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The Honourable Steven Poon has just raised four points: first, he has emphasised the need for consultation; he has questioned the secretive manner in which this product has been introduced; he has questioned whether there is a need to introduce the product urgently and he has also made reference to heavy losses. incurred by some professional investors to highlight the fact that this product is a highly risky product. For the first three points, the Administration had already fully addressed them both in the sub-committee as well as during the motion debate in this Council two weeks ago and I do not intend to go over all the arguments. Responding to the last point made by the Honourable Steven Poon, I must say that this does not contradict with the Administration bill that derivative products are highly specialised product and basically these products are for sophisticated investors. They are not intended for small investors. We have noted, we have taken note of the sub- committee's suggestion that small investors, in particular, should be issued with warning. Indeed, it is already the responsibility of brokers to draw the attention of investors to this question in the form of a risk disclosure statement and we have also conveyed the suggestion to the Futures Exchange on whether the disclosure statement for stock futures could be more strongly worded to advise small investors away from the product.

I have taken note that the Honourable Chim Pui-chung's suggestion that there are political motives behind the product. I must say this is any unfounded allegation.

Let me turn to two important suggestions by the Sub-committee. Some Honourable Members have repeatedly asked for an undertaking from the Administration that other sectors of our financial markets will not be required to bail out the Futures Exchange should the introduction of stock futures lead to a crash similar to the one in 1987. Our view remains that we do not believe the 1987 experience will repeat itself in future, whether as a result of the trading of stock futures or otherwise. The risk management system of the Futures Exchange has been completely overhauled since 1987. The system in place nowadays is effective and regarded as one of the most conservative risk management arrangements in the world. It can withstand even the impact of very taxing circumstances, with the settlement of transactions guaranteed by a substantial reserve fund. This, in a way, is already a guarantee by itself, that the Futures Exchange will be able to absorb financial losses to the market at times of highly exceptional volatility.

Should there be circumstances under which even such a conservative risk management system failed to function properly, the case would be so disastrous that it would affect other sectors of our financial system or even the economy generally. No responsible Government can give any blanket assurance on how to tackle such a situation. Furthermore, any rescue operation in such cases would most likely need the backing of law and the Administration has no intention to usurp the authority of this Council in giving any undertaking now on how best to handle any unforeseen crises which may happen in future.

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