TNAG-1609-FCO40-22131-Minutes-and-Hansards-of-the-Legislative-Council-of-Hong-Kong-1987 — Page 86

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Mr. David Li seems to take a different view, that no

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acceptable solution which would safeguard the integrity of

our securities markets would be forthcoming in this way. The likely solution, in the absence of Government's

involvement, and I take it the one that Mr. Li seems to have

been advocating, was one that required a closing out of

contracts at an arbitrary price. In discussing this

solution, we are straying into the realms of

unpredictability but almost certainly there would have been

a serious knock-on effect in the stock market itself, the

likely permanent closure of the futures market, and serious

damage to Hong Kong's continuance as an international

financial centre.

20.

I also considered the possible consequences had

the Guarantee Corporation not been able to meet its

obligations when trading on the Futures Exchange resumed.

It was clear to me that this would have led to a complete

collapse of the Guarantee Corporation and the Futures

Exchange. As I have said, this would have been very

damaging to Hong Kong's reputation as an international

financial centre. Further, with the close links between

the Futures Exchange and the Stock Exchange through the

hedging on Hang Seng Index Futures of physical holding of

shares, there was also a serious risk that the Stock

Exchange would be similarly affected. Had this happened,

there would doubtless have been a massive outflow of

capital, which would in turn have created unacceptable pressure on the exchange value of the Hong Kong Dollar.

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