XN000022-1994-11-30 — Page 26

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WEDNESDAY, NOVEMBER 30, 1994

FIRST, WE DO NOT BELIEVE THAT THE TRADING OF STOCK FUTURES WILL IS LEAD TO A REPEAT OF THE 1987 INCIDENT. WHILE THE 1987 EXPERIENCE

OUR VIVIDLY IN STILL

MIND, ONE SHOULD REMEMBER THAT THE RISK MANAGEMENT SYSTEM OF THE FUTURES EXCHANGE HAS BEEN COMPLETELY REVAMPED

THE SINCE THE CRASH.

EXCHANGE NOW ADOPTS SOPHISTICATED RISK MANAGEMENT TECHNIQUES AND ARRANGEMENTS AND THE SYSTEM IS REGARDED ONE OF THE MOST EFFECTIVE AND CONSERVATIVE BY THE INTERNATIONAL FINANCIAL COMMUNITY.

HANDLE EXCEPTIONAL THE EXCHANGE'S ABILITY TO MARKET FLUCTUATIONS HAS BEEN FREQUENTLY DEMONSTRATED, MOST RECENTLY BY SENG THE MAJOR ADJUSTMENT OF OUR MARKET ONLY LAST WEEK, WHEN THE HANG

A ABOUT 6% WITHIN THE FIRST 15 MINUTES OF

TRADING INDEX LOST

DAY. INTRA-DAY MARGIN CALLS MADE BY THE FUTURES EXCHANGE WERE, AS USUAL, ALL PROMPTLY MET.

I MUST REITERATE THAT THE SECURITIES AND FUTURES COMMISSION, IN EXAMINING THE STOCK

THE FUTURES PLAN, HAS SATISFIED ITSELF THAT CURRENT RISK MANAGEMENT SYSTEM OF THE FUTURES EXCHANGE CAN ADEQUATELY

DURING COFE

THE SYSTEMIC RISKS ARISING FROM THE PRODUCT. WITH CONSULTATION, ALL INTERESTED PARTIES HAVE THE OPPORTUNITY SCRUTINISE THE DETAILED PROPOSALS, SO FAR, NO CONCRETE ARGUMENTS BEEN ADVANCED TO SUBSTANTIATE ANY ALLEGED INADEQUACY IN THE SYSTEM.

SYSTEM

THE

ΤΟ

HAVE

ΤΟ

EVEN

OF

VERY

A

IN A WAY, THE EXISTENCE OF SUCH AN EXCELLENT RISK MANAGEMENT

ADDRESSES ALREADY

EXPRESSED THE CONCERNS

BY SOME MARKET PRACTITIONERS, THAT THE FUTURES EXCHANGE SHOULD ITSELF BE ABLE ABSORB FINANCIAL LOSSES TO THE MARKET ARISING FROM THE PRODUCT, UNDER

TAXING CIRCUMSTANCES. VERY

THE CHANCES OF A REPETITION CATASTROPHIC FAILURE ON THE SCALE WHICH OCCURRED IN 1987 ARE NOW REMOTE AND ALL OUR EFFORTS IN THE REFORMS OF RECENT YEARS HAVE BEEN TO

BE WHAT WOULD

DONE REDUCE

IN THE THEN TO THE ABSOLUTE MINIMUM.

EVENT OF UNLIKELY

ANYTHING SIMILAR OCCURRING IN FUTURE WOULD NECESSARILY HAVE TO DEPEND ON THE NATURE AND CIRCUMSTANCES OF THE NO RESPONSIBLE GOVERNMENT COULD EVER GIVE ANY BLANKET PROBLEM. ASSURANCES TO RESCUE THE MARKET OR TO USE ANY PARTICULAR METHOD TO DO

PRINCIPLE, So.

HOWEVER, IN

INSTITUTION, EACH MARKET

THE STOCK

EXCHANGE,

FUTURES THE CENTRAL CLEARING AND SETTLEMENT SYSTEM AND THE EXCHANGE, SHOULD HAVE, AND DOES HAVE, ITS OWN SUBSTANTIAL RESERVE FUND

CUSHION AGAINST ANY FAILURE ARISING FROM ITS TO PROVIDE A

OWN

OPERATIONS,

MR

PRESIDENT, SOME HAVE CRITICISED THE FACT THAT THE FUTURES EXCHANGE CHOSE TO MAINTAIN CONFIDENTIALITY AT THE PRODUCT DEVELOPMENT PHASE. AS POINTED OUT ON VARIOUS OCCASIONS RECENTLY, THIS PROCEDURE WAS FOLLOWED BECAUSE THE FUTURES EXCHANGE WAS AWARE THAT OTHER MARKETS THE WERE DEVELOPING SIMILAR PRODUCTS USING HONG KONG LISTED STOCKS AS UNDERLYING SECURITIES. PRE-MATURE ANNOUNCEMENT OF THE PLAN COULD HAVE RESULTED IN OTHER MARKETS SPEEDING UP THEIR PRODUCT DEVELOPMENT THUS FRUSTRATING THE EFFORTS OF THE FUTURES EXCHANGE. HONOURABLE MEMBERS SHOULD NOTE THAT WE ARE TALKING ABOUT COMPETITION WITH

AN AGGRESSIVE TRACK RECORD OF SUCCESSFUL EXCHANGES WITH INTERNATIONALISED PRODUCTS. IT IS ONLY PRUDENT NOT TO TAKE COMPETITIVE THREAT LIGHTLY.

AND

HIGHLY TRADING SUCH A

/AS I