XN000022-1973-06-20 — Page 6

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Wednesday, June 20, 1973

"The intention rather is to ensure that, if and when such an exchange

is established, it will operate in a well regulated and orderly manner, and

in accordance with internationally accepted practices and standards."

He said he was aware of at least four separate groups in Hong Kong

which were "actively pursuing" the possibility of setting up commodity exchanges.

The Financial Secretary said he felt there could be some benefit

to the economy and to "our emergence as a sophisticated financial centre"

from the establishment of a commodity exchange, provided it is well regulated

and deals in commodities primarily of interest to the region, in addition to

some of those at present being deaït in by the established exchanges overseas,

But they should not be permitted to open before adequate regulations

"so vital to the proper running of a reputable international market" have

been worked out.

Mr. Haddon-Cave explained that the government was taking the action

because the establishment of a number of unregulated exchanges could well

produce a dangerous speculative situation".

Operations on a commodity exchange are in many ways more risky

even than a stock exchange and the small man who risks his capital in this

way can very easily lose it, he said.

An essential feature of a commodity exchange is the facility for

making contracts for the delivery of commodities at a spécified later date.

These deals are known as futures contracts and it is customary for only

a proportion of the total value of the contract, usually 10 per cent, to be

paid at the time of the agreement.

"Due to the rapid movements of commodity prices there are possibilities

for large gains as well as large losses to be made by people trading this way on

margins," the Financial Secretary added.

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