XN000022-1990-05-31 — Page 8

THURSDAY, MAY 31, 1990

PRUDENTIAL SUPERVISION OF FOREIGN EXCHANGE RISKS

*

FOLLOWING EXTENSIVE CONSULTATION

WITH THE BANKING INDUSTRY, THAT A MORE STRUCTURED THE COMMISSIONER OF BANKING HAS ANNOUNCED

RISK IS TO BE FOREIGN EXCHANGE APPROACH TO THE SUPERVISION OF INTRODUCED, A GOVERNMENT SPOKESMAN SAID TODAY (THURSDAY).

MANAGEMENT

BANK "THE APPROACH IS ONE WHICH ENCOURAGES ENSURE THAT THEIR OWN INTERNAL CONTROLS IDENTIFY AND LIMIT THE EXPOSURES TO EXCHANGE RATE MOVEMENTS TO AMOUNTS IN KEEPING WITH

HE SAID. CAPITAL AND WITH THE NATURE OF ITS BUSINESS,

"

IN

THE

ΤΟ

BANK'S THEIR

HIS

LIGHT OF "THE

IS SATISFIED, COMMISSIONER

ON THE CONSULTATIONS, THAT THE APPROACH WILL HAVE NO ADVERSE EFFECTS

EXCHANGE MARKET, THE SPOKESMAN OPERATION OF THE HONG KONG FOREIGN

ADDED.

FOLLOWING IS

AN

EXPLANTORY NOTE

EXPLANATORY

NOTE ON

THE NEW APPROACH TO

SUPERVISING FOREIGN EXCHANGE RISKS.

EXCHANGE

RISKS HAS REGULAR

BEEN ALWAYS OVERSIGHT

AN

OF THE

INSTITUTIONS.

HOWEVER,

EXCHANGE

OPERATIONS

IN

ROUTINE

PRUDENTIAL

SUPERVISION OF FOREIGN

INTEGRAL PART OF THE COMMISSIONER'S

AUTHORISED INDIVIDUAL

PERFORMANCE OF

SUPERVISION UNTIL NOW HAS BEEN INFORMAL; FOREIGN HAVE BEEN

INCLUDED

IN MATTERS DISCUSSED CONSULTATIONS WITH BANKS.

THE COMMISSIONER HAS REVIEWED THE ARRANGEMENTS IN THE LIGHT

AND THE CHARACTERISTICS OF THE HONG KONG FOREIGN EXCHANGE MARKET,

ACCOUNT FOR A GROWING PROPORTION FACT THAT FOREIGN CURRENCIES AUTHORISED INSTITUTIONS' BALANCE SHEETS.

KONG FOR HONG

INCORPORATED

DIRECTLY

OF

THE

OF

THE OVERSIGHT OF INSTITUTIONS,

THE RESPONSIBILITY OF THE WHOSE CAPITAL ADEQUACY IS

INDIVIDUAL INSTITUTIONS COMMISSIONER, GUIDELINES HAVE BEEN ISSUED TO

IN

EXCHANGE. FOREIGN

AN ON OPEN POSITIONS LIMITS IN RESPECT OF

SHOULD NOT NET

POSITION OPEN OVERNIGHT INSTITUTION'S AGGREGATE

BASE; ITS NET OVERNIGHT NORMALLY EXCEED 5 PER CENT OF ITS CAPITAL

NOT NORMALLY EXCEED OPEN POSITION IN ANY INDIVIDUAL CURRENCY SHOULD

AN IF CASES, IN BASE. 10 PER CENT

DEGREE HIGH

AND MARKET

SYSTEM INSTITUTION HAS DEMONSTRATED

OF

ITS

CAPITAL

PARTICULAR

OF

A PROFICIENCY, THE NORMAL AGGREGATE LIMIT CAN BE HIGHER THAN 5 PER CENT, BUT IN ANY EVENT NO MORE THAN 15 PER CENT OF CAPITAL BASE.

POSITIONS

THE US $ AND HK$ BETWEEN THESE TWO

OF OPEN POSITIONS.

IN VIEW OF THE SPECIAL RELATIONSHIP BETWEEN UNDER THE LINKED

RATE, EXCHANGE CURRENCIES WILL BE EXCLUDED FROM THE CALCULATION

DEVIATES FROM ARBITRAGE IN THE FOREIGN EXCHANGE MARKET WHEN THE RATE

FOR MAINTAINING THE STABILITY HK$7.8 TO US$1 IS AN IMPORTANT MEANS

EXPECTED TO SET ARE HOWEVER

OF THE EXCHANGE

RATE.

INSTITUTIONS

IN-HOUSE LIMITS FOR SUCH POSITIONS.

/FOR HONG