Chapter 3

IPO and Trading Operations

	Securities Market
	Trading in the Market
19.	How should an investor make his securities investment decision? An investor should consider his capacity for risk and his investment strategy when choosing a security. Before making a decision, he should take into account the management performance and growth record of the listed company which he is targeting and read its annual reports and other announcements. It must be remembered that the greater the potential reward, the higher the potential risk.
20.	How should an investor trade stocks in the Hong Kong securities market? Investors need to trade Hong Kong stocks through securities dealers registered at the SFC.  If the securities dealer is an Exchange Participant, his trading facilities can direct access to the Stock Exchange's trading facilities for trading stocks on behalf of investors.  The list of Stock Exchange Participants is available at the HKEx website. The Stock Exchange welcomes investors from all over the world.  However, investors should observe their own country's rules and regulations for overseas trading before investing in Hong Kong.
21.	How should an investor select a securities company? An investor may seek advice from relatives, friends or professionals when selecting a securities company. He may contact securities companies directly and compare their services and fees which vary from company to company. Companies which provide in-depth research; investment advice or other value-added services may charge higher commissions than those which merely trade securities on behalf of clients. Some offer cash accounts service only; others also manage discretionary accounts and/or margin accounts. An investor should weigh his own investment and financial needs carefully before deciding on a securities company and the type of accounts to be opened. All brokers must be registered with the SFC. To register as brokers, they must have attained a certain level of education and experience, have good financial standing and personal conduct. The license issued by the SFC must be displayed at the broker's office prominently. A broker must be a Stock Exchange Participant in order to trade securities for clients through HKEx's trading system. At present, there are about 500 Stock Exchange Participants, who are all required to display their Stock Exchange Participant certificates at their head office and branch office certificates at branch offices. Any doubt about the identity of a Stock Exchange Participant should be directed to HKEx.
22.	How can investors tell if a securities company is financially sound? Effective 6 March 2000, broker regulation including financial resources and conduct was taken over by the SFC, the primary regulator of HKEx.  Like other registered securities dealers, the Stock Exchange Participants are required to comply with the Financial Resources Rules enacted under the Securities and Futures Ordinance and the SFC's Code of Conduct for the Persons Licensed by or Registered with the SFC.
23.	What are the procedures for opening a securities account? When opening an account with a Stock Exchange Participant, investors are required to fill in an application form and sign a client's agreement. Requirements relating to basic information of client's agreement including specific risk disclosure statements are set out in the Code of Conduct for the Persons Licensed by or Registered with the SFC. As the client's agreement is legally binding, investors should only sign it when they are sure that all information is correct. When in doubt, they must seek legal advice. In their own interest, investors should open accounts with securities companies in person and before dealing in shares, they should make sure that they know the due day for settlement and the basis on which commission, interest and other charges are calculated. To protect market interests, securities companies may require prospective clients to provide reference letters. They may accept only investors with references from existing clients or the companies' acquaintances to ensure prospective clients' capability to meet the obligations of share transactions.  Investors may check with the List of Exchange Participants and Holders of Stock Exchange Trading Rights posted on the HKEx website to see if their brokers are Stock Exchange Participants.
24.	Aside from the amount of the investment, what other charges are involved when dealing in shares? When an investor trades securities through a Stock Exchange Participant, he is liable to pay the following items: i) Brokerage Brokerage commission is freely negotiable between brokers and their clients from 1 April 2003. ii) Transaction Levy Effective 1 December 2006 , a Transaction Levy of 0.004% (rounded to the nearest cent) is charged per side of the consideration of a transaction, and the amount is collected for the SFC.  There is no Transaction Levy on Pilot Program and Exchange Traded Funds (ETF) Market Maker transactions (except for ABF PAIF (Stock Code 2821)).    iii) Investor Compensation Levy Effective 19 December 2005, the payment of Investor Compensation Levy (i.e. 0.002% per side of the consideration of a transaction, rounded to the nearest cent) has been suspended by the SFC as the net asset value of the compensation fund exceeds $1.4 billion, as per the Securities and Futures (Investor Compensation - Levy) (Amendment) Rules 2005. iv) Trading Fee A Trading Fee of 0.005% per side of the consideration of a transaction (rounded to the nearest cent) is payable to the Stock Exchange. v) Stamp Duty on Stock Transaction Unless stated otherwise, all securities listed on the Stock Exchange are subject to a stamp duty at a rate of 0.1% (rounded up to the nearest dollar) on the value of the transaction, on both the buyer and the seller. vi) Transfer Deed Stamp Duty Independent of the quantity of shares traded, the Government levies a transfer deed stamp duty of HK$5, payable by the registered holder of the pertaining share certificate(s), i.e. the seller, on each new transfer deed.   vii) Transfer Fee Independent of the quantity of shares traded, the registrar of each listed company levies a transfer fee of HK$2.5 per share certificate from the registered holder, i.e. the buyer, for each new certificate issued. viii) Trading Tariff A trading tariff of HK$0.5 is payable to the Stock Exchange on each and every purchase or sale transaction by brokers of each side. Remark: The decision on whether to pass the trading tariff on to investors is at the discretion of the brokers. There are no charges levied by HKSCC on investors if investors settle with brokers or custodians outside CCASS. However, brokers or custodians have to pay HKSCC fees for use of the clearing, settlement, custody and nominee services offered by CCASS. The decision on whether to pass these fees on to investors is at the discretion of the brokers or custodians.
25.	What are the procedures for executing a trade order? Orders can be placed with a securities company by telephone, the internet, in person or other electronic means. When placing an order, the investor must identify the security to be bought or sold (or its code), the quantity to be bought or sold and the price limit. The securities company will confirm the instruction with the client. If the details of the order are correct, it will enter the order into the AMS/3. When there is a corresponding order at the same price, they will be matched automatically. Otherwise, the order will join the queue of orders at the same price, moving up as preceding orders are matched.
26.	Can brokers or investors demand a cancellation if they input a wrong order into the trading system and conclude an error trade? The trading system of the Stock Exchange is an order-driven system.  All orders input into the trading system are valid and all trades concluded in the trading system cannot be amended or cancelled unless determined by the Board of the Stock Exchange.   To help Stock Exchange Participants prevent error trades, the Stock Exchange has equipped its trading system with two levels of price warning to alert Stock Exchange Participants when prices of orders input by them widely deviate from the market's prevailing prices are input.  The trading system's price warning messages are available to all trading channels such as trader terminals, multi-workstations and broker supplied systems (BSS).  However, investors should be aware that if they are traded through Internet, mobile phone or other electronic devices through which their orders are routed to their brokers' BSS, the design of brokers' BSS will determine how they receive the price warning.
27.	Why do the staff of securities companies demand money settlement from investors immediately after confirmation of an executed order although settlement takes place on the T+2, the second day following the transaction?  T+2 is the securities settlement arrangement between Stock Exchange Participants and the securities clearing house.  The settlement arrangements, including those for securities and money settlement, are commercial arrangements between the investor and the securities company. As some cash clients do not have deposits in securities companies, to protect itself from possible failure of clients to fulfill their trading obligations on the settlement day, a securities company may require clients to pay immediately after an order is executed. Clients should first enquire about the payment arrangement before conducting any transactions.
28.	Are investors required to wait until after T+2 before selling the securities that have been acquired? Why is it possible for securities companies to sell securities bought on the same day for clients? It is possible for securities companies to sell securities bought on the same day for clients. However, some securities companies may want to have the shareholding level of clients updated or confirmed before agreeing to dispose of the securities. Prior to taking any action, clients should first enquire of the securities company about their procedures.
29.	What are the procedures for changing the name of the registered person? How long does it take? Investors should ask the share registrar of the security about the procedures. To find out who the registrars are, please refer to the Company/Securities Profile under Investment Service Centre on the HKEx website. Investors should contact respective share registrar to check the exact days required for the services.
30.	What if a share certificate is lost? Investors should directly report the loss of share certificates to share registrar of the listed company for and request the issue of new share certificates.  The name and contact details of share registrars are available under Company/Securities Profile at the Investment Services Centre on the HKEx website.
31.	How do investors receive share dividends? Investors holding securities registered in their names will receive dividends by cheque directly issued by the securities' listed issuers. Securities deposited with brokerages are held in the custody of CCASS and registered under HKSCC Nominees Limited. In these cases, dividends will be issued to HKSCC Nominees which will then allocate them to brokerages quickly. Brokers who have received dividends from CCASS are expected to re-allocate the dividends to their clients as soon as practicable. However, Investors should note that brokerages may not necessarily deposit their securities with CCASS. In the case of securities registered in the name of a brokerage's nominee, dividends will be issued to the nominee who will pass them on   to clients. If an investor has opened an Investor Participant Account with HKSCC, HKSCC Nominees will deposit dividends received from listed issuers directly into the specified bank accounts of Investor Participants.