XN000022-1988-06-02 — Page 6

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THURSDAY, JUNE 2, 1988

WE HAVE BASED OUR REFORM PROPOSALS ON SELF-REGULATION WE SAY IN PARA. 3.24 "WE

BUT AS APPRECIATE THAT SO-CALLED MAY APPEAR TO HAVE FAILED IN HONG KONG.

SELF-REGULATION NEVERTHELESS, WE CONTINUE RECOMMEND A PRACTITIONER-BASED SYSTEM AS THE BEST

ΤΟ AVAILABLE OUR OBJECTIVES FOR HONG KONG. WE DO SO BECAUSE WE WISH ABOVE

ΤΟ MEET AVOID THE DANGER OF STRAIGHT-JACKETTING THE SECURITIES

ALL ΤΟ

STRICT STATUTORY REGIME WHICH MIGHT ALL TOO EASILY LEAD TO INSENSITIVE OR HEAVY HANDED OVER-REGULATION. LAISSEZ-FAIRE HAS SERVED TOO WELL FOR IT TO BE ABANDONED ALTOGETHER JUST BECAUSE INEPTLY USED AND GROSSLY ABUSED.

TI

MARKETS BY A

I'T

HONG KONG HAS BFEN

REGULATION

IN OUR

BUT IN VIEW OF HONG KONG'S EXPERIENCES OF INSIDER WE BELIEVE THAT THERE MUST BE EFFECTIVE CHECKS AND BALANCES. REPORT WE LAY DOWN FOUR REQUIREMENTS

(1)

(2)

-

A TWO TIER SYSTEM OF SUPERVISION WITH THE EXCHANGES REGULATING THEIR OWN AFFAIRS UNDER THE WATCHFUL EYE OF A SINGLE STATUTORY BODY.

SHOULD BE DETACHED

FROM THE

THE STATUTORY SUPERVISOR GOVERNMENT SO THAT IF THE SUPERVISOR FAILS THEN AND ONLY THEN SHOULD GOVERNMENT STEP IN.

(3)

THE INTEGRITY OF THE MARKET BODIES MUST BE UNDOUBTED WE PROPOSE THE INCLUSION OF INDEPENDENT MEMBERS ON THE BOARDS OF ALL EXCHANGES AND CLEARING HOUSES.

AND

(4)

FINALLY, BUT MOST IMPORTANT DETACHED INDEPENDENT WELL PAID AND QUALIFIED STAFF IN THE EXCHANGFS ARE ESSENTIAL TO ENSURE THE INTEGRITY OF THE SELF-REGULATORY SYSTEM.

APPLYING THESE PRECEPTS WE SUMMARISE OUR MAIN IN PARA. 1.9 OF THE REPORT:

(1)

RECOMMENDATIONS

WE PROPOSE "A FUNDAMENTAL REVISION OF THE INTERNAL CONSTITUTION OF BOTH THE EXCHANGES; IN PARTICULAR, IN THE CASE OF THE STOCK EXCHANGE, THERE SHOULD BE PROPER REPRESENTATION ON THE GOVERNING BODY FOR INDIVIDUAL AND CORPORATE MEMBERS, COMBINED WITH AN INDEPENDENT ELEMENT TO ENSURE THAT THE EXCHANGE IS PROPERLY GOVERNED AND WORKS IN THE INTERESTS OF ALL MEMBERS AND USERS. WE RECOMMEND A COUNCIL OF 22 16 BROKERS OF WHICH 4 MUST BE CORPORATE MEMBERS AND 4 INDIVIDUAL; 5 INDEPENDENT NON-BROKERS; AND THE CHIEF

"

EXECUTIVE. MORE DETAILS ARF SET OUT IN CHAPTER IV FOR THE STOCK EXCHANGE AND IN THE LATTER HALF OF CHAPTER VI FOR THE FUTURES EXCHANGE.

/(2) WE PROPOSE