LC Paper No. CB(1)88/99-00
(These minutes have been
seen by the Administration)
Bills Committee on
Securities (Amendment) Bill 1998
Minutes of meeting held on
Wednesday, 7 October 1998, at 8:30 am
in Conference Room A of the Legislative Council Building
Members present :
Hon Ronald ARCULLI, JP (Chairman)
Hon Cyd HO Sau-lan
Hon Albert HO Chun-yan
Dr Hon Raymond HO Chung-tai, JP
Hon Margaret NG
Hon CHAN Kam-lam
Hon LEUNG Yiu-chung
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-hong
Hon Jasper TSANG Yok-sing, JP
Hon Ambrose LAU Hon-chuen, JP
Hon TAM Yiu-chung, JP
Member absent :
Hon Bernard CHAN
Public officers attending :
Attendance by invitation :
- Mr Bryan CHAN
- Principal Assistant Secretary for Financial Services
- Mr Wallace LAU
- Assistant Secretary for Financial Services
- Ms Monica LAW
- Acting Senior Assistant Law Draftsman
Clerk in attendance :
- Securities and Futures Commission
- Mr Gerald GREINER
- Senior Director
- Mr John LUFF
- Senior Counsel
Staff in attendance :
- Miss Odelia LEUNG
- Chief Assistant Secretary (1)1
I Meeting with the Administration
- Mr KAU Kin-wah
- Assistant Legal Adviser 6
- Ms Connie SZETO
- Senior Assistant Secretary (1)1
(LC Paper No. CB(1)283/98-99(01))
Members noted the submission by Mr CHAN Kam-tim which was tabled at the meeting and requested the Administration to provide a written response to the submission.(Post-meeting note: the Administration's reply to Mr CHAN's submission was circulated to members vide LC Paper CB(1)400/98-99)
2. Members examined the draft Committee Stage Amendment (CSA) proposed by the Administration to section 121A of the Securities Ordinance (SO) (Cap.333). The CSA provided that the Securities and Futures Commission (SFC) might take action if it was satisfied that the Stock Exchange of Hong Kong (SEHK) had unreasonably exercised its power in determining the level of discretionary payments to claimants under the proposed section 113(5A). Members considered the draft CSA acceptable, as the provision would provide sufficient checks and balances on the power of SEHK in making discretionary compensation payments.
3. Members then examined the draft CSAs proposed by Mr Albert HO which was tabled at the meeting and issued vide LC Paper No. CB(1)292/98-99(01) subsequently. They noted that the CSAs were to prescribe a per claimant compensation limit of $200,000, provide equal priority for SFC and claimants in insolvency distribution, as well as limit SFC's subrogation right to the statutory compensation of $8 million, excluding the discretionary compensation payments.
4. On the per claimant compensation limit, Mr Albert HO explained that it was necessary to specify the ceiling of $200,000 since the former Chairman of SFC had mentioned such an amount in a number of occasions after the collapse of C.A. Pacific Group. As regards the proposed amendment to SFC's subrogation right, he explained that it was made on the consideration of the principle of equity and of enhancing the payment to claimants with large claims as compared with the proposed compensation arrangement i.e. $150,000 per claimant in addition to the existing apportionment, on a pro-rata basis, of the $8 million compensation limit per individual broker.
5. The Principal Assistant Secretary for Financial Services (PAS/FS) re-iterated that the Administration considered it inappropriate to specify a definite compensation ceiling in the Bill as this would limit the flexibility of SEHK in determining the suitable level of discretionary payment for compensation and might not be conducive to the interest of the claimants at large. Moreover, according to the Government's legal advice, Mr Albert HO's proposed amendment would have charging effect on the Government. The legal advice had been set out in the letter dated 22 September 1998 to the Clerk to the Bills Committee (Re: LC Paper No. CB(1)225/98-99). He further clarified that the $200,000 per claimant compensation limit was mentioned by the former Chairman of SFC for illustrative purpose in the press conference on 25 February 1998. The former Chairman of SFC had repeatedly stressed that the figure was only for illustration purpose and the actual figure would have to depend on the total amount of the claims and the assets of the Unified Exchange Compensation Fund (the Fund). Upon members' request, PAS/FS undertook to provide the relevant written record, such as speech, press release etc, made by the Administration or concerned parties relating to the $200,000 limit.
(Post-meeting note : The Administration provided the relevant record vide LC Paper No. CB(1)364/98-99.)
6. Miss Margaret NG, Mr CHAN Kam-lam and Dr Philip WONG expressed that they did not support a proposal to specify a compensation limit in the Bill.
7. Commenting on Mr Albert HO's proposed amendment to SFC's subrogation right, PAS/FS said that the proposed compensation arrangement would enable speedy compensation to claimants and ensure that all claimants would receive more than they would have received in the insolvency although it was possible that claimants with small amounts would receive proportionally more than those with large amounts under the amendments. Moreover, SFC's subrogation right covering both the $8 million statutory limit and the $150,000 per claimant limit would ensure that no claimants would receive from both the Fund and the liquidation process more than they were entitled to. Capping the recycling monies recovered by SFC through subrogation rights in liquidation to the first $8 million would preserve the prerogative of the Fund over its resources.
8. Mr Albert Ho maintained his views and indicated that he would move CSAs to the Bill after refining the details.
9. Mr TSANG Yok-sing expressed concern about the method of apportionment of the $8 million among claimants. Noting from the example in Annex A to the Administration's information paper that the $8 million was apportioned on the basis of the full amount of allowed claims, he said that, given the large size of the total allowed claims, the pro-rata share of the $8 million of even large claims would be small and the actual payouts from the $8 million would be limited since the majority of claims would have been discharged under the discretionary payment. Hence he suggested that the $8 million be apportioned pro-rata to the amount of the outstanding claims, i.e. disregarding those claims which had been fully compensated by the discretionary payment. Such an approach would ensure that the $8 million would be fully distributed.
10. The Senior Director, SFC (SD/SFC) said that the method of apportioning the $8 million on the basis of the total amount of allowed claims was considered fair and that it had worked well in the past. He added that the ultimate responsibility for apportionment rested with SEHK and the existing provisions of SO did not provide for the power of SFC to intervene in this aspect. Mr TSANG Yok-sing expressed reservation over the proposed method of apportionment.
Clause-by-clause examination of the Bill
11. The Senior Assistant Law Draftsman (Atg) explained that the purpose of the proposed section 120(3) was to clarify beyond doubt that the claim of a claimant who had been paid a discretionary sum was absolutely discharged even if he did not receive any further payment under the apportionment procedure. This would prevent claimants who had already been sufficiently compensated by the discretionary payments from receiving compensation under the apportionment procedure.
12. The Assistant Legal Adviser 6 (ALA 6) said that drafting of this section could be improved to better reflect its intention. The Chairman suggested that the Administration discuss this with ALA 6.
(Post-meeting note : The Administration's written response to ALA6 which explained the current drafting in Clause 6 was copied to members vide LC Paper No. CB(1)364/98-99.)
13. Members noted that this clause would enable the Bill to take retrospective effect from 27 January 1998, i.e. the date on which SEHK published a notice under section 112 of SO calling for claims for compensation from the Fund in connection with the default of C.A. Pacific Group. Members also noted that the date would not affect the application or otherwise of the Bill to other known default cases of brokerage houses and that the actual date(s) on which the default occurred were irrelevant in this context.
14. Members agreed that subject to the Administration's response to the outstanding issues and the draft CSA to section 121A of SO being acceptable, the Bills Committee need not hold further meetings and the Chairman would report the deliberations of the Bills Committee to the House Committee in early November 1998.
II Any other business
15. There being no other business, the meeting ended at 10:30 am.
(Post-meeting note: The Administration's reply and the draft CSAs were circulated to members vide LC Paper No. CB(1)364/98-99. The Chairman reported the deliberations of the Bills Committee to the House Committee at its meeting on 6 November 1998. The Bills Committee recommended resumption of the Second Reading debate on the Bill on 18 November 1998.)
Legislative Council Secretariat
9 October 1999