TNAG-1764-FCO40-2518-Hong-Kong-stock-market-and-exchange-rate-1988 — Page 53

THE FUTURES EXCHANGE TRADING CONTROLS AND SURVEILLANCE

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(Chapter Eight of the Report)

The SRC recommends that

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the current balance between GCMs, ICMS and NCMs on the HKFE should be reviewed. (para. 8.11)

great stress should be placed on the quality of clearing members - both financial and operational; in particular there should be no dilution of standards in an attempt to achieve a balanced tiered market. (para. 8.11)

co-operative GCMS should not be allowed. (para. 8.11)

in view of the default risk in Hong Kong, it may be appropriate for the HKFE and the CH to use a high confidence factor. (para. 8.29)

the clearing house should apply appropriate haircuts if it allows securities or other traded items to be deposited in fulfillment of margin requirements; if it allows bank letters of credit to be posted, it must restrict these to the soundest banks and must keep the creditworthiness of those banks under review. (para. 8.29)

hedge-position concessions should not be introduced by the clearing house. (para. 8.31)

for settlement of futures traders' accounts through banks

(a) steps must be taken, by the regulatory

authority if appropriate, to ensure that the direct debit system is secure; in

particular, banks should always confirm that they will (or will not) make a payment before the market opens;

(b) the settlement banks must be totally committed once they have indicated they will make a payment; to that end, settlement banks should enter into a written agreement with ICCH/FGC which makes it certain that the banks are 100% bound once they have confirmed they will credit an account; and

(c)

the CH should run regular credit checks on its settlement banks.

(para. 8.39)

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