FINANCIAL AND MONETARY AFFAIRS
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The local capital markets are also a source of finance for corporate borrowers. The two main types of negotiable debt instruments traded in the market are certificates of deposit issued by authorised institutions and commercial paper issued by other organisations and companies. Although the majority of issuers are locally-based institutions, a number of non-resident institutions have also tapped funds from the local capital markets. A notable example is the four issues of Hong Kong dollar bonds launched by the World Bank in 1989, 1990 and 1991 and the US dollar bonds issued by the Asian Development Bank in November 1991.
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The stock market provides another important source of capital for local enterprises. It attracts both local and overseas investors. At the end of 1991, 357 public companies, with a total market capitalisation of $949 billion were listed on the Hong Kong Stock Exchange. This has made it the third largest stock market in Asia, after the leaders, Japan and Taiwan.
The Hong Kong Futures Exchange offers futures contracts in sugar, soyabeans, gold, Hang Seng Index and Sub-Indices, and interbank interest rate. Trading in the new futures contracts based on each of the Hang Seng Sub-indices, namely Commerce and Industry, Properties, Finance and Utilities, commenced in the second half of the 1991. These contracts offer more flexibility and opportunities for investors in Hong Kong stock and futures.
The Chinese Gold and Silver Exchange Society operates one of the largest gold bullion markets in the world. Gold traded through the society is of 99 per cent fineness, weighted in taels (one tael equals approximately 1.2 troy ounces) and quoted in Hong Kong dollars. Prices follow closely those in the other major gold markets in London, Zurich and New York.
There is another active gold market in Hong Kong in which the main participants are banks, major international bullion houses and gold trading companies. It is commonly known as the loco-London gold market with prices quoted in US dollars per troy ounce of gold of 99.95 per cent fineness and with delivery in London. Trading in this market has expanded in recent years.
Regulation of the Financial Sector
The government has consistently worked towards providing a favourable environment in the financial sector, with sufficient regulation to ensure, as far as possible, sound business standards and confidence in the institutional framework, but without unnecessary impediments of a bureaucratic or fiscal nature.
The authority for the prudential supervision of banks, restricted licence banks and deposit-taking companies, collectively called authorised institutions, is vested in the Commissioner of Banking. His authority is derived from the Banking Ordinance which replaced earlier Banking and Deposit-taking Companies Ordinances in 1986. The provisions of the ordinance relate to the regulation of banking business, particularly the business of taking deposits, and the supervision of authorised institutions, so as to provide a measure of protection to depositors and to promote the general stability and effective operation of the banking system.
The Commissioner's Office has broadened its approach to supervision which has hitherto been reliant on on-site examinations. Examinations are still an integral part of the supervisory process, but are supplemented by off-site reviews and prudential meetings with