XN000022-1995-06-21 — Page 35

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Short selling of certain designated stocks at the Stock Exchange of Hong Kong is permitted subject to compliance with Section 80 of the Securities Ordinance and relevant regulations of the Stock Exchange. In practice, under Section 80 of the Securities Ordinance, a person needs to have established stock borrowing arrangements before he is able to sell short. Under the relevant Stock Exchange regulations, a short selling Stock Exchange member has to register as such, and to comply with certain reporting requirements. Such requirements are to help the regulators identify and track sales of borrowed stocks, and identify speculative trading.

It has come to light that certain investors who are not members of the Stock Exchange, hence not bound by its regulations, have borrowed stocks for selling through the Stock Exchange without communicating such borrowing to the selling Stock Exchange member. That is to say, their right to vest in the purchasers the securities they have contracted to sell have not been clearly identified. Such practices negate the effectiveness of the existing mechanism for identifying and tracking sales of borrowed stock.

The rules will

The proposed amendment to section 146 of the Securities Ordinance will enable the Commission to make rules to rectify the situation. complement the Stock Exchange regulations on short selling.

Separately, in connection with the trading in stock options which will commence in August this year, the Bill seeks to enable the Commission to prescribe, by rules, position limits and other conditions including reporting requirements in relation to any person's activity in the stock options market. Such measures, as part of the risk management systems, are considered necessary for deterring market manipulation and providing better market surveillance information.

Thank you, Mr President.

End/Wednesday, June 21, 1995