XN000022-1986-02-26 — Page 4

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WEDNESDAY, FEBRUARY 26, 198

ALSO SPEAKING IN SUPPORT OF THE MOTION, DR THE HON KIM CHAY DESCRIBED THE ENACTMENT OF THE NOTICE AND THE RULES UNDER THE SECURITIES ORDINANCE AS AN IMPORTANT LANDMARK IN THE DEVELOPMENT OF THE SECURITIES INDUSTRY IN HONG KONG.

+EVIDENTLY, THESE TWO PIECES OF SUBSIDIARY LEGISLATION CONTRIBUTE TOWARDS THE PERTINENT GOAL OF ENHANCING AND BUTTRESS!« HONG KONG'S POSITION AS AN INTERNATIONAL FINANCIAL CENTRE,+ HE SAID.

DR CHAM NOTED THAT ELSEWHERE IN THE WORLD THERE HAD BELI. CASES OF STOCK BROKERS BEING OVER-STRETCHED IN THEIR COMMITMENTS, CREATING CREDIT AMID A PYRAMID OF SPECULATIVE TRANSACTIONS, THUS RESULTING IN A PROLIFERATION OF CREDIT BETWEEN STOCK BROKERS AND THEIR CLIENTS.

HE WARNED THAT THE FAILURE TO HONOUR COMMITMENTS WOULD BRING DOWN THE MARKET AND ITS MEMBERS AND SAID THE PAINFUL LESSON DRAWN FROM THIS OVERSEAS INCIDENT WAS THAT THE DOMINO EFFECT MUST be CONTAINED AND MINIMISED.

+ THE NOTICE OF SPECIFICATION OF ASSETS AND LIABILITIES SEEKS TO ENSURE THAT SECURITIES DEALERS ARE FINANCIALLY STABLE,+ UK CHAM EXPLAINED.

HE SAID SUCH SPECIFICATION OF ASSETS OBLIGED THE DEALERS TO MAINTAIN QUALITY CONTROL WITHIN THEIR CAPITAL STRUCTURE.

HE POINTED OUT THAT IF THE QUALITY OF ASSETS FELL SHORT VF THE MINIMUM REQUIREMENT, THE BROKER MUST CEASE TRADING.

+THIS ENSURES THAT THE OBLIGATIONS OF ONE INSOLVENT STOCK EROKE ARE NOT PASSED ON TO OTHER BROKERS, THEREBY THREATENING THE SOUNDNESS OF THE ENTIRE SYSTEM.

+THIS MEASURE, IN TURN, THEREFORE ENHANCES THE INTEGRITY OF THE MARKET AS A WHOLE,+ HE SAID.

DR CHAM ALSO NOTED THAT AN ADDITIONAL ELEMENT OF CAUTION AND PRUDENCE WOULD BE INSTILLED WITHIN THE BROKERING COMMUNITY IN THAT DEALERS WOULD HAVE TO REVIEW THEIR ASSET PORTFOLIO UN A REGULAR AND CONTINUOUS BASIS THROUGH THEIR INTERNAL CONTROL SYSTEMS IN ORDER TO MAINTAIN A FLOOR+ BASKET OF SPECIFIED ASSETS,

TURNING TO THE SECURITIES (STOCK EXCHANGE LISTING) RULES 1936, DR CHAM SAID IT REQUIRED DISCLOSURE OF INFORMATION BY NEW LISTING COMPANIES IN THEIR LISTING APPLICATION.

+THIS OBLIGATION ENSURES THAT THE NECESSARY INFORMATION AFFECTING ASSETS, PROFIT, SUBSIDIARIES ON INTER-GROUP TRANSACTIONS IS ADEQUATELY DISCLOSED, HE SAID.

/HE STRESSED