XN000022-1992-05-28 — Page 3

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MAY 28, 1992

THURSDAY, MAY 28,

EXCHANGE FUND TO INTRODUCE LIQUIDITY ADJUSTMENT FACILITY

FOLLOWING CONSULTATION WITH THE HONG KONG ASSOCIATION OF BANKS (НКАВ), THE OFFICE OF

OF THE EXCHANGE FUND (OEF) ANNOUNCED TODAY (THURSDAY) THAT IT WILL INTRODUCE A LIQUIDITY ADJUSTMENT FACILITY (LAF) WITH EFFECT FROM MONDAY (JUNE 8).

"THE MAIN PURPOSE OF LAF IS TO HELP LICENSED BANKS IN MAKING LATE ADJUSTMENTS

THEIR LIQUIDITY POSITIONS, DEFINED ΤΟ BE THE BALANCE IN THEIR CLEARING ACCOUNTS WITH THEIR SETTLEMENT BANKS DIRECTOR OF THE OFFICE OF THE EXCHANGE FUND, MR JOSEPH YAM, SAID.

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LAF WILL BE OPEN FROM 4 PM TO 5 PM ON MONDAY TO FRIDAY AND FROM 11.30 AM TO NOON ON SATURDAY, OTHER THAN PUBLIC HOLIDAYS.

"LICENSED BANKS MAY APPROACH THE OEF DURING THESE HOURS IF THEY WISH TO MAKE USE OF LAF TO ADJUST THEIR LIQUIDITY POSITIONS, MR YAM SAID.

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OVERNIGHT FUNDS WILL NORMALLY BE PROVIDED BY THE OEF THROUGH SALE AND REPURCHASE AGREEMENT (REPO) OF A BANK'S HOLDING OF EXCHANGE FUND BILLS AND GOVERNMENT BONDS.

LENDING ON AN UNSECURED BASIS MAY ALSO BE EXTENDED AT THE DISCRETION OF THE DIRECTOR OF OEF, HAVING REGARD TO THE PREVAILING MARKET CONDITIONS AND CREDIT RISK INVOLVED.

THE INTEREST RATE CHARGED ON UNSECURED LENDING WOULD BE HIGHER THAN THE OFFER RATE REPRESENTED BY A REPO.

OVERNIGHT SURPLUS

"UNDER LAF, OEF IS ALSO PREPARED TO ACCEPT FUNDS THAT BANKS MAY WISH TO OFFER AT THE BID RATE, MR YAM SAID.

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BOTH THE BID RATE AND THE OFFER RATE UNDER LAF WILL BE DETERMINED IN ADVANCE AND PUBLISHED THROUGHOUT THE DAY.

THE RATES MAY BE VARIED FROM TIME TO TIME, ALTHOUGH THEY WILL NOT NORMALLY BE CHANGED WHILE LAF IS OPEN.

"THE OEF RESERVES THE RIGHT TO TAKE OFF EITHER THE BID RATE OR THE OFFER RATE AT ANY TIME SHOULD THIS BE CONSIDERED APPROPRIATE, HAVING REGARD TO THE NEED TO ENSURE EXCHANGE RATE STABILITY, HE SAID.

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AS SUGGESTED BY HKAB, THE SPREAD BETWEEN THE BID RATE AND THE OFFER RATE WILL BE SET AT TWO PERCENTAGE POINTS INITIALLY, SUBJECT TO REVIEW IN THE LIGHT OF PRACTICAL EXPERIENCE.

"THE INTRODUCTION OF LAF SHOULD FACILITATE MORE EFFICIENT MANAGEMENT OF LIQUIDITY POSITIONS BY BANKS," MR YAM SAID.

"HOWEVER, LAF SHOULD NOT BE REGARDED AS A SUBSTITUTE FOR PRUDENT LIQUIDITY MANAGEMENT AND BANKS ARE, THEREFORE, NOT EXPECTED TO MAKE USE OF LAF ON A REGULAR BASIS," HE ADDED.

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