Hong Kong’s Securities and Futures Ordinance (SFO) establishes a comprehensive framework for regulating its financial markets. A key component of this framework is the definition of a “Professional Investor,” a classification that carries specific rights and responsibilities within the market. This article delves into the detailed criteria outlined in the SFO for identifying professional investors, encompassing various institutional and individual participants.
Categories of Professional Investors under the SFO
The SFO provides a multi-faceted definition of “Professional Investor,” encompassing a wide range of entities and individuals deemed to possess sufficient financial sophistication and expertise to navigate the complexities of the securities and futures markets. These categories include:
Recognized Financial Institutions
This category encompasses recognized exchange companies, clearing houses, exchange controllers, automated trading service providers, and intermediaries regulated under overseas jurisdictions. It acknowledges the inherent expertise and regulatory oversight associated with these entities. Similarly, authorized financial institutions, including banks regulated both within and outside Hong Kong, also fall under this classification.
Insurance Companies and Schemes
Authorized insurers operating under the Insurance Ordinance and those regulated in overseas jurisdictions are considered professional investors. This also extends to collective investment schemes authorized under the SFO or similarly constituted and regulated schemes operating under overseas laws. Operators of such schemes are also included.
Retirement Schemes
Registered schemes under the Mandatory Provident Fund Schemes Ordinance and the Occupational Retirement Schemes Ordinance, along with their approved trustees, service providers, and investment managers, are classified as professional investors. This includes comparable offshore schemes that meet specific regulatory requirements.
Government and Multilateral Agencies
Governments (excluding municipal authorities), central bank equivalents, and multilateral agencies are automatically deemed professional investors due to their significant financial resources and inherent understanding of market dynamics.
Corporations and Subsidiaries
Corporations that are wholly owned subsidiaries or holding companies of regulated intermediaries or authorized financial institutions, both within and outside Hong Kong, also qualify as professional investors.
Persons Prescribed by Rules
The SFO empowers the creation of rules to designate additional classes of professional investors. The Securities and Futures (Professional Investor) Rules utilizes this power to further define specific criteria.
Specific Criteria for Additional Professional Investors
The Securities and Futures (Professional Investor) Rules introduces further classifications based on specific financial thresholds:
Trust Corporations
Trust corporations registered under the Trustee Ordinance or equivalent overseas regulations, managing total assets of at least HK$40 million or equivalent, are recognized as professional investors. This assessment relies on recent audited financial statements or custodian statements.
Individuals with High Net Worth
Individuals, either solely or jointly with associates, possessing a portfolio of at least HK$8 million or equivalent are also included. Verification is through audited certificates or custodian statements.
Corporations and Partnerships
Corporations or partnerships with either a portfolio exceeding HK$8 million or total assets surpassing HK$40 million are considered professional investors. Audited financial statements or custodian statements are used to confirm these thresholds.
Investment Holding Corporations
Corporations solely focused on holding investments and wholly owned by entities already classified as professional investors (as described above) also meet the criteria.
Defining Key Terms
The rules further clarify key terms used in these classifications:
- “Relevant date” refers to the date of issuance or intended issuance of relevant financial documents.
- “Custodian” defines entities acting as securities custodians, including authorized financial institutions, overseas banks, and licensed corporations.
- “Portfolio” encompasses securities, certificates of deposit, and cash held by a custodian (excluding for trust corporations).
This comprehensive definition ensures that only individuals and entities with demonstrable financial expertise and capacity are classified as professional investors, contributing to the stability and integrity of Hong Kong’s securities and futures markets.
