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Stock and Futures Markets
34.
Following the crash in world stock markets, share prices fell
sharply in Hong Kong on 19 October 1987. The stock exchange of Hong
Kong decided on 20 October to suspend trading for four days in order
to enable all outstanding transactions to be settled in accordance
with the trading rules of the Exchange. The Hang Seng Index
futures market was also closed for the same period. The sharp fall
in the Hang Seng Index, the most widely quoted barometer of Hong
Kong Stock prices, raised serious doubts as to whether the Hong Kong
Futures Guarantee Corporation, which guarantees payment on all
contracts executed on the Hong Kong Futures Exchange, would be able
to meet its obligations. If the Guarantee Corporation were to have
collapsed, the Hong Kong Futures Exchange would not have been able
to operate or re-open. This could well have had serious knock-on effects on the stock market, the exchange value of the Hong Kong
dollar, the overall economy, and Hong Kong's credibility as an
international financial centre. To prevent such a situation from
arising, the Hong Kong Government decided to put together a rescue
package to enable the Guarantee Corporation to meet its
obligations.
35. The main element of the initial package was a credit facility
of HK$ 2 billion to the Guarantee Corporation, of which $ 1 billion
was provided by the Hong Kong Government from the Exchange
Fund and the remainder by the shareholders of the Guarantee
Corporation, a number of brokers and members of the Futures
Exchange. An additional facility of HK$ 2 billion (HK$ 1 billion
from the Exchange Fund and HK$ 1 billion from the Hong Kong and
Shanghai Bank, the Standard Chartered Bank and the Bank of China)
later extended to the Guarantee Corporation. These credit
facilities are loans repayable with interest at market rates. The
support operation helped the financial system of Hong Kong to remain
intact and the stock and futures markets to return to orderly
trading.
36.
In the light of these events in the stock and futures
markets, and in recognition of the need to maintain Hong Kong as a major international financial centre, the Hong Kong Government set
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