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WEDNESDAY, NOVEMBER 30, 1994
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A FURTHER POINT ON THE WORDING OF THE MOTION CONCERNS THE SUPPOSED REQUIREMENT TO ASSESS CRITICALLY THE MERITS AND DEMERITS THE PRODUCT. THIS AGAIN IS MISLEADING. IT IS NOT FOR GOVERNMENT CONDUCT SUCH AN ASSESSMENT ITSELF BUT RATHER FOR THE EXCHANGE AND SFC TO DO So.
THIS THEY HAVE DONE AND ADVISED THE GOVERNMENT ACCORDINGLY. THEIR ASSESSMENT RELATES TO THREE QUITE DIFFERENT TYPES OF RISK. LET ME EXPLAIN THESE TYPES OF RISK AND THE SEPARATE RESPONSIBILITIES FOR THEM. FIRST OF ALL IS THE COMMERCIAL RISK THAT ANY COMMERCIAL OPERATION HAS TO ACCEPT IN DECIDING TO LAUNCH A NEW PRODUCT ONTO THE RELEVANT MARKET. THIS DEPENDS ENTIRELY ON THE EXERCISE OF COMMERCIAL JUDGEMENT : THE CONSEQUENT SUCCESS OR FAILURE OF THE PRODUCT WILL BE ENTIRELY DOWN TO THE ORGANISATION CONCERNED, IN THIS CASE THE FUTURES EXCHANGE. CLEARLY THEY MUST CARRY OUT THEIR OWN CRITICAL ASSESSMENT OF THE MERITS AND DEMERITS OF THE PRODUCT, AND IT IS APPARENT THAT THEY HAVE DONE SO. THEY HAVE ALSO TAKEN THE VIEW THAT THE PRODUCT WILL BE BENEFICIAL TO THE DEVELOPMENT AND OPERATION OF THE HONG KONG MARKET, A VIEW THAT HAS BEEN ENDORSED BY THE SFC. DERIVATIVES SUCH AS THESE ARE AN IMPORTANT PART OF THE RANGE OF PRODUCTS THAT MUST BE AVAILABLE IN A MODERN, SOPHISTICATED FINANCIAL CENTRE, PARTICULARLY ONE LIKE HONG KONG THAT ASPIRES TO MAINTAIN AND DEVELOP ITS FUND MANAGEMENT INDUSTRY IN THE FACE OF COMPETITIVE CHALLENGES FROM ELSEWHERE IN THE REGION.
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SECONDLY IS THE RISK TO THE INDIVIDUAL INVESTOR WHEN HE DECIDES TO BUY OR SELL ANY PARTICULAR INVESTMENT PRODUCT. THIS "INVESTMENT RISK" IS ENTIRELY A MATTER FOR THE INVESTOR AND HIS OR HER BROKER TO ASSESS. IT IS THE BROKER'S OBLIGATION TO EXERCISE DUE DILIGENCE IN ENSURING THE SUITABILITY OF THE INVESTMENT FOR THE CLIENT. THE RESPONSIBILITY OF THE EXCHANGE, UNDER THE SUPERVISION OF THE SFC, TO ENSURE THAT ALL THE RELEVANT FACTS ABOUT THE PRODUCT, INCLUDING THE POTENTIAL LOSSES IN TRADING SUCH A PRODUCT, ARE FULLY DISCLOSED AND AVAILABLE TO INVESTORS. THIS WILL ALREADY BE THE CASE IN RESPECT OF STOCK FUTURES, BUT IT SHOULD ALSO BE NOTED THAT THIS IS A SPECIALISED LEVERAGED PRODUCT DESIGNED MAINLY FOR THE USE OF PROFESSIONAL INVESTORS AS HEDGING INSTRUMENTS. SMALL INVESTORS AND OTHERS WHO DO NOT WELL UNDERSTAND THE RISKS INVOLVED MIGHT WELL BE ADVISED TO AVOID THEM, AND THAT SHOULD APPLY EQUALLY TO STOCK OPTIONS AS IT DOES TO FUTURES AND OTHER SUCH PRODUCTS. HEALTH WARNINGS ARE ISSUED FROM TIME TO TIME IN RESPECT OF ALL INVESTMENT PRODUCTS AND CLEARLY THAT MUST BE DONE AT THE INCEPTION OF ANY NEW PRODUCT.
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