In order to qualify for exemption under the avoidance of duplication provisions in section 4 of the Rules, the foreign intermediary who is providing the contract notes, statements of account or receipts to the clients of an intermediary who is subject to the Rules should be a related corporation of the intermediary. There is a definition of "related corporation" in section 3 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (SFO).

Furthermore, the foreign intermediary should be regulated under the law of US or UK. Where the foreign intermediary is regulated by another country other than US/UK, section 4 has no application. In the circumstances, an application may be made for modification of any requirements of the Rules under section 134 of the SFO. Any such application will be considered on its own merits, and any modification granted may be subject to such reasonable conditions as the SFC may impose to ensure that the interest of the investing public will not be prejudiced.

Section reference: Section 4

The question whether a relevant contract has been entered into, hence triggering the requirement under the Rules to issue a contract note, is a matter of law. Where an intermediary is not a party to the contract for dealing in the mutual funds either as principal or as agent for the client, the intermediary does not need to issue a contract note.

Section reference: Section 5(1)

The 2 days starts to run upon entering into the relevant contract. Under general principles of contract law, a contract is entered into when an offer is accepted, but where and when an offer is accepted depending on the medium through which the acceptance is made and the circumstances of the case.

The contract is completed when the dealing request is accepted by the fund house and such acceptance is ordinarily communicated to the intermediary distributor as agent for the investor shortly after the price is calculated. This will normally be the time when the 2 business days starts to run.

Section reference: Section 5(1)

There is a definition of “dealing” in Section 1, Part 1, Schedule 1 to the SFO. In respect of securities, the nature of a dealing refers to, for example, buying, selling, underwriting, subscribing, etc.

Section reference: Section 5(3)(c)(ii)

It is our intention that wherever transactions are entered into through a market or exchange, whether it is local or overseas, the name of the market or exchange should be disclosed. Arrangements should be put in place by an intermediary for the overseas broker to provide all necessary information to the intermediary for the purpose of preparing the contract note required to be provided under the Rules. We appreciate that the information may not be readily available from overseas brokers. In the case of genuine difficulty in processing the information in time, the SFC will consider an application for modification on a case-by-case basis pursuant to section 134 of the SFO.

Section reference: Section 5(3)(c)(iii)

No, it is our intention that in such circumstances, New York Stock Exchange should be disclosed.

Section reference: Section 5(3)(c)(iii)

1. While intermediaries and execution brokers may adopt various order routing practices appropriate to their circumstances, where an order (or such part thereof) is executed on a market or exchange, the intermediary should make arrangements (with its execution broker) to provide the name of the market or exchange to its client in a contract note prepared under the Rules.

Intermediaries may rely on information in the trade reports they have received or liaise with their execution brokers to determine the best available electronic communication protocol or computing interface (eg, FIX connection, other Computer-To-Computer Interface or Application Programming Interface connection) to obtain execution details in a timely manner.

2. In the context of s.5(3)(c)(iii) of the Rules, an order (or such part thereof) executed in the following trading venues or under the following arrangements is not considered as executed on a market or exchange –

1. Alternative liquidity pools (or more commonly known as dark pools); 
2. Bilateral over-the-counter or off-exchange trading arrangement with eg, liquidity providers or market makers.

For the avoidance of doubt, intermediaries are not required to comply with s.5(3)(c)(iii) of the Rules when preparing contract notes for clients for orders executed in alternative liquidity pools or over-the-counter with liquidity providers or market makers.

In such circumstances, our view is that the document should make it clear that the date on which the relevant contract is entered into or statement’s month-end date (as the case may be) is also the date of preparation of the document.

Section reference: Section 5(3)(e) and 7(c)

Consolidated daily statements of account may be provided to a client under section 6 or 10 of the Rules. There is no requirement that it must be named as a "Combined" Statement. Where the daily statements are meant to double up as receipts, they must state that they also serve as a receipt and includes the information specified in section 13(3)(d)(i) and (ii).

Section reference: Section 6 and 10

It is our intention that the name of the associated entity should be disclosed under section 7(d) where it holds the client assets by having physical certificates registered in its name (c.f. definition of "hold" in Section 1 of Part 1 of Schedule 1 to the SFO). We are of the view that where client assets of the intermediary are held by some associated entities as well as the intermediary, section 7(d) may be met by stating in the statement of account the names of all these entities and that the client assets are held by one and/or another of these entities.

Section reference: Section 7(d)

It is our intention that the current (last) interest rates applicable to the two or more currencies relating to the contracts be shown. We expect historical rates to be readily available when requested by a client for information, and for verification by the client whether or not the method disclosed in the client agreement as adopted by the intermediary in choosing the interest rates in calculating the client's interest income and expenses is being followed.

Section reference: Section 9(2)(k)

Yes, the disclosure requirements under section 9(2) apply only to the extent applicable to the account of the client.

Section reference: Section 9(2)(l)

Insofar as there is a limit for each different instrument, it is our intention that all such limits should be shown.

Section reference: Section 9(2)(l)

1. Yes.
2. No.

Section reference: Section 11(3)(b)

Section 13(1) applies where any client assets are received from or on behalf of a client by an intermediary or an associated entity (as the case may be). The intermediary will be required to issue a receipt for receiving the assets from the client. The associated entity will be required to provide a receipt only if, when the assets are handed over to it by the intermediary, it is receiving the assets on behalf of the client.

Whether the broker’s nominee is receiving the client assets on behalf of the client will need to be considered on the particular facts of each case, including considering any contractual terms relevant to the transfer of the client’s assets to the associated entity.

One should seek independent legal or other professional advice if there is any doubt about how the law applies to one’s particular circumstances.

Section reference: Section 13(1)

1. No.
2. No.

Section reference: Section 13(2)(b) and 13(2)(e)

Where the "account number" of the client disclosed under section 13(3)(c) uniquely identifies and it is clear to the client that it is same as the client's account into which the client assets or security have been deposited, then section 13(3)(d)(ii) is duplicative and the account needn’t be stated twice. On the other hand, the provision caters for other possibilities; e.g. subaccounts are attached to the client's primary account.

Section reference: Section 13(3)(d)(ii)

Please refer to the SFC's Guidance Note on the Application of Electronic Transactions Ordinance to Contract Notes (Aug 2000). It provides that when retaining copies of contract notes, it must be ensured that: (a) the information remains accessible so as to be useful for subsequent reference; (b) the electronic record is retained in the format in which it was originally generated, sent or received or can be demonstrated to represent accurately the information originally generated, sent or received; (c) information enabling identification of (i) the origin and destination of the original record and (ii) the date and time of its being sent or received, is retained. As a matter of policy, we intend to apply the same criteria to daily or monthly statements required to be provided under the Rules.

Section reference: Section 16