Press release
LCQ7: Cold-calling cases relating to commodities futures
Wednesday, December 15, 2004
Following is a question by the Hon Chan Kam-lam and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (December 15):
Question:
It has been reported that the Securities and Futures Commission (SFC) said earlier that there had been an increase in the number of cases in which intermediaries made cold calls on the public illegally with an intent to induce them into transacting in futures contracts with overseas exchanges, especially the Commodity Exchange in Japan. In this connection, will the Government inform this Council:
(a) of the following over the past three years, listed in table form: the number of cases regarding the above activities investigated by SFC, the investment vehicles and products involved, the number of transactions actually processed and the amounts of money involved, the number of investors who suffered from losses and the amounts of money involved, the number of cases in which intermediaries received payments from the investors but did not process the transactions concerned and, among them, the number of cases in which the investors could receive full or partial compensation, the respective numbers of cases in which prosecutions were instituted or sanctions imposed after investigation, the results of prosecutions and the penalties imposed;
(b) whether it knows the number of cases being investigated by SFC at present and the respective numbers of investors and amounts of money involved in each case; and how the characteristics of these cases compare to those in the past three years; and
(c) whether it knows if SFC has studied the causes of the substantial increase in the number of the above activities recently; if it has, of the findings, and whether SFC plans to step up publicity and education efforts shortly, informing the public that such cold calls are illegal and advising them not to participate in transactions of investment products involved in such promotion and sales activities?
Reply:
Madam President,
On the issues raised in the question, the information provided by the Securities and Futures Commission (SFC) is as follows.
(a) and (b) Please refer to the annexes for information on investigation completed and investigation currently conducted by the SFC in cold-calling cases relating to commodities futures.
(c) In investigating reports of wrongdoing by futures brokers, the SFC has noted that there has been an increase in illegal cold calling of members of the public by intermediaries trying to induce them to trade futures contracts on overseas exchanges. The SFC is receiving more complaints regarding such activities as a result of its continuous efforts to encourage investors to report such misconduct. It is also possible that the intermediaries concerned are trying to recruit more new investors by cold calling.
It has always been part of the SFC's ongoing efforts to remind investors to be aware of illegal cold calling practices and risks of trading commodity futures on overseas exchanges. For example, the SFC issued a press release as well as investor education materials in November 2003 to remind investors of the risks and costs of trading in commodity futures. It warned investors about cold calling through its investor portal, eIRC, by issuing a press release and publishing an article in its bi-monthly newsletter in June, September and October 2004. From time to time, the SFC puts out education materials in the printed media to carry advice on cold calling and trading of commodity futures.
The SFC plans to put out publicity within the next two months to warn investors against the risk of "locking", which is a technique commonly employed in leveraged forex and commodity futures trades and very often leads to huge losses to investors. At the same time, the SFC will continue its ongoing investor education efforts to warn investors of cold calling and trading commodity futures on overseas exchanges and will encourage investors to report market misconduct through publicity work.
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