FINANCIAL AND MONETARY AFFAIRS
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external testing, the securities and futures industry conducted three rounds of industry-wide testing in the first half of 1999. The Hong Kong banking sector also successfully passed its part of the Global Payments Systems Test organised by the New York Clearing House in June.
Development of contingency plans was an important part of the work at both institutional and sector-wide levels to prevent, mitigate and contain possible disruptions. At the sector-wide level, a set of detailed contingency plans was put in place to deal with situations where the financial services sector as a whole would be affected as a result of the problem. In addition, a Financial Sector Emergency Co- ordination Centre (FSECC) was set up to facilitate appropriate and prompt actions to be taken during the millennium rollover. A full-scale rehearsal of the Year 2000 emergency response mechanism was conducted in mid-November, involving the Financial Secretary's Office, the Financial Services Bureau (FSB), the financial regulators, the exchanges and clearing houses. The successful completion of the rehearsal proved the robustness of the contingency arrangements put in place. The FSECC was in full operation during the rollover and contributed significantly to the smooth passage of the financial services sector as a whole through the transition.
Resolving the Year 2000 problem was one of the top items of the HKMA's supervisory agenda in 1999. To monitor the Hong Kong banking sector's smooth transition into the millennium, the HKMA conducted over 150 on-site examinations and regular off-site reviews of authorised institutions' Year 2000 programmes. The HKMA also issued 10 supervisory guidelines to assist authorised institutions' preparations covering areas such as counterparty assessment, contingency planning, customer awareness and customer data back-up. Hong Kong's banking sector was consistently regarded as one of the best prepared in the world for the Year 2000. By June, all Als had confirmed that they were Year 2000 compliant.
The HKMA also developed detailed risk mitigation and contingency plans to cater for potential problems arising in the banking and monetary sector. These plans were well rehearsed, involving banks and other financial infrastructure providers. In September, the HKMA announced the introduction of an enlarged Discount Window and a term repo facility to help ease potential tightness in market liquidity in the run up to 2000. Throughout the year the HKMA maintained close contact with overseas organisations such as the Joint Year 2000 Council and Global 2000 Co-ordinating Group to keep abreast of developments and to share its experience with other concerned parties around the world.
Public confidence was a crucial issue in safeguarding a smooth rollover to the new millennium. While there were increases in cash withdrawal starting in early December with notes in circulation rising by around 27 per cent towards the end of the year, this was similar to the peak levels experienced during the Lunar New Year periods and was accommodated by the banking system without strain. In fact, notes in circulation started to decline immediately after the successful transition. On the eve of the New Year, there were more people than usual updating their passbooks, but the situation was manageable and did not cause any capacity problems for the banking system or major disruption to banking services. Overall, the public remained calm and behaved sensibly throughout the transition.
For the securities and futures industry, all of the work required to achieve Year 2000 compliance by the exchanges, clearing houses and the registered intermediaries had been completed before the rollover. Substantial efforts were devoted to the