Section 103 of the Securities and Futures Ordinance

On 20th March 2015, the Court of Final Appeal allowed an appeal in relation to the issuing of advertisements to promote a collective investment scheme without the authorization of the SFC. Section 103 of the Securities of the Futures Ordinance makes it an offence to issue advertisements, invitations or documents relating to investments in certain cases but there are various exemptions specified in section 103(3). Section 103(3)(k) provides that section 103(1) does not apply if the advertisements made in respect of the securities were intended to be disposed of only to professional investors.

The Appellants were charged in 2013 with issuing unauthorized advertisements to the public to subscribe for interests in a collective investment scheme. They were acquitted at the Magistrates Court by relying on the exemption in section 103(3)(k). The SFC appealed the decision by way of Case Stated. A High Court Judge allowed the appeal, ruling that the Magistrate erred in respect of the applicability of the section 103(3)(k) exemption and remitted the case back to the Magistrate.

The appeal concerned the proper construction of section 103(3)(k) – specifically the ambit of the exemption it provides from the application of the offence-creating section. The Court was asked to determine the following questions:-

1: Does the exemption apply where an advertisement relates to a product which, as a matter of fact, is only disposed of or intended to be disposed of to professional investors?

2: : Or, does the advertisement have to actually state that the product is intended for professional investors before the exemption can apply?

The Court answered ‘No’ to each question and held that the exemption applies if, as a matter of fact, the relevant investment product is or is intended to be sold only to professional investors. The Court accordingly allowed the appeal and set aside the Judge’s decision remitting the case to the Magistrate.

See the full judgement HERE.