FINANCIAL AND MONETARY AFFAIRS
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capacity. The SFC also worked with the Futures Exchange in the development of its new interest-rate contract based on the Hong Kong Interbank Offered Rate.
The SFC and the Stock Exchange have jointly recommended that listed companies be allowed to repurchase their own shares, and have established a regulatory framework to govern such purchases. They have also taken steps to develop the necessary systems for introducing short-selling, stock borrowing and lending, as well as new financial products such as traded options.
Two important components of the overhaul of Hong Kong's securities legislation are the Securities (Insider Dealing) Ordinance (1990) and the Securities (Disclosure of Interests) Ordinance. The Insider Dealing Bill was introduced in the Legislative Council in June 1989 and was passed on July 25, 1990. The ordinance provides much stiffer penalties for insider dealing than those previously applicable. The Securities (Disclosure of Interests) Ordinance was enacted in 1988 and will be brought into effect when decisions have been made concerning certain amendments at present under consideration. The ordinance requires that company shareholders with 10 per cent or more of the voting shares of a listed company disclose their interests and dealings publicly and that directors and executives disclose certain dealings.
Hong Kong as an International Financial Centre
The favourable geographical position of Hong Kong, which provides a bridge in the time gap between North America and Europe, together with strong links with China and other economies in the South-east Asian region as well as excellent communications with the rest of the world, have helped Hong Kong to develop into an important international financial centre. The absence of any restrictions on capital flows in and out the territory has also contributed to this.
Foreign banks in Hong Kong tend to be the premier banks in their countries of incorporation and this is illustrated by the fact that 84 of the top 100 banks in the world in 1990 have operations in the territory. In addition, many merchant banks or investment banks of world standing operate in Hong Kong. A substantial proportion of the transactions in the banking sector are international in nature; over 50 per cent of the sector's aggregate assets and liabilities are external, spreading over more than 100 countries. The financial markets, particularly in foreign exchange and gold, form an integral part of the corresponding global markets. Moreover, Hong Kong serves as an important centre for the intermediation of international flows of savings and investment, particularly through the syndication of loans and international fund management. International investors play a significant and increasing role in Hong Kong, and Hong Kong's investment overseas is also believed to be considerable.
The Financial Scene
The linked exchange rate system and various measures adopted in recent years to strengthen monetary management have ensured a stable monetary environment for Hong Kong. Operating within the overriding constraint of maintaining exchange rate stability, the strategy underlying money market operations during most of 1990 was to maintain tightness in the interbank market to help restrain inflationary pressures. The higher local interest rates that were obtained had some favourable effects in curbing loan demand and stimulating Hong Kong dollar savings.