staff supervising each such firm should

develop a thorough understanding of the business, to ensure that regulation is

proportionate and genuinely risk-based. However, we have not taken the step,

as has happened in some countries, of requiring large firms to provide

facilities so that our staff can be actually based on their premises at all times.

5. HONG KONG MARKET REGULATOR: Securities and Futures

Commission (SFC)404

5.1 Historical Background of the Securities and Futures Commission of

Hong Kong

Until the mid-1970s, stock and commodities markets in Hong Kong were

largely unregulated. After the stock market crash of 1973-1974, the

Government intervened and the core legislation governing the securities and

futures industry was enacted. The legislation was administered by two part-

time Commissions - one for securities and the other for commodities trading -

and their executive arm, the Commissioner for Securities and Commodities

Trading, who headed the Office of the Commissioner for Securities and

Commodities Trading, which was established as part of the Government. This

structure remained largely unchanged for over a decade, during which time

there was rapid change in the securities and futures markets, both

internationally and in Hong Kong.

Inevitably, the existing regulatory structure fell behind. In 1987, the

deficiencies in the structure were made all too apparent by the October crash,

which resulted in the closure of both the Hong Kong stock and stock index

futures markets for four days. In the aftermath of the crash, a six-member

committee, the Securities Review Committee, chaired by Ian Hay Davison,

was created to examine Hong Kong's regulatory structure and regime and how

they could be improved, to minimise the chances of a repeat of the disruption

and chaos of October 1987. In May 1988, the Committee released its report*,

which concluded that the Office of the Commissioner for Securities and

Commodities Trading had insufficient resources properly to regulate the

404 http://www.sfc.hk/sfc/html/EN/aboutsfc/aboutsfc.html

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rapidly growing and changing Hong Kong market. The Committee found that

too much effort had been spent on ineffective routine vetting, instead of active

surveillance and monitoring of markets and intermediaries. The two

commissions were not regulating effectively because they lacked strong

direction and had become passive and reactive, instead of being active and

proactive.

The Committee recommended that the then existing structure should be

replaced with a single statutory body outside the civil service, headed and

staffed by full-time professional regulators and funded primarily by the

market. In their view, such a body should have broad investigative and

disciplinary powers to enable it to perform its regulatory functions effectively.

Thus, in May 1989, following the enactment of the Securities and Futures

Commission Ordinance, the Securities and Futures Commission (SFC was

born).

5.2 Establishment of the SFC

The Securities and Futures Commission (SFC) is an independent non-

governmental statutory body outside the civil service, responsible for

regulating the securities and futures markets in Hong Kong. The Securities and

Futures Commission (SFC) is an independent statutory body established by

the Securities and Futures Commission Ordinance (SFCO). The SFCO and

nine other securities and futures related ordinances were consolidated into the

Securities and Futures Ordinance (SFO), which came into operation on 1 April

2003.

Corporate Video: Better Regulation for a Better Future- This Video discover

how the SFC ensures that intermediaries, the stock and future exchanges, other

market participants as well as investors operate within the orderly framework

laid down by the Securities and Futures Ordinance. This video outlines

different roles in a semi-documentary way and describes how foster market

growth while ensuring a level-playing field.

5.3 Objectives of SFC

The SFC is responsible for administering the laws governing the securities and

futures markets in Hong Kong and facilitating and encouraging the

development of these markets. The statutory regulatory objectives as set out in

the SFO are:

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1) to maintain and promote the fairness, efficiency, competitiveness,

transparency and orderliness of the securities and futures industry;

2) to promote understanding by the public of the operation and

functioning of the securities and futures industry;

3) to provide protection for members of the public investing in or holding

financial products;

4) to minimise crime and misconduct in the securities and futures

industry;

5) to reduce systemic risks in the securities and futures industry; and

6) to assist the Financial Secretary in maintaining the financial stability of

Hong Kong by taking appropriate steps in relation to the securities and

futures industry.

In carrying out the mission, the aim of SFC is to ensure Hong Kong’s

continued success and development as an international financial centre. The

SFC is divided into a number of operational units: Corporate Finance, Policy,

China & Investment Products, Enforcement, Supervision of Markets,

Licensing, and Intermediaries Supervision. They are supported by the Legal

Services Department and Corporate Affairs Division.

5.4 Whom, What and How to Regulate BY the Securities and Future

Commission

WHOM TO REGULATE HOW TO REGULATELicensed corporations andindividuals carrying out thefollowing regulated activities:Dealing in securitiesDealing in futures contractsLeveraged foreign exchange tradingAdvising on securitiesAdvising on futures contractsAdvising on corporate financeProviding automated tradingservicesSecurities margin financingAsset management

Set licensing standards to ensure that allpractitioners are fit and properApprove licences and maintain a publicregister of licenseesIssue codes and guidelines to informthe industry of its expected standard ofconductMonitor licensees' financial soundnessand compliance with ordinance, codes,guidelines, rules and regulationsHandle misconduct complaints againstlicenseesInvestigate and take action againstmisconduct

Investment products offered to thepublic

Set standards for the authorisation andregulation of investment products.Authorise investment products offeredto the public and their promotion(including advertisements and

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marketing materials)Listed companies Approve changes to the Listing Rules;

Monitor announcements and vet listingapplication materials under the DualFiling regime;Administer the Codes on Takeovers andMergers and Share Repurchases;Consider requests for exemptions fromprospectus requirements under theCompanies Ordinance;Enquire into listed companies'suspected prejudicial or fraudulenttransactions or provision of false ormisleading information to the public;

Hong Kong Exchanges andClearing Limited (HKEx)

Oversee the performance of its role asthe frontline regulator of listing relatedmatters;Approve the creation of new markets,new products and changes to its rulesand regulations;Monitor HKEx's own compliance withthe Listing Rules;Monitor the trading of shares, optionsand futures on its markets;Oversee its systems and technology;

Approved share registrars Approve the Federation of ShareRegistrars as an association whosemembers shall be approved shareregistrars;Require approved share registrars tocomply with the requirements of theCode of Conduct for Share Registrars

Investor Compensation CompanyLimited (ICC)

Recognise the ICC as an independentcompensation company;Approve the rules and any amendmentof rules of the ICC;Require the ICC to prepare andregularly submit financial statements,auditors' report and other documents tothe SFC

All participants in trading activities Monitor unusual market movementsand direct trade suspension of relatedstocks to maintain an informed andorderly market;Investigate and take action againstmarket misconduct and other breachesof the law.

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5.5 The Corporate Social Responsibility of SFC

As a member of the Hong Kong community, the SFC takes its social

responsibility seriously. At the SFC, we take into account the context of our

operating environment and how that impacts our staff, our external

stakeholders and society as a whole. The corporate social responsibility (CSR)

is a measure of value and a core intangible asset; it is also the cornerstone to

goodwill. Besides practicing personnel integrity, ethical standards and a caring

culture internally, it try to give back something to the society from which it

draw resources. In so doing, it ensures that growth is sustainable. The aim to

achieve a win-win situation as follows, using an appropriate and pragmatic

CSR policy:

(i) improve our appeal as an employer in the eyes of prospective

employees;

(ii) improve our reputation among external stakeholders and the

general public; and

(iii) assist in controlling the costs of certain resources we use in the

course of our operations.

In practicing CSR, we also set an example of good corporate citizenship for

the many companies that we interact with.

5.6 The Commission : Organisational Structure

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Audit Committee- Reviews the annual financial statements; reviews the

management's procedures to monitor the effectiveness of the systems of

accounting and internal control; recommends to the Commission the

appointment of external auditors; considers the scope and planning of the

external audit; reviews audit findings set out in the external auditors

management letters and management's responses to them and monitors the

subsequent implementation of agreed improvements; and considers any other

matters referred to it by the Commission.

Remuneration Committee- Reviews policy on the structure of staff

remuneration and recommends amendments; reviews reports on trends in

salary and benefits and recommends any periodic adjustments; and considers

any other matters referred to it by the Commission.

Budget Committee- Reviews and approves proposed parameters and the basis

for annual budget compilation; reviews the annual budget prior to its

submission to the Commission; reviews the implementation or progress of the

approved annual budget half yearly and recommends to the Commission any

appropriate actions; and considers any other matters referred to it by the

Commission.

Advisory Committee- Advises the Commission on any matter of policy

regarding the performance of its functions. Members' term of appointment is

from 1 June 2009 to 31 May 2011

Regulatory Committees- Takeovers and Mergers Panel- Hears disciplinary

matters in the first instance and reviews rulings by the Executive at the request

of any party dissatisfied with such a ruling. Considers novel, important or

difficult cases referred to it by the Executive. Reviews, upon request by the

SFC, the provisions of the Codes on Takeovers and Mergers and Share

Repurchases and the Rules of Procedure for hearings under the Codes and

recommends appropriate amendments to the Codes and Rules to the SFC.

Members' term of appointment is from 1 April 2010 to 31 March 2012 unless

otherwise stated.

Executives Committee- It performs administrative, financial and management

functions as delegated by the SFC and considers policy issues for

recommendation to the SFC; also coordinates and oversees the exercise of

functions that have been delegated to individual Executive Directors.

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This committee include following divisions

(i) Corporate Finance Division- The mission of the division is to enhance the

disclosure-based regulatory regime, improve corporate governance, and

promote changes to law and regulation encouraging the development of

efficient markets. Functions of division

a) Administer the Codes on Takeovers and Mergers and Share

Repurchases

b) Promote investor protection and corporate governance

c) Oversee the SEHK's listing-related functions and responsibilities

d) Review and recommend changes to the Listing Rules

e) Administer securities legislation relating to listed and unlisted

companies

f) Recommend changes to laws and regulations to facilitate the

development of effective, fair and efficient capital markets

g) Review prospectuses of unlisted issuers for authorisation and grant

exemptions for prospectuses issued by listed and unlisted issuers

under companies legislation

h) Administer the Dual Filing regime under the SFO to enhance the

quality of disclosure by listing applicants and listed companies.

(ii) Enforcement Division- The mission of ED is to protect investors and

uphold the integrity of the Hong Kong markets by deterring unlawful or

improper activities through effective surveillance and enforcement.

a) Monitor the trading of Hong Kong's stock and derivative markets and

inquire into irregularities

b) Monitor reporting of large open positions in futures and options

c) Inspect books and records of listed companies if impropriety is

suspected

d) Enforce laws relating to the securities and futures industry, leveraged

foreign exchange trading, and collective investment schemes

e) Report suspected market misconduct to the Financial Secretary

f) Enforce disclosure of interests of substantial shareholders, directors

and chief executives of listed companies

g) Discipline dishonest, incompetent and financially unstable regulated

intermediaries

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h) Co-operate with domestic and overseas regulatory bodies in local and

overseas investigations

(iii) Corporate Affairs Division

The Corporate Affairs Division includes: CEO's Office and Commission

Secretariat; Finance and Administration; Human Resources, Training and

Development; Information Technology; and External Relations. It provides

finance, human resources, training, information technology, management and

corporate services to the Commission; co-operate with other regulators;

educates investors and handles complaints; and communicates with

stakeholders including the media.

(iv) Legal Services Division

a) Provide internal advice on possible breaches of the securities laws,

including market misconduct

b) Advise on the applicability and interpretation of laws under the SFC's

purview

c) Assist with reform of the laws governing the securities and futures

markets

d) Conduct prosecutions in the Magistrates' Courts for regulatory

offences

e) Handle civil litigation matters involving the SFC, including appeals

f) Advise the Takeovers Executive and the Takeovers Panel

g) Provide general in-house legal advice and support

(v) Licensing Department

a) Licensing corporations and individuals seeking to conduct business in

Hong Kong in the regulated activities for which a licence is required

under the Securities and Futures Ordinance

b) Issuing Codes and Guidelines concerning the competence and

suitability of corporations and individuals to be licensed

c) Dealing with issues relating to the continuing suitability of licensed

corporations and individuals to remain licensed

d) Intermediaries Supervision Department

e) Supervise the business conduct of licensed intermediaries

f) Monitor the financial integrity of licensed corporations

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5.7 Composition of the Board

The constitution and proceedings of the Board are defined by the Securities

and Futures Ordinance. All the Members of the Board are appointed by the

HKSAR Chief Executive for a fixed term and the SFO requires that the

majority of the Members must be independent Non-Executive Directors

(NEDs). The composition of the Board ensures independent supervision of the

Commission's executive functions.

The Securities and Futures (Amendment) Ordinance 2006, which amends the

SFO to provide for the separation of the role of the Chairman of the

Commission from that of the executive arm of the Commission and to create a

Chief Executive Officer (CEO) post, has come into effect as from 23 June

2006. Under the new structure, the Commission will be led by a chairman

whose role will be separated from the executive arm, while the executive arm

will be headed by a CEO. The Chairman will lead the SFC Board in setting the

overall direction, policies and strategies of the Commission and monitoring

the performance of the executive arm in fulfilling the objectives, policies and

strategies set by the board. As for the CEO, he has the executive responsibility

for the day-to-day running of Commission. He should implement the

objectives, policies and strategies agreed by the board, and facilitate the

board's effective functioning.

The respective roles and responsibilities of the Chairman and CEO are set out

below:

5.7.1 Role and responsibilities of the Chairman

The Chairman has no executive responsibility for the day-to-day running of

the Commission. His/her key responsibilities are to –

a) establish and develop an effective Board;

b) lead the Board as a team;

c) plan and manage the Board's business;

d) lead the Board in its setting of the overall directions, policies,

strategies, agendas and priorities of the Commission;

e) facilitate effective contributions by the NEDs;

f) maintain and develop a productive relationship with the Chief

Executive Officer (CEO);

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g) with the CEO, ensure that key issues are discussed by the Board in a

timely manner, that the Board has adequate support and is provided

with all the necessary information on which to base decisions;

h) with the CEO, lead the communication of Commission policies to its

stakeholders;

i) as Chairman of the Commission, represent the Commission officially

at the local and international level, as appropriate, including attending

meetings of the committees and subcommittees of the Legislative

Council when requested;

j) provide a source of counsel and challenge to the CEO on how the

Commission is run, including giving feedback to the CEO on senior

management performance, development and succession, and on

organizational structure; and

k) Evaluate the effective functioning of the Board, SFC committees and

individual directors.

5.7.2 Role and responsibilities of the CEO:

The CEO has the overall executive responsibility for the day-to-day running of

the Commission and specific functions or duties delegated by the Board from

time to time. His/her key responsibilities include –

a) implementing the strategy agreed by the SFC Board, in whose

formulation s/he will have played a major part, and facilitating the

effective functioning of the Board;

b) reporting to the Board regularly with appropriate, timely and quality

information so that the Board can discharge its responsibilities

effectively; informing and consulting the Chairman and the Board on

all matters of significance to the Commission including helping ensure

that key issues are discussed by the Board in a timely manner, that the

Board has adequate support and is provided with all the necessary

information on which to base decisions;

c) developing and delivering the strategic objectives agreed with the

Board including helping to set the agenda and establish priorities for

the SFC;

d) recommending to the Board significant operational changes and major

capital expenditures where these are beyond the delegated authority;

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e) assigning responsibilities clearly to senior management and

supervising the work of other Executive Directors;

f) overseeing the day-to-day regulatory work of the Commission and

ensuring that the Commission is equipped with the necessary staffing,

financial and risk management systems for its mission;

g) tendering advice to the Chief Executive of the Hong Kong Special

Administrative Region under section 11(1) of the Securities and

Futures Ordinance after consulting the Chairman and any other

member of the Commission as appropriate;

h) signing the annual accounts of the Commission and the Investor

Compensation Fund;

i) sharing with the Chairman the task of convening meetings of the Board

and the Advisory Committee;

j) recruiting, developing and retaining talented people to work at the

Commission and in particular establishing a strong management team

which is fair and fully evaluated;

k) communicating throughout the Commission the strategic objectives

agreed with the Board, including those in the corporate plan, and

ensuring that these are achieved in practice;

l) sharing with the Chairman and other members of the SFC senior

management the responsibility of communicating the Commission's

messages externally; and

m) as CEO of the Commission, represent the Commission officially at the

local and international level, as appropriate, including attending

meetings of the committees and subcommittees of the Legislative

Council when requested.

5.8 How the Commission Operates

All important policies and decisions are discussed and approved by the Board,

which meets regularly every month and holds additional meetings as

necessary. Divisional staff attend Board meetings to explain policy proposals,

report on important operational matters and regulatory issues. Members are

also briefed on the financial positions of the Commission and provided with

monthly financial statements.

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To play an effective oversight role, the Board has delegated most of the

regulatory powers and functions to individual EDs, staff or Committees,

reserving the critical functions at the Board level. The Commission maintains

a detailed delegation list. All newly appointed Members receive briefings on

the work of the Commission and are provided with relevant SFC documents

including a copy of the Code of Conduct, which sets out the legal obligations

and the Commission's requirements on them. All Members are required to

disclose their investment portfolio upon appointment and report any

subsequent changes to the Commission. Members have separate and

independent access to the senior management and divisional staff for

additional information they may require about any policy proposal. They have

access to the Commission Secretary, who is responsible for ensuring the

procedures of the Commission are complied with. Members and the

Commission Committees can seek independent professional advice at the

expense of the Commission as and when necessary.

Code of Conducts- The Commission requires the highest standards of

integrity and conduct from its staff. It sets out in the Code of Conduct its

requirements and the relevant legal obligations. In particular, all Commission

staff should be aware of potential conflicts of interest and ensure that their

work is carried out properly, impartially and free from any suggestion of

improper influence. All Commission staff are required to keep confidential

information acquired in the course of duties. The Code sets a clear policy for

staff on personal dealings in securities and futures contracts and various

statutory requirements relating to personal dealings. The Code requires staff to

declare their investment in securities and futures contracts upon

commencement of employment and report all subsequent transactions.

Complaints against Commission Staff - The Commission has a policy of

transparency and accountability. It takes seriously any dissatisfaction

regarding the way in which Commission staff have carried out or failed to

carry out their duties. The Procedures for Handling Complaints against

Commission Staff ensures prompt handling of any complaints from members

of the public against our staff and facilitates effective follow-up action. We

have published the procedures on our website to enhance transparency and

provide clear guidance to the public.

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Accountability and Transparency- Individual divisions and departments of

the Commission follow operating manuals in performing functions and

exercising powers. The manuals ensure that we comply with relevant legal,

regulatory and administrative requirements. They are subject to review by the

independent Process Review Panel.

Independent Checks and Balances - The Commission is subject to various

external checks and balances designed to ensure fairness and observance of

due process. These include statutory rights of appeal, judicial review, and

scrutiny by independent bodies such as the Process Review Panel, the

Ombudsman and the Independent Commission against Corruption.

An Independent Review Panel - The Commission's internal procedures for

regulating the markets, including procedures for ensuring consistency and

fairness, are reviewed on an on-going basis by the Process Review

Panel (PRP). The PRP is an independent, non-statutory panel established by

the HKSAR Chief Executive in November 2000. The Commission is the first

securities regulator in the world to introduce such an external review system

on its internal operations.

Securities and Futures Appeals Panel/Tribunal- A wide range of the

regulatory decisions of the Commission are subject to a full review by

the Securities and Futures Appeals Tribunal (SFAT), which is chaired by a

High Court judge and comprises two other members appointed by the HKSAR

Chief Executive.

Before the establishment of the SFAT, the independent Securities and Futures

Appeals Panel (SFAP) heard appeals against decisions made by the SFC

relating to the registration, regulation and discipline of intermediaries.

Public Redress Mechanism- Members of the public can complain to the

Ombudsman against the Commission and its staff if they believe that we have

been guilty of maladministration in the performance of our functions.

Anyone who is dissatisfied with a Commission decision may appeal to the

SFAT. Where this remedy is not available, they may take civil action in the

Courts against the Commission, by either applying for judicial review of the

Commission's decisions or seeking remedies.

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5.9 Policy Statement of SFC on disclosure of certain information to the

public

This policy statement provides an overview of the SFC's approach to

disclosing publicly the fact that it is conducting an inquiry or investigation into

a corporation and highlights some of the key concerns and considerations that

will usually affect the SFC's decision whether or not to make any such

disclosure. The SFC will not normally make public the fact that it is or is not

conducting a statutory inquiry or investigation, or any of its findings or

conclusions, save in exceptional circumstances or where required to do so by

law. It is not possible to set out an exhaustive list of the exceptional

circumstances.

Publicity during an inquiry or investigation- Where the SFC is conducting an

inquiry or investigation into a corporation, it will, in exceptional

circumstances, make a public announcement that it is doing so if it considers

such an announcement is desirable to :-

a) maintain and promote confidence in the securities and futures industry;

b) protect members of the investing public;

c) minimize widespread misconduct or reduce systemic risks in the

securities and futures industry; or

d) Facilitate the conduct of the inquiry or investigation, for example by

bringing forward witnesses.

In deciding whether or not to make an announcement, the SFC will have due

regard to its functions as stated in the Securities and Futures Ordinance. It will

also consider:-

a) the potential prejudice that it believes may be caused to the inquiry or

investigation itself or to any person the subject of it; and

b) the restrictions on disclosure imposed by section 378 of the SFO

(which deals with the preservation of secrecy).

The exceptional circumstances may arise, for example, in the following cases:

(i) Where the matters under inquiry or investigation have become the subject

of public concern, speculation or rumours. In such cases it may be desirable

for the SFC to make public the fact of its inquiry or investigation in order to

allay concern, or contain the speculation or rumour and thereby maintain

public confidence.

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(ii) Where publicity is unavoidable. For example, investigations into suspected

criminal offences may lead to the SFC having to make enquiries amongst the

general public and thus attract publicity.

A decision to make an announcement must be made by at least two Executive

Directors in consultation with the Chief Executive Officer. Announcements

will normally be limited to confirming the fact that an inquiry or investigation

is under way in respect of a corporation and specifying the provision of the

SFO under which the SFC is proceeding.

Publicity following an inquiry or investigation.

The SFC may announce the conclusion of an inquiry or investigation where:-

a) it is not prevented by law from doing so;

b) the fact that the SFC was conducting an inquiry or investigation was

previously made public, whether by the SFC or otherwise; and

c) the SFC has concluded that there is no or insufficient evidence to

justify taking any further regulatory action.

Where the SFC has commenced any criminal proceedings it may make a

public announcement that it has done so. When the court has adjudicated the

matter, the SFC will normally make a public announcement which will include

the identity of the defendant, a brief summary of the facts of the case and the

decision of the Court.

6. Conclusion: In this era of globlisation and liberalization the study of capital

market regulator of other countries are very useful. As the market

capitalization of stock exchanges of New York Stock Exchange (NYSE),

NASDAQ Stock Exchange and Hong Kong Stock Exchange are in high

volume in world. In the USA, the SEC (Securities and Exchange Commission)

is regulating the stock market like NYSE and NASDAQ. These stock

exchanges are having highest market capitalization in the world. The

Securities Exchange Act of 1934 has created the Securities and Exchange

Commission to protect the interest of investors, to maintain fair, orderly and

efficient markets and Facilitate capital formation. Out of these objects of the

SEC the main and important mission is PROTECTION OF INVESTORS’

INTERESTS. The SEC is responsible to (i) interpret federal securities laws;

issue new rules and amend existing rules; (ii) oversee the inspection of

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securities firms, brokers, investment advisers, and ratings agencies; (iii)

oversee private regulatory organizations in the securities, accounting, and

auditing fields; and coordinate U.S. securities regulation with federal, state,

and foreign authorities. The Commission convenes regularly at meetings that

are open to the public and the news media unless the discussion pertains to

confidential subjects, such as whether to begin an enforcement investigation.

The SEC has established various Divisions and office to carry out its work

towards the protection of interest of investors. The SEC has also prohibited

Manipulative trade practices, it requires regulation of securities market in

various mode. The SECURITIES EXCHANGE ACT OF 1934 requires the

registration of stock broker, sub brokers, intermediaries etc. The act has fixed

liabilities for misleading statements, liability of controlling persons who aid

and Abet violations, liability to contemporaneous trades for Insider trading etc.

The SEC has given wide powers under the Act for Investigation, Injunctions

and prosecution of offences through public prosecutors etc. The most

important feature of the Act is the advisory committee and Compensation

Committee. The Advisory committee shall advise and consult with the

Commission on (i) regulatory priorities of the Commission; (ii) issues relating

to the regulation of securities products, trading strategies, and fee structures,

and the effectiveness of disclosure; (iii) initiatives to protect investor interest;

and (iv) initiatives to promote investor confidence and the integrity of the

securities marketplace; and (B) submit to the Commission such findings and

recommendations as the Committee determines are appropriate, including

recommendations for proposed legislative changes. In U K, the capital market

regulator is FSA, it is the independent body that regulates the financial

services industry in the UK. It has been given a wide range of rule-making,

investigatory and enforcement powers in order to meet it statutory objectives :

(i) market confidence – maintaining confidence in the UK financial system;

(ii) financial stability - contributing to the protection and enhancement of

stability of the UK financial system (iii) consumer protection - securing the

appropriate degree of protection for consumers; and (iv) the reduction of

financial crime - reducing the extent to which it is possible for a regulated

business to be used for a purpose connected with financial crime. One of the

very good feature is Guidance scheme. So, the FSA in UK is regulating the

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capital market to maintain market confidence and consumer protection. The

Hong Kong market regulator is Securities and Future Commission. Its main

objective (i) to maintain and promote the fairness, efficiency, competitiveness,

transparency and orderliness of the securities and futures industry, (ii) to

promote understanding by the public of the operation and functioning of the

securities and futures industry; (iii) to provide protection for members of the

public investing in or holding financial products; (iv) to minimise crime and

misconduct in the securities and futures industry etc. Set licensing standards to

ensure that all practitioners are fit and proper, Approve licences and maintain

a public register of licensees, Issue codes and guidelines to inform the industry

of its expected standard of conduct, Monitor licensees' financial soundness and

compliance with ordinance, codes, guidelines, rules and regulations, Handle

misconduct complaints against licensees, Investigate and take action against

misconduct etc. Members of the public can complain to the Ombudsman

against the Commission and its staff if they believe that they have been guilty

of maladministration in the performance of functions.

Therefore, other countries market regulator has adopted effective manner to

deal with most technical manner in a very simple way. Their common

objective is to protect the interest of investor from fraud or other malpractices

prevailing in these markets.

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