The Securities and Futures Commission has stepped up efforts to strengthen its regulatory framework in the face of rapid technological development in the financial markets, according to the watchdog's annual report. Among recent measures, the SFC had set up a 10-member independent committee to review listing rules and other regulations to ensure they are in line with international practices, it said in the report. 'Technology has changed securities markets profoundly in character, depth and liquidity,' Andrew Sheng said in a chairman's statement. This had created the problem of regulatory arbitrage between markets, as some companies could list in markets with fewer restrictions than home-country exchanges, Mr Sheng said. 'Given the growing regulatory arbitrage between markets in the competitions for listing, there is also an urgent need to ensure regulatory standards coverage.' To address this problem, the newly created committee is to check whether local regulations are adequate to block regulatory arbitrage. The committee would also make sure regulations were not too tight, in order to keep companies interested in seeking local listings, he said. Among the committee's members are executives from Nasdaq, Germany's Neuer market and Hong Kong Exchanges and Clearing. Mr Sheng said the review would help Hong Kong build a strategic alliance with overseas exchanges for reciprocal listings and cross-border trading. 'To build up strategic alliance is crucial for Hong Kong to maintain its status as an international financial centre as the boundaries of global financial markets disappear,' he said. 'To promote such alliances, our regulatory framework must be on par with international standards and our financial technology infrastructure must be ready for connection with the rest of the world.' Mr Sheng said the local market already had a high proportion of technology stocks. At the end of March, stocks in the technology, media and telecommunications sectors represented 42 per cent of market capitalisation, compared with 15 per cent in the US and 23 per cent in Japan. Of the companies listed on the Growth Enterprise Market, 61 per cent had high-technology content. 'This reflects there is strong investor demand on these stocks,' he said. Under such situations, he said it was important for the Government to introduce the composite Securities and Futures Bill, which allows the SFC to build a regulatory framework to facilitate technology innovation. One power given to the SFC under the bill is to regulate on-line brokers and electronic communication networks, which allow investors to trade on the Internet. The SFC annual report showed that 39 brokers planned to conduct Internet trading last year. Mr Sheng believed more brokers would conduct Internet trading after the stock and futures exchanges introduced a new electronic trading system this year. He cited South Korea, where 50 per cent of retail trading is done via the Internet, two years after it launched a trading system. Mr Sheng said the SFC would upgrade its own technology to introduce a more orderly workflow and more use of on-line information management. The annual report showed that the SFC conducted 591 investigations last year. Of these, 283 cases have been concluded.