XN000022-1993-04-08 — Page 5

THURSDAY, APRIL 8, 1993

RECOMMENDATIONS ON FINANCING OF NEW SHARE ISSUES

THE FINDINGS AND RECOMMENDATIONS OF A GOVERNMENT WORKING ON THE MONETARY AND BANKING IMPLICATIONS OF OVER SUBSCRIPTION OF SHARE ISSUES WERE RELEASED TODAY (THURSDAY),

GROUP NEW

THE CHIEF EXECUTIVE OF THE HONG KONG MONETARY AUTHORITY, MR JOSEPH YAM, WHO IS ALSO CHAIRMAN OF THE WORKING GROUP, SAID FIRST, THE WORKING GROUP WAS SATISFIED THAT THE MACRO MONETARY IMPLICATIONS WERE BROADLY ACCEPTABLE GIVEN THE MONETARY MANAGEMENT MECHANISMS ALREADY IN PLACE.

"IN OTHER WORDS, UNDER PRESENT MONETARY ARRANGEMENTS, CURRENCY STABILITY IS UNLIKELY TO BE THREATENED BY LARGE OVER SUBSCRIPTION OF NEW SHARE ISSUES," HE SAID, WHEN ADDRESSING A LUNCHEON MEETING OF THE AUSTRALIAN CHAMBER OF COMMERCE IN HONG KONG.

"BUT THE EFFECT OF THE SHARP INCREASE AND THE SUBSEQUENT FALL OFF IN INTER BANK LIQUIDITY, IN BANK CREDIT AND THE MONEY SUPPLY, WHAT WE NOW CALL THE SOUFFLE EFFECT', NEEDS TO BE CAREFULLY MONITORED, AND IF NECESSARY SPECIFIC MONETARY OPERATIONS WILL BE CARRIED OUT ΤΟ ENSURE MONETARY STABILITY, HE ADDED.

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SECOND, HE SAID, THE WORKING GROUP WAS NOT ENTIRELY THAT THE RISKS TO INDIVIDUAL AUTHORISED INSTITUTIONS WERE UNDERSTOOD AND MANAGED BY THEM.

SATISFIED ADEQUATELY

WHILE THERE WERE ARRANGEMENTS TO LIMIT THE RISKS OF BANKS то SHARE APPLICANTS TO WITHIN THE AMOUNT OF MONEY RAISED BY THE ISSUER, INTER BANK RISKS WERE AS LARGE AS THE GROSS SUBSCRIPTION AMOUNT.

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WE THEREFORE HAVE A NUMBER OF RECOMMENDATIONS FOR CONSIDERATION AND ADOPTION BY THE AUTHORISED INSTITUTIONS," MR YAM

SAID.

THIRD, HE POINTED OUT THAT THE WORKING GROUP WAS BROADLY SATISFIED THAT THE PAYMENTS SYSTEM WAS CAPABLE OF HANDLING THE HEAVY PAYMENTS TRAFFIC ARISING FROM THE LARGE OVER SUBSCRIPTION OF NEW SHARE ISSUES,

TURNING то THE RECOMMENDATIONS FOR THE CONSIDERATION AND ADOPTION BY AUTHORISED INSTITUTIONS UNDER THE BANKING ORDINANCE INVOLVED IN NEW SHARE ISSUES, MR YAM SAID COMMENTS WERE WELCOMED ON THOSE RECOMMENDATIONS WHICH COULD LATER BE FORMALISED AS GUIDELINES ISSUED UNDER SECTION 7(3) OF THE BANKING ORDINANCE BY THE MONETARY AUTHORITY.

"OUR FIRST RECOMMENDATION IS THAT ALL AUTHORISED SHOULD ESTABLISH AND DOCUMENT A LENDING POLICY FOR THE NEW SHARE ISSUES, HE SAID.

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INSTITUTIONS FINANCING OF

"SECOND, THEY SHOULD ENSURE THAT THE STRUCTURE OF THEIR LENDING ARRANGEMENTS IS SUCH THAT THEY ARE PROTECTED, SO FAR AS POSSIBLE, FROM THE WINDING UP OR BANKRUPTCY OF THE BROKER, THE CUSTOMER, THE ISSUER AND THE RECEIVING BANK, HE CONTINUED.

"THIS MEANS,