FINANCIAL AND MONETARY AFFAIRS
During 1995, banks in Hong Kong further stepped up their business involvement in China. Two Hong Kong-based banks, the Hongkong and Shanghai Banking Corporation Limited and the Nanyang Commercial Bank, became two of the first foreign banks allowed to operate in Beijing. At the end of 1995, banks in Hong Kong had opened 29 offices in China.
Portfolio investment in the form of 'China funds' has also become increasingly popular. By the end of 1994, 20 such funds had been authorised by the Securities and Futures Commission investing in B-shares listed on the Shanghai and Shenzhen stock exchanges as well as H-shares listed in Hong Kong. Many of the funds have only a short history and some are accessible to institutional investors only. At the end of 1995, these funds amounted to some US$355 million.
Developments in Financial Infrastructure
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Hong Kong encourages a robust financial market infrastructure. To this end, the HKMA and the banking community have worked closely to identify, minimise and, as far as possible, eliminate risk in Hong Kong's payment system.
With the benefit of studies conducted by central banking groups and advice from international experts, the HKMA concluded in early 1994 that the next-day net settlement system practised in Hong Kong fell short of the latest international standards and that the HKMA needed to move to Real Time Gross Settlement (RTGS) as soon as possible.
The timetable envisages phased implementation of RTGS starting in the first quarter of 1996 with full operation by the end of the year. It is in Hong Kong's interests to implement RTGS in the shortest possible time, considering the need to establish a Real Time Payment versus Payment (PvP) link with the US in 1997 when the Fedwire extends its operating hours from 12 to 18 hours. The HKMA has also reached agreement with the People's Bank of China to establish a PvP link between the HK dollar payment system and China's new RMB payment system (CNAPS), which is scheduled to go live on RTGS in 1997. Hong Kong also needs to catch up with other East Asian countries in the reform of its payment system. South Korea and Thailand implemented RTGS in 1994 and June 1995, respectively, and Malaysia is in the process of implementing RTGS.
An efficient and robust debt securities clearing and settlement system is particularly important to the development of the debt market in Hong Kong. The Central Moneymarkets Unit (CMU) was set up by the HKMA in 1990 to provide a clearing and settlement facility for Exchange Fund Bills and Notes, which are money market instruments issued by the Hong Kong Government to facilitate monetary policy operation for the purpose of maintaining exchange rate stability. Both the Exchange Fund Bills and Notes are issued in paperless form and the rights and interests of the holders are registered in computerised entry form in accounts maintained with the CMU. The HKMA has appointed 137 recognised dealers, all of which are institutions authorised under the Banking Ordinance and which maintain direct securities holding accounts with the HKMA. Other investors maintain their holdings in Exchange Fund Bills and Notes through the recognised dealers, 32 of which have been appointed as market makers and are obliged to quote two-way prices for the instruments during money market hours. They are permitted to go short on individual issues so long as they have an overall net long position. There is a very active secondary market for
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