XN000022-1995-06-21 — Page 36

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Securities (Clearing Houses) (Amendment) Bill 1995

Following is the speech by the acting Secretary for Financial Services, Mrs Lessie Wei, in moving the second reading of the Securities (Clearing Houses) (Amendment) Bill 1995 in Legislative Council today (Wednesday):

Mr President,

I move the second reading of the Securities (Clearing Houses) (Amendment) Bill 1995.

The purpose of the Bill is to seek disapplication of certain aspects of insolvency or bankruptcy laws in respect of futures transactions conducted at the Hong Kong Futures Exchange Ltd. in order to lessen the potential for a chain reaction of financial market defaults. The provisions being sought are already available to securities transactions conducted at the Stock Exchange of Hong Kong Ltd. under the Securities (Clearing Houses) Ordinance.

When the Ordinance was enacted in July 1992, it was decided to limit the ambit of the Ordinance to securities transactions initially and to defer application of the Ordinance to futures transactions because trading in futures contracts was not very active at the time.

Since the enactments of the Ordinance, transactions conducted at the Futures Exchange have increased significantly. In view of this, it is considered necessary that futures transactions be also brought under the Ordinance. The objective is to minimise the systemic risks which could arise from defaults by individual members of the Futures Exchange. Specifically, the Bill seeks to enable the clearing house of the Futures Exchange to isolate any default and complete settlement with non-defaulters, a process which otherwise might be frozen for an extended period under insolvency or bankruptcy laws and would potentially cause the counterparties of the defaulter themselves to default.

I would like to mention that since the 1987 market crash, there have been no significant default cases involving members of the Futures Exchange. The few cases which did occur were of a minor nature and related mostly to technical errors. The present proposals are made as a result of the continuing effort of the Administration and the regulators to enhance the risk management systems in our securities and futures markets to keep pace with market developments.

Thank you, Mr President.

End/Wednesday, June 21, 1995