es

Transcription

1 2016 ( ) Securities and Futures (Amendment) Bill 2016

2 C229 Securities and Futures (Amendment) Bill 2016 Contents Clause Page Part 1 Preliminary 1. Short title and commencement... C Enactments amended... C247 Amendments to Securities and Futures Ordinance 3. Section 36 amended (rules by Commission)... C Section 56 amended (property deposited with recognized clearing house)... C Section 103 amended (offence to issue advertisements, invitations or documents relating to investments in certain cases)... C Part IVA added... C253 Part IVA Open-ended Fund Companies Division 1 Preliminary 112A. Interpretation of Part IVA... C255

3 C231 Clause Page 112B. Prohibition against carrying on business as open-ended fund company without registration etc.... C255 Division 2 Incorporation, Registration, Name and Registered Office 112C. Incorporation of open-ended fund company... C D. Application for registration with Commission before incorporation... C E. Requirements for registration... C F. Commission may amend conditions of registration... C G. Publication of particulars of open-ended fund company... C H. Name of open-ended fund company... C I. Registered office of open-ended fund company... C267 Division 3 Capacity and Powers 112J. Capacity of open-ended fund company... C K. Instrument of incorporation of open-ended fund company... C L. Effect of instrument of incorporation... C271 Division 4 Contracts 112M. Contracts made by or on behalf of openended fund company... C271

4 C233 Clause Page 112N. Contracts made before open-ended fund company s incorporation... C O. Contracts made after cancellation of registration... C277 Division 5 Share Capital and Shareholders Liability 112P. Share capital of open-ended fund company... C Q. Shareholders liability... C279 Division 6 Sub-funds 112R. Sub-funds of open-ended fund company... C S. Segregated liability of sub-funds... C279 Division 7 Directors, Investment Manager, Custodian, Subcustodian and Auditor 112T. Interpretation of Division 7 of Part IVA... C U. Directors... C V. Restrictions on body corporate being director... C W. Minimum age for appointment as director... C X. Provisions as to undischarged bankrupt acting as director... C Y. Validity of acts of director... C Z. Investment manager... C ZA. 112ZB. Custodian... C291 Auditor... C293

5 C235 Clause Page 112ZC. 112ZD. 112ZE. Provision protecting specified officer from liability void... C293 Court of First Instance may grant specified officer relief in proceedings for misconduct... C293 Court of First Instance may grant specified officer relief for misconduct on specified officer s application... C295 Division 8 Supervision by Commission 112ZF. 112ZG. 112ZH. 112ZI. 112ZJ. Commission s power to give directions... C297 Application to Court of First Instance for inquiry into failure to comply with direction... C301 Commission s power to cancel registration on open-ended fund company s application... C303 Commission s power to cancel registration otherwise than on open-ended fund company s application... C307 Permission to carry on essential business operations on cancellation of registration... C311 Division 9 Rules made by Commission 112ZK. 112ZL. Commission s power to make rules... C313 Rules made with consent of Registrar of Companies... C321

6 C237 Clause Page 112ZM. 112ZN. 112ZO. 112ZP. Rules made with consent of Official Receiver... C327 OFC rules may prescribe offences... C327 Modification or waiver of requirements of OFC rules by notice... C329 Modification or waiver of requirements of OFC rules by rules... C333 Division 10 Miscellaneous 112ZQ. Financial Secretary may make regulations relating to fees... C ZR. Commission may publish codes and guidelines... C ZS. 112ZT. Effect of codes and guidelines... C339 Offence of fraudulent trading... C Section 180 amended (supervision of intermediaries and their associated entities)... C Section 182 amended (investigations by Commission)... C Section 193 amended (interpretation of Part IX)... C Section 201 amended (general provisions relating to exercise of powers under Division 2 or 3)... C Section 212 amended (winding-up orders and bankruptcy orders)... C349

7 C239 Clause Page 12. Section 213 amended (injunctions and other orders)... C Sections 214A and 214B added... C A. Remedies in cases of unfair prejudice etc. to interests of shareholders of open-ended fund companies... C B. Order under section 214A altering openended fund company s instrument of incorporation... C Section 336 amended (register of interests in shares and short positions)... C Section 352 amended (register of directors and chief executives interests and short positions)... C Section 378 amended (preservation of secrecy, etc.)... C Section 379 amended (avoidance of conflict of interests)... C Section 400 amended (service of notices, etc.)... C Schedule 1 amended (interpretation and general provisions)... C Schedule 2 amended (Securities and Futures Commission)... C Schedule 5 amended (regulated activities)... C Schedule 8 amended (Securities and Futures Appeals Tribunal)... C369

8 C241 Clause Page Part 3 Related Amendments Division 1 Amendment to Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) 23. Section 168R amended (register of disqualification orders)... C375 Division 2 Amendment to Companies (Disqualification Orders) Regulation (Cap. 32 sub. leg. I) 24. Schedule 1 amended... C375 Division 3 Amendments to Inland Revenue Ordinance (Cap. 112) 25. Section 2 amended (interpretation)... C Section 57 amended (principal officer to act on behalf of a corporation or body of persons)... C377 Division 4 Amendments to Stamp Duty Ordinance (Cap. 117) 27. Section 19 amended (contract notes, etc. in respect of sale and purchase of Hong Kong stock)... C Section 30A added... C379 30A. Sub-schemes under unit trust schemes... C Part IVA added... C381 Part IVA Open-ended Fund Companies 37A. Interpretation of Part IVA... C381

9 C243 Clause Page 37B. Application of certain provisions relating to unit trust schemes to open-ended fund companies... C381 37C. Sub-funds of open-ended fund companies... C Section 63 amended (regulations)... C First Schedule amended... C Schedule 8 amended (transactions and transfers relating to exchange traded funds)... C Schedule 9 added... C387 Schedule 9 Transactions and Transfers Relating to Authorized Open-ended Collective Investment Schemes... C387 Division 5 Amendments to Business Registration Ordinance (Cap. 310) 34. Section 2 amended (interpretation and application)... C Section 3 amended (persons answerable for doing all acts, etc. required to be done)... C Section 5A amended (simultaneous business registration applications of companies incorporated under Companies Ordinance)... C Section 6 amended (registration of business and issue of business registration certificate)... C Section 7A amended (refund of prescribed business registration fees, prescribed branch registration fees or levies)... C401

10 C245 Clause Page 39. Section 8 amended (information to be furnished)... C Section 9 amended (exemption from payments of fees for small businesses)... C Section 15 amended (offences)... C403 Division 6 Amendments to Business Registration Regulations (Cap. 310 sub. leg. A) 42. Regulation 3A amended (business particulars in relation to simultaneous business registration applications)... C403 Division 7 Amendment to Resolution of the Legislative Council Establishing Companies Registry Trading Fund (Cap. 430 sub. leg. B) 43. Schedule 1 amended (services to be provided by the trading fund)... C405 Division 8 Amendments to Contracts (Rights of Third Parties) Ordinance (Cap. 623) 44. Section 3 amended (application)... C405

11 Part 1 Clause 1 C247 A BILL To Amend the Securities and Futures Ordinance and other enactments to provide for the incorporation, registration, management, operation and regulation of open-ended fund companies; and to provide for related matters and make minor amendments. Enacted by the Legislative Council. Part 1 Preliminary 1. Short title and commencement (1) This Ordinance may be cited as the Securities and Futures (Amendment) Ordinance (2) This Ordinance comes into operation on a day to be appointed by the Secretary for Financial Services and the Treasury by notice published in the Gazette. 2. Enactments amended (1) The Securities and Futures Ordinance (Cap. 571) is amended as set out in.

12 Part 1 Clause 2 C249 (2) The enactments specified in Part 3 are amended as set out in that Part.

13 Clause 3 C251 Amendments to Securities and Futures Ordinance 3. Section 36 amended (rules by Commission) Section 36(1)(e) Repeal companies Substitute corporations. 4. Section 56 amended (property deposited with recognized clearing house) Section 56(3) Repeal the operation of section 633 of the Companies Ordinance (Cap. 622). Substitute the operation of (a) section 633 of the Companies Ordinance (Cap. 622); or (b) any provision of the OFC rules relating to the rectification of the register of shareholders of an open-ended fund company.. 5. Section 103 amended (offence to issue advertisements, invitations or documents relating to investments in certain cases) (1) Section 103(2) Repeal paragraph (ga)

14 Clause 6 C253 Substitute (ga) made by or on behalf of a corporation, but only to the extent that the advertisement, invitation or document relates to an offer specified in Part 1 of the Seventeenth Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) as read with the other Parts of that Schedule;. (2) Section 103(3)(b) Repeal not a registered company Substitute neither a registered company nor an open-ended fund company. (3) Section 103(3)(c) Repeal a corporation, Substitute 6. Part IVA added a corporation that is not an open-ended fund company,. After Part IV Add

15 Clause 6 C255 Part IVA Open-ended Fund Companies 112A. Interpretation of Part IVA In this Part Division 1 Preliminary OFC rules ( ) means rules made under section 112ZK, 112ZL or 112ZM; open-ended fund company ( ) means a collective investment scheme constituted as a corporation that holds a certificate of incorporation issued by the Registrar of Companies under section 112C; proposed company ( ) means a company intended to be incorporated under this Part; scheme property ( ), in relation to an open-ended fund company, means the property under the collective investment scheme that is constituted as the company; sub-custodian ( ), in relation to an open-ended fund company, means a person to whom any scheme property of the company is entrusted for safe keeping by virtue of section 112ZA(5)(a) or (b); sub-fund ( ) see section 112R. 112B. Prohibition against carrying on business as open-ended fund company without registration etc. (1) A person, not being an open-ended fund company that is registered under section 112D, must not

16 Clause 6 C257 (a) (b) carry on business as an open-ended fund company; or hold out as an open-ended fund company. (2) A person must not manage any property on behalf of another person who, not being an open-ended fund company that is registered under section 112D (a) carries on business as an open-ended fund company; or (b) holds out as an open-ended fund company. (3) A person must not hold out as acting on behalf of another person who, not being an open-ended fund company that is registered under section 112D (a) carries on business as an open-ended fund company; or (b) holds out as an open-ended fund company. (4) A person who, without reasonable excuse, contravenes subsection (1) commits an offence and is liable (a) on conviction on indictment to a fine of $5,000,000 and to imprisonment for 7 years and, in the case of a continuing offence, to a further fine of $100,000 for each day during which the offence continues; or (b) on summary conviction to a fine of $500,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for each day during which the offence continues.

17 Clause 6 C259 (5) A person who, without reasonable excuse, contravenes subsection (2) or (3) commits an offence and is liable (a) on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $20,000 for each day during which the offence continues; or (b) on summary conviction to a fine at level 6 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $2,000 for each day during which the offence continues. Division 2 Incorporation, Registration, Name and Registered Office 112C. Incorporation of open-ended fund company (1) Any person may incorporate a company under this Part by delivering to the Registrar of Companies for registration (a) an incorporation form prescribed by the OFC rules; and (b) a copy of the instrument of incorporation of the proposed company that has been signed in accordance with the OFC rules. (2) The documents specified in subsection (1) (a) must be delivered in the manner prescribed by the OFC rules; and (b) must be accompanied by any document or information prescribed by the OFC rules.

18 Clause 6 C261 (3) Subject to subsection (4), if the Registrar of Companies is satisfied that the requirements for incorporation prescribed by the OFC rules are met with respect to the proposed company, the Registrar (a) must register the documents delivered under subsection (1); and (b) must issue a certificate of incorporation in respect of the proposed company certifying that it is a company incorporated under this Part. (4) The Registrar of Companies must not register the relevant documents or issue a certificate of incorporation under subsection (3) unless the Registrar has been notified of the registration of the proposed company under section 112D(7). 112D. Application for registration with Commission before incorporation (1) On an application by a person, the Commission may register a proposed company for the purposes of this Part. (2) An application for the purposes of subsection (1) (a) must be made in the manner specified by the Commission; and (b) must be accompanied by any document or information that the Commission requires. (3) The registration of a proposed company takes effect on the day on which a certificate of incorporation is issued by the Registrar of Companies under section 112C(3)(b) in respect of it.

19 Clause 6 C263 (4) The Commission must refuse to register a proposed company unless it is satisfied that the requirements for registration specified in section 112E will, on the day on which the registration takes effect, be met with respect to the company. (5) Without limiting any other ground on which the Commission may refuse to register a proposed company, the Commission may refuse to do so if it is not satisfied that the registration is in the interest of the investing public. (6) On registering a proposed company, the Commission may impose any condition that it considers appropriate. (7) The Commission must, as soon as reasonably practicable after registering a proposed company under subsection (1), notify the Registrar of Companies in writing of the registration. (8) The Commission must, as soon as reasonably practicable after refusing to register a proposed company under subsection (1), notify the applicant in writing of the refusal and the reasons for it. 112E. Requirements for registration The requirements for registration specified for the purposes of section 112D(4) are (a) the requirements relating to the name of an open-ended fund company as set out in section 112H(2), (3), (4) and (5); (b) the requirement relating to the registered office of an open-ended fund company as set out in section 112I;

20 Clause 6 C265 (c) the requirements relating to directors of an open-ended fund company as set out in sections 112U(1), 112V(1), 112W(1) and 112X(1); (d) the requirements relating to an investment manager of an open-ended fund company as set out in section 112Z; (e) the requirement relating to a custodian of an open-ended fund company as set out in section 112ZA(1); and (f) any other requirements for registration prescribed by the OFC rules. 112F. Commission may amend conditions of registration The Commission may, by notice in writing served on an open-ended fund company, amend or revoke any of the conditions imposed, or impose new conditions, in respect of its registration. 112G. Publication of particulars of open-ended fund company (1) The Commission may publish, in any manner it considers appropriate, particulars of an open-ended fund company. (2) Particulars published under subsection (1) are not subsidiary legislation. 112H. Name of open-ended fund company (1) The name of an open-ended fund company is (a) the name stated in its certificate of incorporation; or (b) if a change of name has effect under the OFC rules, its new name.

21 Clause 6 C267 (2) The name of an open-ended fund company must not (a) in the opinion of the Commission, be misleading or otherwise undesirable; or (b) be the same as the name of another existing open-ended fund company. (3) For an open-ended fund company that has an English name only, the name must end with Openended Fund Company or OFC. (4) For an open-ended fund company that has a Chinese name only, the name must end with. (5) For an open-ended fund company that has both an English name and a Chinese name (a) the English name must end with Open-ended Fund Company or OFC ; and (b) the Chinese name must end with. 112I. Registered office of open-ended fund company An open-ended fund company must have a registered office in Hong Kong to which all communications and notices may be addressed. Division 3 Capacity and Powers 112J. Capacity of open-ended fund company An open-ended fund company has the capacity, rights, powers and privileges as are prescribed by the OFC rules.

22 Clause 6 C K. Instrument of incorporation of open-ended fund company (1) An open-ended fund company must have an instrument of incorporation prescribing regulations for the company. (2) The instrument of incorporation of an open-ended fund company must contain (a) the name of the company; (b) a statement that the registered office of the company is situated in Hong Kong; (c) the objects of the company; (d) provision as to the kinds of property in which the company is to invest; (e) a statement that the company is an open-ended fund company with variable share capital; (f) a statement that the amount of the paid-up share capital of the company is at all times equal to the net asset value of the company; (g) (h) (i) a statement that the company s shareholders are not liable for the debts of the company; a statement that the company s scheme property is entrusted to a custodian of the company for safe keeping in compliance with the law; and any other matters prescribed by the OFC rules. (3) For an open-ended fund company with sub-funds, its instrument of incorporation must also contain a statement that the assets of a sub-fund of the company belong exclusively to the sub-fund and are not to be used to discharge the liabilities of, or the claims against, any other person, including the company and any other sub-fund of the company.

23 Clause 6 C L. Effect of instrument of incorporation (1) Subject to this Ordinance, the instrument of incorporation of an open-ended fund company, once registered under this Ordinance (a) (b) has effect as a contract under seal (i) between the company and each shareholder; and (ii) between a shareholder and each other shareholder; and is to be regarded as containing covenants on the part of the company and of each shareholder to observe all the provisions of the instrument. (2) Without limiting subsection (1), the instrument of incorporation of an open-ended fund company is enforceable (a) (b) (c) by the company against each shareholder; by a shareholder against the company; and by a shareholder against each other shareholder. (3) Money payable by a shareholder to an open-ended fund company under its instrument of incorporation (a) is a debt due from the shareholder to the company; and (b) is of the nature of a specialty debt. Division 4 Contracts 112M. Contracts made by or on behalf of open-ended fund company (1) This section applies to

24 Clause 6 C273 (a) a contract that would be required by law to be in writing and under seal if made between natural persons; (b) a contract that would be required by law to be in writing, and to be signed by the parties to the contract, if made between natural persons; and (c) a contract that, though made orally and not in writing, would by law be valid if made between natural persons. (2) A contract specified in subsection (1)(a) may be made by an open-ended fund company (a) (b) in writing under the company s common seal (if any); or in writing executed in accordance with the OFC rules and expressed (in whatever words) to be executed by the company. (3) A contract specified in subsection (1)(b) may be made on behalf of an open-ended fund company in writing signed by any person acting with the company s authority (whether express or implied). (4) A contract specified in subsection (1)(c) may be made on behalf of an open-ended fund company orally by any person acting with the company s authority (whether express or implied). (5) A contract made by or on behalf of an open-ended fund company in accordance with this section (a) is effective in law; and (b) binds the company and its successors and all other parties to the contract.

25 Clause 6 C275 (6) A contract made in accordance with this section may be varied or discharged in the same manner in which it is authorized by this section to be made. 112N. Contracts made before open-ended fund company s incorporation (1) This section applies if a contract purports to have been made in the name or on behalf of an openended fund company before the company was incorporated. (2) Subject to any express agreement to the contrary (a) the contract has effect as a contract made by the person purporting to act for the company or as an agent for the company; and (b) the person is personally liable on the contract and is entitled to enforce the contract. (3) After incorporation, the company may ratify the contract to the same extent as if (a) the company had already been incorporated when the contract was made; and (b) the contract had been made on the company s behalf by an agent acting without the company s authority. (4) Despite subsection (2)(b), if the contract is ratified by the company, then on and after the ratification, the liability of the person mentioned in that subsection is not greater than the liability that the person would have incurred if the person had made the contract after the company s incorporation as an agent acting without the company s authority.

26 Clause 6 C O. Contracts made after cancellation of registration If (a) an open-ended fund company makes a contract after its registration has been cancelled under section 112ZH or 112ZI; and (b) the company fails to comply with any obligation under the contract within 21 days of being called on to do so by the other party to the contract, the person who has authorized the contract is liable, and if the contract was authorized by 2 or more persons, they are jointly and severally liable, to indemnify that other party in respect of any loss or damage suffered by that other party by reason of the company s failure to comply with the obligation. Division 5 Share Capital and Shareholders Liability 112P. Share capital of open-ended fund company (1) An open-ended fund company may issue shares. (2) Shares in an open-ended fund company have no nominal value. (3) The amount of the paid-up share capital of an openended fund company is at all times equal to the net asset value of the company. (4) In this section net asset value ( ), in relation to an open-ended fund company, means the balance after deducting the total liabilities of the company from its total assets.

27 Clause 6 C Q. Shareholders liability The liability of the shareholders of an open-ended fund company is limited to any amount unpaid on the shares held by the shareholders. Division 6 Sub-funds 112R. Sub-funds of open-ended fund company (1) The instrument of incorporation of an open-ended fund company may provide for the division of its scheme property into separate parts. (2) Each separate part of the scheme property of an open-ended fund company is a sub-fund of the company. 112S. Segregated liability of sub-funds (1) The assets of a sub-fund of an open-ended fund company belong exclusively to the sub-fund and must not be used to discharge the liabilities of, or the claims against, any other person, including the company and any other sub-fund of the company. (2) Any liability incurred on behalf of, or attributable to, a sub-fund of an open-ended fund company may only be discharged out of the assets of the sub-fund. (3) A provision contained in the instrument of incorporation of an open-ended fund company, or in a contract or any other instrument made or executed by an open-ended fund company, is void to the extent that it is inconsistent with subsection (1) or (2). (4) An application of, or agreement to apply, assets of a sub-fund of an open-ended fund company in contravention of subsection (1) or (2) is void.

28 Clause 6 C281 (5) An open-ended fund company with sub-funds may allocate any assets or liabilities that (a) (b) it receives or incurs (i) (ii) on behalf of its sub-funds; or in order to enable the operation of its subfunds; and are not attributable to any particular sub-fund, between its sub-funds in a manner that it considers is fair to its shareholders. (6) A sub-fund of an open-ended fund company is not a legal person separate from the company but the assets of the sub-fund may be subject to orders of the court as if it were a separate legal person. (7) Without affecting subsections (1) and (2) and except as provided by the OFC rules, an open-ended fund company may sue and be sued in respect of any subfund of the company and may exercise the same rights of set-off in relation to the sub-fund as apply in respect of companies. Division 7 Directors, Investment Manager, Custodian, Sub-custodian and Auditor 112T. Interpretation of Division 7 of Part IVA In this Division misconduct ( ) (a) in relation to a director of an open-ended fund company, means negligence, default, breach of duty or breach of trust on the part of the director occurring in the course of performing duties as a director in relation to the company;

29 Clause 6 C283 (b) in relation to an investment manager of an open-ended fund company, means negligence, default, breach of duty or breach of trust on the part of the investment manager occurring in the course of performing duties as an investment manager in relation to the company; (c) in relation to a custodian of an open-ended fund company, means negligence, default, breach of duty or breach of trust on the part of the custodian occurring in the course of performing duties as a custodian in relation to the company; (d) (e) in relation to a sub-custodian of an open-ended fund company, means negligence, default, breach of duty or breach of trust on the part of the sub-custodian occurring in the course of performing duties as a sub-custodian in relation to the company; and in relation to an auditor of an open-ended fund company, means negligence, default, breach of duty or breach of trust on the part of the auditor occurring in the course of performing duties as an auditor in relation to the company; specified officer ( ), in relation to an open-ended fund company, means (a) (b) (c) (d) (e) a director of the company; an investment manager of the company; a custodian of the company; a sub-custodian of the company; or an auditor of the company.

30 Clause 6 C U. Directors (1) An open-ended fund company must have at least 2 directors. (2) The first directors of an open-ended fund company are the persons named as directors in the incorporation form delivered to the Registrar of Companies under section 112C(1)(a). (3) A director of an open-ended fund company owes the open-ended fund company the same fiduciary and other duties that are owed by a director of an ordinary company to the ordinary company. (4) In the case of a breach or threatened breach by a director of an open-ended fund company of any of the director s duties referred to in subsection (3), the director is liable to the same consequences as would apply if the director were a director of an ordinary company. (5) In this section ordinary company ( ) means a company formed and registered under the Companies Ordinance (Cap. 622). 112V. Restrictions on body corporate being director (1) A body corporate must not be appointed a director of an open-ended fund company. (2) An appointment made in contravention of subsection (1) is void. (3) However, this section does not affect any liability of a body corporate under this Ordinance for (a) purporting to act as a director of an openended fund company; or

31 Clause 6 C287 (b) acting as a shadow director of an open-ended fund company. 112W. Minimum age for appointment as director (1) A person must not be appointed a director of an open-ended fund company unless at the time of appointment the person has attained the age of 18 years. (2) An appointment made in contravention of subsection (1) is void. (3) However, this section does not affect any liability of a person below the age of 18 years under this Ordinance for (a) purporting to act as a director of an openended fund company; or (b) acting as a shadow director of an open-ended fund company. 112X. Provisions as to undischarged bankrupt acting as director (1) A person who is an undischarged bankrupt must not, except with the leave of the Court of First Instance by which the person was adjudged bankrupt (a) (b) act as a director of an open-ended fund company; or directly or indirectly, be concerned, or take part, in the management of an open-ended fund company. (2) A person who contravenes subsection (1) commits an offence and is liable (a) on conviction on indictment to a fine of $700,000 and to imprisonment for 2 years; or

32 Clause 6 C289 (b) on summary conviction to a fine of $150,000 and to imprisonment for 1 year. (3) The Court of First Instance must not give leave for the purposes of this section unless a notice of the intention to apply for it has been served on the Official Receiver. (4) If the Official Receiver is of opinion that it is contrary to the public interest that an application for leave should be granted, the Official Receiver must attend the hearing of, and oppose the granting of, the application. 112Y. Validity of acts of director (1) The acts of a person acting as a director of an openended fund company are valid even though it is afterwards discovered (a) that there was a defect in the appointment of the person as a director; (b) that the person was not qualified to hold office as a director or was disqualified from holding office as a director; (c) that the person had ceased to hold office as a director; or (d) that the person was not entitled to vote on the matter in question. (2) Subsection (1) applies even if the appointment of the person as a director is void under section 112V or 112W.

33 Clause 6 C Z. Investment manager (1) An open-ended fund company must have an investment manager who is responsible for managing the scheme property of the company. (2) An investment manager of an open-ended fund company must be an intermediary licensed or registered for Type 9 regulated activity. 112ZA. Custodian (1) An open-ended fund company must have a custodian. (2) All the scheme property of an open-ended fund company must be entrusted to a custodian of the company for safe keeping. (3) Despite subsection (2), any scheme property of a class or description specified by the Commission for the purposes of this subsection is not required to be entrusted to a custodian. (4) A custodian of an open-ended fund company must take reasonable care, skill and diligence to ensure the safe keeping of the scheme property of the company that is entrusted to the custodian under subsection (2). (5) This section does not prohibit a custodian to whom any scheme property is entrusted for safe keeping from (a) entrusting to a third party for safe keeping any or all of the scheme property; or (b) authorizing a third party, to whom the custodian has entrusted any scheme property for safe keeping, to entrust any or all of the scheme property to other persons.

34 Clause 6 112ZB. 112ZC. Auditor C293 An open-ended fund company must appoint an auditor for each financial year of the company. Provision protecting specified officer from liability void (1) This section applies to a provision contained in (a) the instrument of incorporation of an openended fund company; or (b) a contract, or any other instrument, made or executed by an open-ended fund company. (2) If a provision purports to exempt a specified officer of the company from any liability that would otherwise attach to the officer in connection with the officer s misconduct, the provision is void. (3) If, by a provision, the company directly or indirectly provides an indemnity for a specified officer of the company against any liability attaching to the officer in connection with the officer s misconduct, the provision is void. 112ZD. Court of First Instance may grant specified officer relief in proceedings for misconduct (1) This section applies if, in any proceedings for any misconduct against a specified officer of an openended fund company, it appears to the Court of First Instance that the officer (a) (b) is or may be liable for the misconduct; has acted honestly and reasonably; and

35 Clause 6 C295 (c) ought fairly to be excused for the misconduct, having regard to all the circumstances of the case (including those connected with the officer s appointment). (2) The Court of First Instance may relieve the specified officer, either wholly or partly, from the liability on any terms that the Court thinks fit. (3) If the case is tried by a judge with a jury, the judge may (a) withdraw the case in whole or in part from the jury; and (b) direct judgment to be entered for the specified officer on any terms as to costs or otherwise that the judge thinks fit. (4) To avoid doubt, this section does not apply in relation to criminal proceedings. 112ZE. Court of First Instance may grant specified officer relief for misconduct on specified officer s application (1) A specified officer of an open-ended fund company may apply to the Court of First Instance for relief if the officer has reason to apprehend that a claim will or might be made against the officer for any misconduct. (2) On an application by a specified officer of an openended fund company, the Court of First Instance may relieve the officer, either wholly or partly, from the liability on any terms that the Court thinks fit if it appears to the Court that the officer (a) (b) is or may be liable for the misconduct; has acted honestly and reasonably; and

36 Clause 6 C297 (c) ought fairly to be excused for the misconduct, having regard to all the circumstances of the case (including those connected with the officer s appointment). Division 8 Supervision by Commission 112ZF. Commission s power to give directions (1) The Commission may, by notice in writing, give any of the directions specified in subsection (2) if it appears to the Commission that (a) with respect to an open-ended fund company, any of the requirements for registration specified in section 112E is no longer met; (b) an open-ended fund company or a director, an investment manager, a custodian or a subcustodian of an open-ended fund company has contravened (i) any of the relevant provisions; (ii) any notice or requirement given or made by the Commission under or pursuant to this Ordinance; or (iii) any of the conditions imposed in respect of the registration of the company; (c) an open-ended fund company or a director, an investment manager, a custodian or a subcustodian of an open-ended fund company has, in purported compliance with (i) any of the relevant provisions;

37 Clause 6 C299 (ii) any notice or requirement given or made by the Commission under or pursuant to this Ordinance; or (iii) any of the conditions imposed in respect of the registration of the company, knowingly or recklessly provided to the Commission any information that is false or misleading in a material particular; (d) an investment manager of an open-ended fund company has contravened any of the terms and conditions of its licence or registration under this Ordinance; (e) an investment manager of an open-ended fund company has, in purported compliance with any of the terms and conditions of its licence or registration under this Ordinance, knowingly or recklessly provided to the Commission any information that is false or misleading in a material particular; or (f) it is desirable to do so in order to protect the interest of the investing public. (2) The directions are (a) a direction to the company or its investment manager that the company is to cease to issue or redeem, or cease to issue and redeem, shares or any class of shares in the company; and (b) a direction to a director of the company that the director is to cease to transfer shares or any class of shares in the company to or from, or to and from, the director s own holding of shares.

38 Clause 6 C301 (3) The Commission may, by notice in writing served on the person to whom a direction is given under this section, amend or revoke the direction. (4) Subject to subsection (5), if the registration of an open-ended fund company is cancelled under section 112ZH or 112ZI while a direction given under this section in relation to the company is in force (a) the direction is not to be affected in any respect by the cancellation; and (b) this section continues to apply to the company as if its registration had not been cancelled. (5) If an order for the winding up of an open-ended fund company is made by the court under section 212 or the OFC rules, a direction given under this section in relation to the company ceases to have effect on the making of the order. 112ZG. Application to Court of First Instance for inquiry into failure to comply with direction (1) If a person fails to comply with a direction given under section 112ZF, the Commission may apply to the Court of First Instance for an inquiry into the failure. (2) In the inquiry, the Court of First instance may (a) (b) if satisfied that there is no reasonable excuse for the person not to comply with the direction, order the person to comply with the direction within the period specified by the Court; and if satisfied that the failure was without reasonable excuse, punish the person, and any other person knowingly involved in the failure, in the same manner as if the person and, if

39 Clause 6 C303 applicable, that other person had been guilty of contempt of court. (3) If there is a reasonable likelihood that a person will fail to comply with a direction given under section 112ZF, the Commission may apply to the Court of First Instance for an order that (a) the person; and (b) any other person whom the Court is satisfied is able to procure the person to comply with the direction, take any action or refrain from taking any action that the Court directs. (4) An application under this section must be made by originating summons in Form No. 10 in Appendix A to the Rules of the High Court (Cap. 4 sub. leg. A). 112ZH. Commission s power to cancel registration on open-ended fund company s application (1) Subject to subsection (2), the Commission must cancel the registration under section 112D of an open-ended fund company on an application made by the company in accordance with the OFC rules. (2) The Commission may refuse to cancel the registration of an open-ended fund company if it considers that (a) it is in the public interest that any matter concerning the company should be investigated before its registration is so cancelled; or (b) the cancellation would not be in the interest of the investing public.

40 Clause 6 C305 (3) On cancelling the registration of an open-ended fund company, the Commission may impose any condition that it considers appropriate. (4) The Commission may, by notice in writing served on an open-ended fund company the registration of which is cancelled, amend or revoke any of the conditions imposed, or impose new conditions, in respect of the cancellation. (5) The Commission must not exercise a power under subsection (2), (3) or (4) in relation to an open-ended fund company without first giving the company a reasonable opportunity to be heard. (6) If the Commission cancels the registration of an open-ended fund company, it must notify the company in writing of the cancellation. (7) If the Commission exercises a power under subsection (2), (3) or (4) in relation to an open-ended fund company, it must notify the company in writing of the exercise and the reasons for it. (8) If the Commission cancels the registration of an open-ended fund company, it (a) must, as soon as reasonably practicable after cancelling the registration, notify the Registrar of Companies in writing of the cancellation; and (b) may publish notice of the cancellation and the reason for the cancellation in any manner that it considers appropriate.

41 Clause 6 C ZI. Commission s power to cancel registration otherwise than on open-ended fund company s application (1) The Commission may cancel the registration under section 112D of an open-ended fund company if (a) it appears to the Commission that, with respect to the company, any of the requirements for registration specified in section 112E is no longer met; (b) it appears to the Commission that the company or a director, an investment manager, a custodian or a sub-custodian of the company has contravened (i) any of the relevant provisions; (ii) any notice or requirement given or made by the Commission under or pursuant to this Ordinance; or (iii) any of the conditions imposed in respect of the registration of the company; (c) it appears to the Commission that the company or a director, an investment manager, a custodian or a sub-custodian of the company has, in purported compliance with (i) any of the relevant provisions; (ii) any notice or requirement given or made by the Commission under or pursuant to this Ordinance; or (iii) any of the conditions imposed in respect of the registration of the company, knowingly or recklessly provided to the Commission any information that is false or misleading in a material particular;

42 Clause 6 C309 (d) (e) the Commission is not satisfied that the continued registration of the company is in the interest of the investing public; or an order for the winding up of the company has been made by the court under the OFC rules. (2) On cancelling the registration of an open-ended fund company, the Commission may impose any condition that it considers appropriate. (3) The Commission may, by notice in writing served on an open-ended fund company the registration of which is cancelled, amend or revoke any of the conditions imposed, or impose new conditions, in respect of the cancellation. (4) The Commission must not exercise a power under subsection (1), (2) or (3) in relation to an open-ended fund company without first giving the company a reasonable opportunity to be heard. (5) If the Commission exercises a power under subsection (1), (2) or (3) in relation to an open-ended fund company, it must notify the company in writing of the exercise and the reasons for it. (6) If the Commission cancels the registration of an open-ended fund company, it (a) must, as soon as reasonably practicable after cancelling the registration, notify the Registrar of Companies in writing of the cancellation; and (b) may publish notice of the cancellation and the reasons for the cancellation in any manner that it considers appropriate.

43 Clause 6 C ZJ. Permission to carry on essential business operations on cancellation of registration (1) The Commission may, by notice in writing served on an open-ended fund company the registration of which has been cancelled under section 112ZH or 112ZI, permit the company to carry on essential business operations. (2) The registration of an open-ended fund company to which permission is given is, while it carries on essential business operations in accordance with the permission, deemed not to be cancelled for the purposes of this Ordinance. (3) On giving permission to an open-ended fund company, the Commission may impose any condition that it considers appropriate. (4) A condition imposed under subsection (3) must be specified in the notice in respect of the permission. (5) A permission given or a condition imposed in respect of it under subsection (3) takes effect (a) at the time of the service of the notice in respect of the permission; or (b) if a later time is specified in the notice, at that time. (6) The Commission may, by notice in writing served on an open-ended fund company to which permission is given, amend or revoke any of the conditions imposed, or impose new conditions, in respect of the permission. (7) In this section

44 Clause 6 C313 essential business operations ( ), in relation to an open-ended fund company, means business operations that are essential for closing down its business. Division 9 Rules made by Commission 112ZK. Commission s power to make rules (1) The Commission may make rules to provide for (a) the carrying on of collective investments by means of open-ended fund companies; and (b) the regulation of open-ended fund companies. (2) Rules made under subsection (1) may provide for (a) the requirements for incorporation of proposed companies; (b) the requirements for registration of proposed companies with the Commission; (c) (d) the naming of open-ended fund companies; the change of names of open-ended fund companies; (e) the capacity, objects, powers, privileges, rights and liabilities of open-ended fund companies; (f) the instruments of incorporation of open-ended fund companies, including the form of such instruments; (g) the requirements relating to the execution of documents by open-ended fund companies; (h) the types of investments that open-ended fund companies may make;

45 Clause 6 C315 (i) the management and operation of open-ended fund companies, including their administration and procedure; (j) the management of the scheme property of open-ended fund companies; (k) the accounting and reporting requirements with which open-ended fund companies must comply; (l) the making or issue of statements, certificates or other documents by open-ended fund companies and their officers; (m) the keeping of accounts and records by openended fund companies, and the inspection of such accounts and records; (n) the keeping of a register of shareholders and other registers by open-ended fund companies, and the inspection and rectification of such registers; (o) matters relating to the share capital of openended fund companies, including valuation, purchase, redemption and transfer of shares, redenomination of share capital and variation of rights attached to shares; (p) the requirements relating to segregating the liabilities of sub-funds of an open-ended fund company; and (q) the cross investments between sub-funds of an open-ended fund company. (3) Rules made under subsection (1) may also provide for

46 Clause 6 C317 (a) the rights, powers and liabilities of a shareholder of an open-ended fund company; (b) the rights, powers, duties and liabilities of a director, an investment manager, a custodian, a sub-custodian or an auditor of an open-ended fund company; (c) the eligibility of a person to be a director, an investment manager, a custodian, a subcustodian or an auditor of an open-ended fund company; (d) the appointment and removal of a director, an investment manager, a custodian, a subcustodian or an auditor of an open-ended fund company, including the procedures to be followed when they cease to act; (e) the notification of the appointment and removal of a director, an investment manager, a custodian, a sub-custodian or an auditor of an open-ended fund company; and (f) the notification of changes in the particulars of a director, an investment manager, a custodian, a sub-custodian or an auditor of an open-ended fund company. (4) Rules made under subsection (1) may also provide for (a) the procedures to be followed in relation to the giving, amendment and revocation of directions under section 112ZF; (b) the procedures to be followed in relation to the cancellation of the registration of open-ended fund companies under section 112ZH or 112ZI;

47 Clause 6 C319 (c) the merger of 2 or more open-ended fund companies and the reorganization of an openended fund company into 2 or more open-ended fund companies; (d) matters relating to the arrangements and compromises entered into, or proposed to be entered into, by open-ended fund companies, including the Commission s right to be heard in the related court process and the registration of arrangements and compromises with the Registrar of Companies; (e) the winding up and dissolution of open-ended fund companies, including the grounds and procedures for such winding up and dissolution; (f) the winding up and dissolution of sub-funds of open-ended fund companies, including the grounds and procedures for such winding up and dissolution; (g) the power of the Court of First Instance to make an order to disqualify a person from acting in any capacity in relation to open-ended fund companies or the scheme property of open-ended fund companies, or from acting in any capacity in the promotion or incorporation of proposed companies; (h) a court s functions in relation to any matter concerning open-ended fund companies and sub-funds of open-ended fund companies; and (i) any other thing that, under this Part, is required or permitted to be prescribed or provided by rules.