Ten international securities houses have criticised the Government's Composite Securities and Futures Bill, warning the proposed legislation would discourage international investors and companies from coming to Hong Kong. 'The overall impact of the proposed new regime for market misconduct is extremely troubling, and may discourage firms from setting up new business or expanding their businesses in Hong Kong,' the companies said in a paper presented to legislators yesterday. The bill, aimed at replacing the existing securities and futures law - has been debated for more than eight years. It is in its latest three-month consultation that will end on June 30. The complaints by the high-profile players - among them Merrill Lynch, Morgan Stanley Dean Witter and Goldman Sachs - added weight to growing criticism from market players who fear the bill's measures would weaken Hong Kong as an international financial centre. The group also includes Salomon Smith Barney, Credit Suisse First Boston, Jardine Fleming Securities, J.P. Morgan Securities, Kleinwort Benson Securities, Bear Stearns, and Donaldson Lufkin Jenrette. However, the Consumer Council said in a paper presented to legislators yesterday it supported the bill because of proposals that would bolster investor protection. Nonetheless, the proposed legislation was too harsh, the securities houses said, as it would make many acts of misconduct - such as insider dealing - criminal offences with a maximum penalty of 10 years imprisonment or a fine of up to HK$10 million. Insider dealing provisions were 'highly confusing' and 'inconvenient', the companies said. The group also said the provisions on market manipulation were drafted too widely and would greatly affect the index arbitrage business of brokerages. 'The new regime is likely to discourage the conduct of legitimate financial market activities, such a hedging and arbitrage, by international market participants in Hong Kong,' it said. The group also complained the bill would enable investors to seek compensation from sources of misleading public information should they incur any losses. It called for changing this provision to cover only public announcements disclosed by listed companies, and to exclude research reports from brokerages or statements made to journalists by analysts. 'There is a real danger of opening the floodgates for un-meritorious claims from investors,' the paper said. The group said the requirement that major shareholders and directors disclose their interests of the derivatives in the listed companies was too tough. 'The scope of the proposed disclosure obligations goes well beyond the requirements in other international financial markets,' they said. 'It could add significantly to the costs of trading in Hong Kong listed shares and discourage companies for seeking listing of their securities in Hong Kong.' The securities houses also criticised a proposal that would allow any wrongful act by an employee be also treated as one by the company and senior management. They called for the Government to identify circumstances which would not be breaches of the law under a 'safe harbour' rule. Deputy Financial Secretary Au King-chi said that the bill already had a 'safe harbour' element. Still, 'if the industry's recommendation would help the bill to meet international practices, the Government would make adjustments accordingly', she said. Democrat Sin Chung-kai said the bill may be delayed for a few years because of so many differing opinions. But Ms Au said the Government was keen to enact the bill in April, to keep the law from falling behind international standards.