Tuesday April 26 2016

News Source: Global Exchanges

Focus: Brokers

Type: General




The Securities Future Commission has issued a circular to licensed corporations informing them of the arrangements of the licence holders` insurance scheme for the year from 1 April 2016 to 31 March 2017. This circular concerns corporations which are licensed under the Securities and Futures Ordinance and are under the following categories:

  • Category 1:   Participants of The Stock Exchange of Hong Kong Limited and licensed for Type 1 regulated activity (i.e. dealing in securities); and
  • Category 2:   Participants of the Hong Kong Futures Exchange Limited and licensed for Type 2 regulated activity (i.e. dealing in futures contracts).

The insurance requirements

Under the SFO, corporations that are licensed to carry on certain regulated activities are required, as a condition of their licences, to take out and maintain insurance in the manner prescribed by the Securities and Futures (Insurance) Rules.

The Rules provide, amongst other things, that the licensed corporations in the above categories must take out and maintain insurance in relation to specified risks, for not less than an amount specified in the Rules, when the SFC has approved a master policy of insurance applicable to them.

Arrangement of the scheme and approval of master policies of insurance

In order to arrange for an appropriate insurance scheme for the purposes of the Rules, an Industry Working Group (the “IWG”) comprising representatives of various brokers’ associations and brokerage houses was formed.

Two master policies of insurance covering respectively the licensed corporations in Category 1 and those in Category 2 will be implemented. 

Under each master policy of insurance, an insured participant will be indemnified for financial losses due to fidelity risks relating to its activities of dealing in securities and/or futures contracts (as the case may be), subject to an indemnity limit of $15 million per regulated activity per year and a deductible amount of $3 million per claim/loss. 

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