FINANCIAL AND MONETARY AFFAIRS
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Exchange Fund Notes totalling $241 million were sold to retail investors. In addition to providing the non-competitive tender service, the Distributors agreed to adhere to a number of unified standards in the distribution of Exchange Fund Notes to retail investors in the secondary market to enhance pricing transparency and facilitate comparison by retail investors.
Along with the launch of the scheme, the HKMA added a new section, 'Exchange Fund Notes: Information for Investors', to its website to educate retail investors on bond investment. An updated pamphlet was also distributed to the public to promote awareness of the retail Exchange Fund Notes programme.
The Financial Secretary announced in his Budget Speech on March 5, 2003 that income from Qualified Debt Securities with a maturity period of seven years or more, which were previously eligible for a 50 per cent profits tax concession, would be totally exempted from profits tax. In addition, the Government relaxed the minimum. maturity requirement on the current 50 per cent tax concession in respect of Qualified Debt Securities from five years to three years.
The Government is implementing measures to overhaul the existing regulatory framework for offers of shares and debentures under a three-phased approach. Measures under Phase I involved the issuance of various guidelines by the SFC in February 2003, permitting awareness advertisements, putting in place an alternative 'dual prospectus' structure, and allowing faxed copies of expert consent letters and bulk print proofs of prospectuses for the purpose of registration. They also included. a 'two class' exemption by the SFC in relation to prospectuses for offers of debentures, which came into operation in May 2003. Phase II involved the Companies (Amendment) Bill 2003, which was introduced into the Legislative Council in June. It proposed, among other things, to simplify procedures for registration and issue of prospectuses. In Phase III, the SFC will conduct a comprehensive review of all local laws and procedures governing public offers of securities as well as regulatory reforms. introduced in other leading jurisdictions, with a view to putting in place a framework that provides the most efficient, competitive and fair environment for issuers and investors alike. The SFC has started the review and aims to put forward proposals for public consultation by September 2004.
Development of a Secondary Mortgage Market
A well-developed secondary mortgage market plays a useful role in channelling long-term funds, such as insurance and pension funds, to meet the rising demand for long-term home financing. The Hong Kong Mortgage Corporation (HKMC), wholly
5 Qualified debt securities (QDSs) are debt paper (a) issued to the public in Hong Kong, (b) with an original maturity of not less than five years, (c) with a minimum denomination of HK$50,000 or its equivalent in a foreign currency, (d) lodged with and cleared by the Central Moneymarkets Unit in its entirety, and (e) for papers issued by non-statutory bodies or non-government owned corporations, they would need to have at all relevant times a credit rating from a recognised rating agency acceptable to the HKMA [e.g. currently BBB- or above from S&P's].
6 The 'two class' exemption includes:
a. prospectuses relating to offers of listed and unlisted debentures will be exempted, subject to certain conditions of the Third Schedule to the Companies Ordinance on the basis that the SFC considers they are irrelevant for the purposes of making an informed investment decision and/or unduly onerous for companies to comply with; and
b. prospectuses relating to offers of listed debentures will be exempted from those contents requirement that are the same as or similar to those requirements under the applicable listing rules (provided no waiver, modification or other dispensation has been granted from such requirements).