FINANCIAL AND MONETARY AFFAIRS
78
The SFC, established as an autonomous statutory body outside the civil service, has 10 directors (half of them executive), who are appointed by the Governor of Hong Kong. The commission must present the Financial Secretary with an annual report and an audited statement of its accounts, which are laid before the Legislative Council.
The commission seeks advice on policy matters from its advisory committee, the 12 independent members of which are appointed by the Governor and are broadly representative of market participants and relevant professions. SFC decisions relating to matters concerning the registration of persons and intervention in their business. are subject to appeal to the Securities and Futures Appeals Panel, the members of which are independently appointed by the Governor.
The SFC is funded largely by the market and partly by the government, although no funding has been sought from the latter in the past three years. The market contribution is in the form of fees and charges for specific services and functions performed (on a cost recovery basis), plus a statutory levy on transactions recorded on the stock and futures exchanges. Its annual budget in 1995/96 was about $258 million. The SFC had an establishment of 250 on December 31, 1995.
-
The SFC has developed a framework of securities and futures regulation that brings Hong Kong into line with internationally-accepted standards of market regulation and practice. In addition, the SFC has published various codes of conduct and guidelines regulating market conduct and criteria for approval of investment products and licensing of market intermediaries. During the year, the SFC published a guideline on core operational and financial risk-management controls for over-the- counter derivatives.
Securities transactions on the stock exchange are executed by the Automatic Order Matching and Execution System. The stock exchange planned a live run of its second trading terminal in January 1996, to enable off-floor trading and expand the trading system's capacity.
The Hong Kong Securities Clearing Company operates the Central Clearing and Settlement System (CCASS), which is one of the most important reforms to the risk management system introduced after the 1987 market crash. CCASS is an automated book-entry system that handles the settlement of securities among brokers.
The Administration and the SFC are taking steps to rationalise and update Hong Kong's securities and futures legislation into a coherent, well-organised and user- friendly corpus of securities law. A draft bill will be issued for public consultation in 1996.
Hong Kong as an International Financial Centre
Hong Kong's favourable geographical position, bridging the time gap between North America and Europe, together with strong links with China and other economies in Southeast Asia and excellent communications with the rest of the world, have helped the territory to develop into an important international financial centre. The absence of any restrictions on capital flows into and out of the territory is also an important factor.
Hong Kong's financial markets are characterised by a generally high degree of liquidity and operate under effective and transparent regulations which meet interna- tional standards. The educated work force and the ease of entry for professional