CONFIDENTIAL
FM HONG KONG
TO PRIORITY FCO
TELNO 4579
OF 0410OOZ DECEMBER 87
INFO PRIORITY PEKING
CONFIDENTIAL
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024144
MDLIAN 4325
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нив оши
0 7 DEC 1987
TOP COPY
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OUR TELNO 4543: ANNUAL REPORT ON HONG KONG
PARA 1(C) OF TUR. FOLLOWING IS A DRAFT SUBSECTION ON THE STOCK AND FUTURES MARKETS. WE SUGGEST THIS SHOULD BE INSERTED AFTER THE SUBSECTION ON TRADE RELATIONS, I.E. AS SUBSECTION (D) PARA- GRAPHS 34. 35 AND 36. ALL PARAGRAPHS FROM THE SUBSECTION ON THE
SHOULD BE RE-NUMBERED:-
·
PUBLIC FINANCE ONWARDS
(D) 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 HONG FUTURE EXCHANGE WOULD NOT HAVE BEEN ABLE TO OPERATE OR RE-OPEN. THIS WOULD 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 PACKAGE WAS A CREDIT FACILITY OF HK DOLLARS 2 BILLION TO THE GUARANTEE CORPORATION, OF WHICH DOLLARS 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 DOLLARS 2 BILLION (HK DOLLARS 1
FUND AND HK DOLLARS 1 BILLION FROM THE
BILLION FROM THE EXCHANGE
1
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