Securities and Futures Act 2001 · 2020 Revised Edition · Part 11 · Investor Compensation Scheme
186. Application of fund
Feedback & supportLast amended by an amending law of 2018. 3 amendments in all.
Subject to this Part, a fidelity fund must be held and applied for the purpose of compensating any person (other than an accredited investor) who suffers pecuniary loss because of a defalcation committed —
defalcation
“defalcation” means misapplication, including misappropriation, of any property;
in the course of, or in connection with, a dealing in capital markets products;
by a member of an approved exchange or by any agent of such member; and
in relation to any money or other property which, after the establishment of the fidelity fund was entrusted to or received —
by that member or by any of its agents for or on behalf of any other person; or
by that member either as the sole trustee or as trustee with any other person or persons, or by any of its agents as trustee or for or on behalf of the trustees of that money or property.
Subject to this Part, the fidelity fund is to be applied for the purpose of paying to the Official Assignee or a trustee in bankruptcy within the meaning of the Insolvency, Restructuring and Dissolution Act 2018 an amount not greater than the amount that the Official Assignee or the trustee in bankruptcy (as the case may be) certifies is required in order to make up or reduce the total deficiency arising because the available assets of a bankrupt, who is a member of an approved exchange, are insufficient to satisfy any debts arising from dealings in capital markets products that have been proved in the bankruptcy by creditors of the bankrupt member.
member
“member”, in relation to an approved exchange, a recognised market operator, an approved clearing house or a recognised clearing house, means a person who holds membership of any class or description in the approved exchange, recognised market operator, approved clearing house or recognised clearing house, whether or not the person holds any share in the share capital of the approved exchange, recognised market operator, approved clearing house or recognised clearing house, as the case may be;
Subsection (2) applies in the case of a member of an approved exchange who has made a voluntary arrangement with the member’s creditors under Part 14 of the Insolvency, Restructuring and Dissolution Act 2018 in like manner as that subsection applies in the case of a member who has become bankrupt.
approved exchange
“approved exchange” means a corporation that is approved by the Authority under section 9(1)(a) as an approved exchange;
For the purposes of subsection (3) —
a reference to a trustee in bankruptcy in subsection (2) is deemed to be a reference to a nominee within the meaning of Part 14 of the Insolvency, Restructuring and Dissolution Act 2018;
a reference to debts proved in bankruptcy in subsection (2) is deemed to be a reference to debts provable in relation to a voluntary arrangement within the meaning of Part 14 of the Insolvency, Restructuring and Dissolution Act 2018; and
a reference to the bankrupt in subsection (2) is deemed to be a reference to the person who made the voluntary arrangement under Part 14 of the Insolvency, Restructuring and Dissolution Act 2018.
Subject to this Part, the fidelity fund is to be applied for the purpose of paying to a liquidator of a member of an approved exchange that is being wound up an amount not greater than the amount that the liquidator certifies is required to make up or reduce the total deficiency arising because the available assets of the member are insufficient to satisfy any debts arising from dealings in capital markets products that have been proved in the liquidation of the member.
capital markets products
“capital markets products” means any securities, units in a collective investment scheme, derivatives contracts, spot foreign exchange contracts for the purposes of leveraged foreign exchange trading, and such other products as the Authority may prescribe as capital markets products;
Where a claim has been made for compensation in respect of a pecuniary loss under subsection (1), no claim for a payment under subsection (2) or (5) may be made in respect of the same pecuniary loss.
Where a claim has been made for a payment in respect of a deficiency referred to in subsection (2), no claim for compensation under subsection (1) or for a payment under subsection (5) may be made in respect of the same deficiency.
Where a claim has been made for a payment in respect of a deficiency referred to in subsection (5), no claim for compensation under subsection (1) or for a payment under subsection (2) may be made in respect of the same deficiency.
Moneys paid under subsection (2) or (5) may only be applied by the Official Assignee, a trustee in bankruptcy, a nominee or a liquidator (as the case may be) for the purpose of satisfying debts arising from dealings in capital markets products, and for no other purpose.
Subject to the provisions of this section, the amount or the sum of the amounts that may be paid out of the fidelity fund under this Part for the purpose of —
compensating pecuniary loss under subsection (1); or
making a payment under subsection (2) or (5),must not, in respect of each member, exceed the prescribed amount.
Subject to the provisions of this section —
the amount that may be paid out of the fidelity fund to each claimant under subsection (1) in relation to each member; or
the amount that the Official Assignee, a trustee in bankruptcy, a nominee or a liquidator may pay to each creditor of a member from any amount paid to the Official Assignee, trustee in bankruptcy, nominee or liquidator (as the case may be) under subsection (2) or (5),must not exceed the prescribed amount.
For the purposes of subsections (10) and (11), any amount paid out of the fidelity fund, to the extent to which the fund is subsequently reimbursed therefor, is disregarded.
In this section, “agent”, in relation to a member of an approved exchange —
means a person who is a director, an officer, an employee or a representative of the member; and
includes a person who has been, but at the time of any defalcation in question has ceased to be, a director, an officer, an employee or a representative of the member if, at the time of the defalcation, the person claiming compensation has reasonable grounds for believing that person to be a director, an officer, an employee or a representative of the member.
In this section, any reference to dealing in capital markets products is a reference to such dealing which is done or to be done —
dealing in capital markets products
“dealing in capital markets products” has the meaning given in the Second Schedule;
on the approved exchange which establishes, keeps and administers the fidelity fund; or
through a trading linkage of the approved exchange with an overseas exchange.