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Steps to choose an intermediary

1. Check the licence

In Hong Kong, companies must be licensed by or registered with the Securities and Futures Commission (SFC) before they can engage in the regulated activities under the Securities and Futures Ordinance (SFO), eg dealing in or advising on securities and futures contracts. For your benefit, when you choose an intermediary (a brokerage or bank), you must check if it has the proper licence or registration. You may verify if a company is licensed or registered on-line (see the table below) or check the printed licences or certificates of registration displayed in the intermediary’s office.

In addition to checking the licence or registration of the company, you should also check whether the individual who is responsible for handling your trading orders (no matter he/she is a staff member of a brokerage or a bank) is licensed by the SFC or his/her name is on the Register of Securities Staff of AIs by the Hong Kong Monetary Authority (HKMA) (in the case of a bank staff).

Please note that with effect from 13 November 2015, the SFC will no longer issue printed licences to licensed individuals. That means any printed licence issued to an individual licensed by the SFC ceases to be a proof of the current licence status of an individual. If anyone shows you a printed licence and claims that he or she is a licensed representative of a brokerage, you are advised to verify it through the SFC’s online register.

SFC website: Public Register of Licensed
Persons & Registered Institutions
  • Contain licence status of companies and individuals. Since banks that deal in securities and futures contracts have to be registered with the SFC, the register also lists out these banks and their executive officers.
  • Information of licensed companies and individuals includes names, contact details, information of licensed companies’ responsible officers, representatives and complaint officers, disciplinary records over the past five years as well as licensing conditions, eg cannot hold clients’ assets or can only conduct prescribed businesses.
HKMA website: Register of Securities Staff of AIs
  • HKMA is the frontline regulator of banks, whose register lists out bank staff who are involved in the securities and futures businesses. HKMA does not issue any certificate of registration to such bank staff.

For trading in overseas markets, you have to check if your overseas intermediary is licensed or registered with the regulator of that country to trade in the overseas stocks and futures contracts. The Hong Kong regulators like the SFC do not have regulatory power over overseas trading activities, or the conduct of intermediaries that operate outside Hong Kong.

2. Compare services

  • Subject to the prescribed conditions of the licence(s), some brokers that are regarded as introducing brokers in the market cannot directly execute clients’ orders, but can only transfer the orders to other brokers who are participants of the Hong Kong Stock Exchange for execution or introduce the clients to such other brokers. They cannot hold clients’ assets too. You can check from the SFC’s online register to find out if an intermediary’s scope of businesses is subject to conditions and if there is any other limitation. This will help you compare the specific services that different intermediaries are licenced to operate.
  • Some intermediaries provide relatively low-priced and execution-only service that simply takes clients’ trading orders for execution. Some other intermediaries provide additional services such as research and consultancy, or specialised services such as discretionary accounts or margin trading. Remember to shop around to choose an intermediary that best suits your needs.
  • Fees and charges such as commission, settlement charges and stock custody fees vary between intermediaries. Clarify the fee structure right from the start. Remember, the cheapest option may not always be the best.

3. Check if a financial intermediary has obtained the right licence(s) or registration from respective regulators to conduct all types of financial services

  • The financial market is more complicated nowadays and financial products are also greater in variety. An intermediary can carry out business under the remit of different regulators.
  • Since no single licence or registration allows an intermediary to conduct business across all financial sectors, intermediaries who carry out various financial activities such as trading in securities, taking deposits and selling MPF must obtain the relevant licences or registration from different regulators including SFC, HKMA and the Mandatory Provident Fund Schemes Authority.
  • Intermediaries’ business and services are supervised by the respective regulators based on the types of their financial services and must comply with the relevant rules and regulations as well as licensing conditions. You must check from different regulators or self-regulatory bodies to see if your intermediary is licensed to engage in the claimed financial activities.
  • For more information, please read the article “Golden Rules of Choosing Intermediaries”.

4. Read carefully and understand client agreement

  • You must sign a client agreement before you start trading. The agreement, which can be in either Chinese or English, sets out the services offered, dealing terms, and the obligations and liabilities of each party. You must read carefully and understand all the terms and conditions. If you choose to open a margin account, your client agreement should explain the circumstances when your positions may be closed without your prior consent. You should ask your broker to explain this agreement clearly. Do not rely on any verbal representations that are not in the agreement. Do not leave any section blank if it needs to be completed. Do not sign anything that you do not understand. Keep a copy of the client agreement for your future reference.