2.

The SFC and the Exchange jointly announce today that they have taken action against Mr Ho Sau Lok ("Mr Ho") trading as Lucky Company, a Securities Dealer and a Member of the Exchange, and against Mr Kwan Kai Ming ("Mr Kwan") and Mr Chung Siu Keung, David ("Mr Chung"), both dealer's representatives of Lucky Company and registered persons of the Exchange.

The action stemmed from an inquiry covering the period January 1997 to March 1997 in which it was found that:

1. employees and clients of Lucky Company had engaged in illegal short selling activities;
2. use of nominee accounts by some employees to engage in their own trading;
3. client priority was not observed as employees' own dealing were not the subject of scrutinised approval by management; and
4. inadequate audit trails to detect and deter trading malpractices thereby exposing its clients and itself to unnecessary risks and potentially damaging the integrity of the securities markets of Hong Kong .

The management of Lucky Company was responsible for the deficiencies identified above in that they failed to properly supervise employees and failed to develop and implement proper internal control procedures in Lucky Company to protect its operations, its clients and the integrity of the market.

Mr Ho had delegated most of the day to day operation of the business to staff of Lucky Company but had failed to ensure that such staff carried out their responsibilities properly. As the sole proprietor of Lucky Company, Mr Ho bears ultimate responsibilities for the above failings.

Mr Kwan, a dealer's representative of Lucky Company, had used a nominee account to conduct his own trading. He also failed to monitor the account of a client to ensure that the client did not short sell.

Mr Chung, a dealer's representative of Lucky Company, had used a nominee account to conduct his own trading. He had conducted internal manual cross trades between his nominee account and the accounts of other clients of Lucky Company without first disclosing his interest in the transactions to those clients in breach of Clause 10 of Code of Conduct for persons registered with the SFC. There is, however, no evidence that any client was disadvantaged.

As a result of the above findings, Mr Ho has agreed to take the following remedial actions:

1. Mr Ho has now arranged for a company to be incorporated to take over the securities dealing business of Lucky Company;
2. Mr Ho will appoint an independent Dealing Director for the incorporated company; and
3. Mr Ho has taken remedial actions to remedy the failings identified in the SFC's and Exchange's investigation. He has also engaged an independent firm of accountants to perform a review of the systems and internal control procedures of his business and to report the findings to the Exchange and SFC. He has agreed to implement any recommendations made in the accountants' report to the satisfaction of the Exchange and SFC.

The SFC's decision to publicly reprimand Mr Ho took into account that Mr Ho has agreed to take and implement the above remedial actions. The SFC also decided that Mr Kwan's and Mr Chung's conduct warranted a public reprimand. In addition, the Disciplinary Committee has decided to publicly censure Mr Ho, Mr Kwan and Mr Chung and fine Mr Ho HK$50,000, Mr Kwan HK$4,000 and Mr Chung HK$6,000. The Disciplinary Committee also resolved to revoke Mr Chung's and Mr Kwan's registration with the Exchange should they be found guilty of any misconduct within the next 24 months.