TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 178

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Private Secretary

CONFIDENTIAL

Secretary State

Lolay,

-388

Hong Kong Department

DATE: 3 June 19887 6 5

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cc: P/Lord Glenarthur

FROM: CO Hum 10

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PS/Mr Eggar

Mr Gillmore

Mr McLaren

Mr Meyer, News Department

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MKC 700

HONG KONG: SECURITIES REVIEW COMMITTEE REPORT

A

1.

The

After the world-wide stock exchange crisis in October last year the Hong Kong Government appointed a Committee under Mr Ian Hay Davison to undertake a thorough review of the Stock and Futures Exchanges and the government's regulatory position. Committee's report was published in Hong Kong on 2 June. will wish to be aware of the main elements of their report, and of the immediate reaction in Hong Kong. A copy of Chapter 1 of the report, which provides a good summary of its contents, is enclosed.

Ministers

General

52

2. The Committee took the view that Hong Kong should aim to be the primary capital market for the South East Asian region: to that end it should encourage the development of new markets and reinforce the international element of existing ones by strengthening its systems and regulatory arrangements. They rejected fundamental changes in favour of building on existing systems, on the grounds that the success of Hong Kong's financial services market depends largely on the healthy working of the free enterprise system which has demonstrated a dynamic capacity for promoting innovation and growth. They concluded that practitioner regulations should continue but that safeguards would have to be introduced at every

level.

CONFIDENTIAL