FINANCIAL AND MONETARY AFFAIRS
The SFC has taken a lead in a comprehensive overhaul of securities and futures regulations. As part of this exercise, it issued revised versions of the Code on Unit Trusts and Mutual Funds and the Code on Takeovers and Mergers last year. The revised versions bring the codes into line with the increasingly sophisticated investment environment and incorporate a number of features designed to deal with situations which are unique to Hong Kong. A new Code on Investment-linked Assurance and Pooled Retirement Funds, designed to improve protection for investors of these funds within the framework of the Protection of Investor Ordinance, was issued early in 1991. The new Hong Kong Code on Share Repurchases, which provides guidelines for public companies which intend to purchase their own shares, was implemented in April 1991.
A major step forward for the Hong Kong equity market near the end of the year was implementation of a set of voluntary reforms of the constitution of the Stock Exchange which widen the composition of its governing council and restrict its ability to distribute dividends. The new council includes a larger number of representatives of listed companies, investors and other market users and is expected to facilitate the market development efforts of the Stock Exchange.
The SFC has been encouraging the development of more efficient equity trading systems and a greater variety of securities and futures products. The Hong Kong Securities Clearing Company, which is financed by the Stock Exchange and five banks, is introducing a new, automated book-entry central securities clearing and settlement system, which will improve settlement efficiency, enhance risk management capability, save money and increase trading capacity. New legislation to provide the statutory framework required to support and facilitate the operation of the central clearing system is now under preparation. The new system will commence operation early in 1992. The SFC also worked with the Futures Exchange in the development of four new Hang Seng Sub-index contracts during the year.
The SFC and the Stock Exchange have taken steps to develop the necessary systems for introducing short-selling and stock borrowing and lending, and are working towards the introduction of new financial products such as traded options. The Stock Exchange is also examining the viability of listing PRC-based companies in Hong Kong, while maintaining adequate standards of investor protection.
Two important components of the overhaul of Hong Kong's securities legislation are the Securities (Insider Dealing) Ordinance and the Securities (Disclosure of Interests) Ordinance. Both ordinances were brought into operation on September 1, 1991. The former provides much stiffer penalties for insider dealing than those previously applicable. The latter 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.
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