SECURITIES AND FUTURES COMMISSION

The Stock Exchange of Hong Kong

The Securities and Futures Commission ("SFC") and The Stock Exchange of Hong Kong Limited (the "Exchange") jointly announce today that they have taken action against Lei Shing Hong Securities Limited ("LSHSL") and its Dealing Director, Mr Chan Wai Chow, Johnnie ("Mr Chan"). Both LSHSL and Mr Chan are registered securities dealers under the Securities Ordinance.

The actions stemmed from an inquiry in which it was found that during the period 1 April 1997 to 31 January 1999 LSHSL and Mr Chan had:-

a) failed to adequately supervise the activities of its staff;
b) allowed staff to carry out the functions of dealer's representatives whilst unregistered; and
c) failed to implement appropriate account opening procedures.

These failures and accommodations had created an environment that certain of LSHSL's account executives exploited to conduct unauthorised trades via the accounts of their clients maintained with LSHSL.

The SFC has therefore decided to suspend Mr Chan's registration for three months and to publicly reprimand LSHSL.

The Disciplinary Committee of the Exchange (the "Disciplinary Committee") has also decided to publicly censure LSHSL and Mr Chan and fine LSHSL HK$80,000 and Mr Chan HK$30,000.

In deciding on this course of action, the SFC and the Disciplinary Committee took into consideration that:-

• the failures and accommodations were essentially those of Mr Chan, and Mr Chan has been fined HK$7,000 in Western Magistracy for aiding and abetting the unregistered dealing of a former staff of LSHSL;

• both LSHSL and Mr Chan have cooperated fully with the SFC throughout the inquiry process;

• LSHSL commissioned a leading accountancy firm to conduct a comprehensive review of its internal control system and the review revealed that it had significantly improved its operation;

• LSHSL has been quick to revise its management structure with a view to strengthening its internal compliance procedures, including the appointment of a dedicated compliance officer; and

• LSHSL did not participate in the unauthorised trading and had no knowledge of it.

A copy of the Notice of Public Censure published by the Exchange is attached for your reference.

10 October, 1999

The Stock Exchange of Hong Kong
(the "Exchange")

NOTICE OF PUBLIC CENSURE

The Exchange announces that on 21 September 1999, the Disciplinary Committee heard the cases of the Member, Lei Shing Hong Securities Ltd ("LSHSL"), and its Dealing Director, Mr Chan Wai Chow, Johnnie ("Mr Chan"). The Disciplinary Committee found two charges against LSHSL and a charge against Mr Chan for breach of the Rules of the Exchange proved.

The substance of the charge was that during the period April 1997 to January 1999, LSHSL and Mr Chan had:-

(i) failed to adequately supervise the activities of some of LSHSL's employees;

(ii) allowed staff to carry out the functions of a dealer's representative whilst unregistered; and

(iii) failed to implement appropriate account opening procedures.

Having considered that:-

(i) the failures and accommodations were essentially those of Mr Chan, and Mr Chan has been fined HK$7,000 in Western Magistracy for aiding and abetting the unregistered dealing of a former staff of LSHSL;

(ii) both LSHSL and Mr Chan have cooperated fully with the SFC throughout the inquiry process;

(iii) LSHSL commissioned a leading accountancy firm to conduct a comprehensive review of its internal control system and the review revealed that it had significantly improved its operation;

(iv) LSHSL has been quick to revise its management structure with a view to strengthening its internal compliance procedures, including the appointment of a dedicated compliance officer; and

(v) LSHSL did not participate in the unauthorised trading and had no knowledge of it,

the Disciplinary Committee resolved that a penalty of public censure plus a fine of HK$80,000 be imposed on LSHSL and a penalty of public censure plus a fine of HK$30,000 be imposed on Mr Chan. The penalty of public censure is hereby imposed on each of LSHSL and Mr Chan.

For and on behalf of
The Stock Exchange of Hong Kong Limited
Fanny Chung
Secretary - Disciplinary Committee

Hong Kong, 10 October 1999

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