New Regulatory Approach under the Streamlining Measures

Investment Products DepartmentSecurities and Futures Commission

15 July 2008

22

Agenda

Overview of the new regulatory approach

Streamlining measures

New Advertising Guidelines

Q&A

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Overview of the New Regulatory Approach

New pre-vetting exemptions– Minor changes to offering documents– Notices (other than those on mergers, terminations

and withdrawal of authorization)– Advertisements (exempted under s103 of the SFO)

Effective date– 1 August 2008

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Overview of the New Regulatory Approach

Key changes to the Advertising Guidelines– 10 relaxations– 3 key enhancements

Effective date– 1 August 2008 with transitional provision– Issuer may elect to adopt either the old or new

Advertising Guidelines for each advertisement until 31 December 2008, but no cherry-picking of selective provisions will be permitted.

– Full adoption of new Advertising Guidelines from 1 January 2009

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s103 exemptions

Most relevant exemption – s103(2)(a)

– Advertisements that are “made by or on behalf of an intermediary licensed or registered for Type 1, Type 4 or Type 6 regulated activity (whether acting as principal or agent) in respect of securities”

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s103 exemptions

Exclusions from s103(2)(a) exemptions:

– MPF schemes and constituent funds– ORSO schemes authorized under the Code on

Pooled Retirement Funds– Investment-linked assurance schemes (ILAS)

– Overseas fund houses not licensed in HK– Local fund houses who have Type 9 licence only,

but not Type 1, 4 or 6

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Advertisements of Authorized Schemes under the CO regime

Objectives:

– To place authorized schemes in corporate form on a level playing field as schemes in non-corporate form (e.g. unit trusts).

– To allow authorized schemes in corporate form to make use of s103 exemptions while ensuring their advertisements will not fall under the prospectus regime under the Companies Ordinance.

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One-off Authorization

For authorized schemes in corporate form

– One-off authorization of the issue of all advertisements will be granted upon application

– Subject to conditions that each advertisement:is exempted from authorization under s103 of the SFOcomplies with the applicable advertising guidelines

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Post-issue Monitoring and Surveillance

Media monitoring

Surveillance on individual advertisement issuer

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Scheme Changes

Prior approval required only for the following– Changes to constitutive documents

(i.e. trust deed, M&A)– Changes of key operators – Changes in investment objectives, policies and

restrictions, fee structure and dealing and pricing arrangements

– Other changes that may materially prejudice investors’ rights or interests

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Scheme Changes

Re-issue of updated offering documents– May be updated for minor scheme changes and

reissued without further authorization– Content and format remains fundamentally the same – Filing within 2 weeks from date of issuance

Increase in fees and charges up to maximum level permitted in constitutive documents – SFC prior approval not required – Prior notice of at least 1 month to investors

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Notices

For scheme changes that require SFC’sapproval– Notice Period

1 month in generalLess than 1 month permitted for insignificant changes3 months for withdrawal of authorizationUp to 3 months in exceptional circumstances(e.g. change from passively managed index fund to actively managed equity fund with a 1-month dealing frequency)

Post-filing of all notices within 2 weeks from date of issuance

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Advertisements – Record Keeping

No filing requirement

Record keeping for at least 3 years from the latest date of publication / distribution

Either in hardcopy or softcopy form– to enable the issuer to reproduce the actual

advertisement in its same form and content

Applies to each issue of regular publications and relevant supporting documents

Applies to advertisements issued on or after 1 August 2008

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Advertising Guidelines – Relaxations

1. Advertising on radio, TV and cinema permitted for all authorizedschemes, including specialized schemes, ILAS and pooled retirement funds

2. Annualized returns may be presented without the need to disclose all individual year’s returns

3. Performance information of up to 3 months (instead of 2) permitted for print media advertisements, broadcasts and the internet

4. More than 1 less-than-one-year figure permitted, provided that they are presented in the same format and prominence as the 1-year figure

5. Flexibility on the use of reference date for frequently updated regular publications

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Advertising Guidelines – Relaxations

6. Performance information may be shown in a currency other than the scheme’s base currency for comparison purpose. The issuer has the option to accompany such performance with information in base currency or with disclosure of the base currency and the basis of currency conversion

7. Principle-based approach on font size of warning statements provided they are legible

8. Specific warning statements not required for fund listing regular publications and display-only materials

9. Warning statements in audio-visual advertisements are only required to be displayed

10. HK representative contact not required to be disclosed on radio / TV advertisements

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Advertising Guidelines – Key Enhancements

Minimum Performance Information

Warning statements

Information on advertisement issuer

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Minimum Performance Information

Presentation of performance information is optional.

Performance information, if presented, should at a minimum include the returns (e.g. NAV / price returns) of– the immediately preceding 5 years (or, the period since

launch if shorter), – presented based on complete 12-month periods (or shorter

periods for the earliest / latest period presented).

Further performance information may be presented in addition, subject to the requirements in the Advertising Guidelines.

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Minimum Performance Information

XX%YTD (8 months) up to no earlier than

31-May-08

XX%YTD up to no earlier than 31-May-08

XX%2007XX%2007XX%2008

XX%2006XX%2006XX%2007

XX%2005XX%2005XX%2006

XX%2004XX%2004XX%2005

XX%2003XX%2003XX%2004

ReturnYear ended 30-Sep*

ReturnYear ReturnYear ended 31-Jul

Case 3Financial year basis

Case 2Calendar year basis

Case 1Recent Reference Date

* Assuming 30-Sep is the financial year end

Advertisement issue date: 1-Aug-08

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Scheme with < 5-year Track Record

Inception date: 1-Jul-05

Advertisement issue date: 1-Aug-08

Performance for each of the following periods should be disclosed:– Since inception (1-Jul-05) to end-2005– Year 2006– Year 2007– Year-to-date up to no earlier than 31-May-08

2020

Short-term Performance

Of at least 3 months in durationIn the same format as and no more prominent than the most recent 1-year figure

XX%XX%Benchmark

XX%XX%Fund (Note)

1-year3-month

Source: xxx, in USD, NAV to NAV with dividends reinvested Date: 31-May-08

Note: Minimum performance information – 2003: XX%; 2004: XX%; 2005: XX%; 2006: XX%; 2007: XX%; YTD(31-May-08): XX%

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Annualized Performance

Inception date: 1-Jan-00Existing Advertising Guidelines – must show annual returns since inception (i.e. years 2000 – 2007)New Advertising Guidelines – only need to show annual returns for the preceding 5 years (i.e. years 2003 – 2007)

Source: xxx, in USD, NAV to NAV with dividends reinvested Date: 31-May-08

Note: Minimum performance information - 2003: XX%; 2004: XX%; 2005: XX%; 2006: XX%; 2007: XX%; YTD(31-May-08): XX%

XX%Annualized volatility (since inception)

XX%Annualized return (since inception) (Note)

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Website

Alternative presentation of minimum performance information

Top performing funds at a glance

XX%

XX%

5-year

XX%XX%XYZFund

XX%XX%ABCFund

3-year1-yearFund name

Click here for further fund performance information

Click here for further fund performance information

Source: xxx, in USD, NAV to NAV with dividends reinvested; Date: 31-May-08

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Basic Risk Warnings

General principle:– Advertisements should be clear, fair and present a

balanced picture of the scheme with adequate risk disclosures.

Basic warning statements:– to the effect that investment involves risk;– to direct investors to read the offering document for

further details including the risk factors; and– (where past performance is quoted) to the effect that the

past performance information presented is not indicative of future performance.

– (where not pre-vetted) the advertisement has not been reviewed by the SFC.

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Schemes with Special Features

Issuers should use their professional expertise to determine the additional warning statements appropriate to the degree of risk of schemes

Warning statements for specialized schemes as specified in Chapter 8 of the UT Code (e.g. hedge funds and guaranteed funds, etc)

Warning statements may be imposed as authorization conditions

Some examples of warning statements for schemes with special features may be found in FAQs

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Exemptions from Specific Risk Warnings

Display-only materials Regular publications with listing of schemes

– Only basic risk warnings are required

– If the advertisement relates to schemes with similar special features, warnings addressing such common features are recommended.

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Listing of Schemes of Different Types

XXXXX5123 –Commodity Futures

XXXXX5XYZ –Emerging Markets

XXXXX3ABC –Global Bonds

Investment PoliciesRisk LevelFund Name

Investment involves risks. Please refer to the offering documents for further details, including the risk factors.

This advertisement has not been reviewed by the SFC.

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Listing of Schemeswith Common Special Features

XXXXX5123 –Middle East

XXXXX5XYZ –BRIC Funds

XXXXX5ABC – Emerging Markets

Investment PoliciesRisk LevelFund Name(Emerging Equity)

Investment involves risks. Please refer to the offering documents for details and the risk factors in particular those associated with investments in emerging markets.

This advertisement has not been reviewed by the SFC.

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Prominence of Risk Warnings

Removed specific font size requirement

Well positioned and properly referenced in the advertisement (e.g. at the first point of access of a website, by way of properly reference endnotes, etc)

Principle-based: legible in the context of– font sizes used; – format and layout of the advertisement; and– where the advertisement is displayed or published.

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Prominence of Risk Warnings

ABC – Global FundBenefit from potentials around the globe!!!

Investment involves risks. Investors should read the offering document for further details including the risk factors.This advertisement has not been reviewed by the SFC.

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Prominence of Risk Warnings

ABC – Global FundBenefit from potentials around the globe!!!

Investment involves risks. Investors should read the offering document for further details including the risk factors.

This advertisement has not been reviewed by the SFC.

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Name of Advertisement Issuer

New disclosure requirement:– The full name of the issuer must be disclosed on

all advertisements.– Broadcast of full name of the issuer is optional for

audio advertisements with no visual display.

The company logo or just part of the name is not acceptable.

Disclosure in the footnotes is acceptable, but information must be clearly legible.

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Name of Advertisement Issuer

ABCABC – Global FundBenefit from potentials around the globe!!!

Investment involves risks.Investors should read the offering document for details, including the risk factors.

This advertisement has not been reviewed by the SFC.Issuer: ABC Asset Management Limited

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Q&A?

Will the SFC complete vetting and grant authorization for all advertisements to be issued after 1 August 2008 but submitted to the SFC prior to 1 August 2008?

For an advertisement prepared by a distributor based on information provided by a fund house, who is responsible for such advertisement?

What materials are required to comply with the Advertising Guidelines?

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Further Questions?

FAQ on www.sfc.hk

Call your designated SFC case officer or supervisor