The amendments to the Mandatory Provident Fund Schemes (General) Regulation (General Regulation) finally came into effect on 1 December 2006. The amendments mainly related to the permissible investments of MPF constituent funds and approved pooled investment funds (APIFs).
In connection with the revised General Regulation, the Mandatory Provident Fund Schemes Authority (MPFA) issued the following new and revised guidelines on matters relating to the permissible investments of MPF constituent funds and APIFs:
New Guidelines:
i. Guidelines on Spread Requirements;
ii. Guidelines on Deposit; and
iii. Guidelines on Requirements for Securities to be Considered as "to be Listed".
Revised Guidelines:
i. Guidelines on Equities and Other Securities;
ii. Guidelines on Eligible Overseas Banks and Authorised Financial Institutions; and
iii. Guidelines on Index-Tracking Collective Investment Schemes.
The main changes are highlighted below:
Under the Guidelines on Equities and Other Securities, securities which were previously classified as "Other Securities" such as ADRs, GDRs and a few other designated depositary receipts and certificates are now classified as "additional types of permissible investments" under the new section 8(1)(c) of Schedule 1 of the General Regulation. Those receipts and certificates which are fully paid up and listed on an approved stock exchange, but whose underlying shares are listed on a stock exchange not on the MPFA's list of "approved stock exchange" will continue to fall under the 10% investment limit. Non-APIF SFC authorised funds and SFC authorised REITs remain in the "Other Securities" category.
It should be noted that the aforementioned amendments in the Guidelines on Equities and Other Securities will only come into full effect on 1 June 2007.
The MPFA requires that the total amount invested in permissible investments (save for deposits) issued by any one person must not exceed 10% of the total funds of a constituent fund. Under the revised General Regulation, where a debt security issued by one person is guaranteed by another person, the debt security is, for the purpose of complying with the spread requirements, to be regarded as also issued by the guarantor.
It is stipulated under the revised General Regulation that where the funds of a constituent fund are invested in a relevant investment (i.e. investment specified by the MPFA and the value of which is determined by reference to the value of another investment), the amount invested in the relevant investment is also taken into account when ascertaining the total amount of the funds invested in the permissible investments issued by the person who issues the underlying investment of the relevant investment. The Guidelines on Spread Requirements, which will only come into effect on 1 June 2007, further clarify that investment having values ascertainable by reference to more than one security such as index-tracking funds, APIFs, etc. is not a relevant investment for the above purposes.
Previously, "public offers of securities" (i.e. securities which were to be listed on an approved stock exchange) were also considered as one of the permissible investments for MPF constituent funds but the total value of such securities subscribed could not exceed the amount of money held on deposit for the constituent funds. Under the revised General Regulations, these securities are now classified as "securities to be listed" and they include securities to be listed on either an approved stock exchange or an approved futures exchange. For this purpose, securities are treated as "listed" when a recognised exchange company has, on the application of the corporation which issued them, agreed to allow dealings in those securities to take place on a recognised stock market. Under the revised General Regulations, the aforementioned restriction on the total value of such securities permitted to be subscribed by a constituent fund is also removed. The scope of investment under this category has also expanded as warrants which are to be listed on an approved stock exchange are now also included.
Lastly, amendments have also been made to investment in deposits and currency forward contracts. The funds of a constituent fund may be placed on deposit and may be used to acquire currency forward contracts with an authorised financial institution or an eligible overseas bank. However, it is clarified under the revised General Regulation that the funds of a constituent fund must not be placed on deposit and must not be used to acquire currency forward contracts with a branch outside Hong Kong of an authorised financial institution incorporated outside Hong Kong unless the authorised financial institution satisfies a minimum credit rating set by the MPFA. |