EC(97-98)37
For discussion
on 19 November 1997


ITEM FOR ESTABLISHMENT SUBCOMMITTEE OF
FINANCE COMMITTEE

HEAD 92 - DEPARTMENT OF JUSTICE
Subhead 001 Salaries

Members are invited to recommend to Finance Committee -

  1. the creation of the following supernumerary directorate post in the Department of Justice for a period of three years -

    1 Deputy Principal Government Counsel
    (DL2) ($110,000 - $116,800); and

  2. an increase in the ceiling placed on the total notional annual mid-point salary (NAMS) value of all non-directorate posts in the establishment of the Department of Justice from $369,675,000 by $1,738,440 to $371,413,4401for the creation of two Senior Government Counsel posts which will also be required for a period of three years.

PROBLEM

The Department of Justice (D of J) does not have sufficient staffing resources to provide the necessary assistance to the Financial Services Bureau (FSB) to enable it to cope with the increase in workload and complexity of work in relation to insider dealing cases.

PROPOSAL

2.We propose to -

  1. create one supernumerary post of Deputy Principal Government Counsel (DPGC) (DL2) for a period of three years; and

  2. increase the establishment ceiling of D of J to enable the creation of two Senior Government Counsel (SGC) posts to support the DPGC to deal with insider dealing cases.

JUSTIFICATION

3.With the rapid expansion and development of the Hong Kong securities market, both the industry and the investing public have the expectation that we uphold the standard of the market place and the principle of a level playing field for all alike. The demand for the regulator and the Government to act swiftly on suspected insider dealing cases also rises. Failure to meet such expectation and demand will not only tarnish Hong Kong's reputation as an international financial centre but will also adversely affect the further development of our market.

4.The Basic Law provides under Article 109 that " The Government of the Hong Kong Special Administrative Region shall provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre " . To meet this end, it is important that we maintain an open and fair market place to both local and international investors and market operators. The Securities (Insider Dealing) Ordinance, Cap. 395 (SIDO) is a cornerstone in that respect. Since the establishment of the Insider Dealing Tribunal under SIDO in 1994, the Tribunal has completed five insider dealing enquiries and is currently dealing with four other cases. We have recently received another referral from the Securities and Futures Commission (SFC) with recommendation for enquiries by the Tribunal and we expect two more to be ready in the next six months. According to a recent estimate by the SFC, we expect the caseload to increase further in 1998.

5.At present, two SGC on loan from other Divisions of the D of J assist the FSB in investigating insider dealing cases by providing pre-enquiry legal advice on the merits of a case referred by the SFC, as well as counsel during the inquiry process. These involve work including reading voluminous documents and evidence, setting out in detail the subject matter of the inquiry, examining and cross-examining witnesses, making submissions and advising the Tribunal on points of law and procedure, and making submissions at the conclusion of the inquiry. Since the insider dealing cases often involve complicated commercial practice and numerous transactions involving the parties, the D of J has found it increasingly difficult for the two SGC to cope with the current workload and level of complexity of work. While it is difficult to predict the future workload in quantitative terms, as the financial market of Hong Kong expands further in both its breadth and depth, we expect that the future workload will only increase in both number and complexity. The SFC has already alerted us of this trend. The D f J finds it virtually impossible to meet the expected demand with existing resources without compromising the standard of service. Given the importance to maintain a level playing field of an expanding market and the rising expectation of the investing public and the industry as a whole, we consider it necessary to create a legal officer post at the DPGC level to provide exclusive support for insider dealing related matters. The creation of the post will also send a strong signal to the market that the Government is committed to tackling insider dealing.

6.Though we do not envisage the increased workload for insider dealing related matters to be temporary, we consider it prudent to create the DPGC post on a supernumerary basis for a period of three years first and then monitor the demand for work in this area and ascertain if the workload justifies a permanent post. We set out the proposed duty list of the DPGC post at Enclosure 1and the organisation chart of the Civil Division at Enclosure 2.

7.We also propose to create two SGC posts for a period of three years to support the proposed DPGC post to deal with insider dealing matters. We will return the two on-loan SGC posts to other Divisions of the Department. We will also review the permanent need of the three proposed posts in three years' time.

FINANCIAL IMPLICATIONS

8.The additional notional annual salary cost at mid-point of the proposal is $3,219,240. The full annual average staff cost, including salary and staff on-cost, is $5,897,100.

9.We have included sufficient provision in the 1997-98 Estimates to meet the cost of this proposal.

BACKGROUND INFORMATION

10.In the past few years, Hong Kong's securities market has experienced rapid growth. The number of companies listed in the Stock Exchange of Hong Kong (SEHK) has increased by over 70% from 357 in 1991 to 633 in September 1997. The total market capitalisation has also grown by over three times from HK$949 billion in 1991 to HK$3,476 billion in 1996 and further to HK$4,384 billion by the end of September 1997, earning for Hong Kong the title as the sixth largest stock market in the world. Apart from expansion in size, the Hong Kong securities market has also become one of the most sophisticated markets in the region. New products such as stock options, regional derivative warrants and convertible bonds have been introduced to meet the market needs. In parallel with its increasing international exposure, the Hong Kong market has also become the most important capital-raising centre for Chinese enterprises. So far, there have been a total of 36 such enterprises listed in the SEHK, having raised a total amount of capital of HK$57 billion.

11.We set up the Insider Dealing Tribunal under SIDO in 1994. Section 16 of the Ordinance stipulates that if it appears to the Financial Secretary, whether following representations by the SFC or otherwise, that insider dealing in relation to a listed corporation has taken place or may have taken place, he may require the Insider Dealing Tribunal to inquire into the matter. The Tribunal currently consists of two divisions each chaired by a Judge of the Court of First Instance of the High Court with a Senior Executive Officer and two general support staff.

CIVIL SERVICE BUREAU COMMENTS

12.Having regard to the increasing workload arising from insider dealing enquiries, the Civil Service Bureau supports the creation of the proposed supernumerary directorate post in the Civil Division. The grading and ranking of the proposed post are considered appropriate.

ADVICE OF THE STANDING COMMITTEE ON DIRECTORATE SALARIES AND CONDITIONS OF SERVICE

13.As the post is proposed on a supernumerary basis, we will report its creation, if approved, to the Standing Committee on Directorate Salaries and Conditions of Service in accordance with the agreed procedures.


Department of Justice
Financial Services Bureau
November 1997


(1) In a separate paper EC(97-98)36 to be discussed at the same meeting of the Establishment Subcommittee on 19 November 1997, we are inviting Members to recommend to Finance Committee an increase in the NAMS ceiling of Department of Justice from $369,675,000 by $3,758,940 to $373,433,940. If Members agree to the proposal set out therein, then the cumulative effect of the two proposals would in effect raise the NAMS ceiling from $369,675,000 by $5,497,380 to $375,172,380.

Enclosure 1 to EC(97-98)37

Proposed Duty List

Post : Deputy Principal Government Counsel
Rank : DL2
Responsible to : Deputy Law Officer (Civil Law) (DL3)

Duties :

  • Provide legal analysis and advice on suspected insider dealing cases referred to the Financial Secretary by the Securities and Futures Commission, or any cases of this nature as identified by the Financial Secretary;

  • give advice on the appropriate procedures and prepare necessary documents for the operation of the Insider Dealing Tribunal; and

  • appear as Counsel to the Tribunal during insider dealing enquiries and render support to other Counsel to the Tribunal during those enquiries.