TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 179

CONFIDENTIAL

Current shortcomings

3. The Committee identified the following main shortcomings in

the securities industry:

(a)

(b)

(c)

(d)

the Hong Kong Stock Exchange's present management structure was not in the best interests of the generality

of market participants or of the investing public;

the Hong Kong Futures Exchange, the Clearing House, and the Hong Kong Futures Guarantees Corporation, presented a

confusing structure. This was not conducive to a proper

system of risk management and awareness essential to any

futures market;

the Securities Commission and the Commodity Trading

Commission, both originally intended to be high-powered

watchdogs of the local securities industry, were not

equipped to function as proper regulatory bodies;

the Office of the Commissioner for Securities and

Commodities Trading, with its insufficient resources, was

not able to carry out proper surveillance and monitoring

of markets and brokers.

Recommendations

4.

On the basis that Government should encourage self-regulation of

markets, ensure proper safeguards for investors, and preserve

flexibility to cater for rapid developments in the securities

industry, the Securities Review Committee made some 160

recommendations. The major ones are:

(a) a

(b)

fundamental revision of the internal constitution of

the Stock Exchange, in particular its governing Committee, with proper representation for individual and corporate shareholders, coupled with a number of

independent members, to ensure that it is properly

governed

working in the interests of all its members

and users;

a core of professional and independent executives for the two Exchanges on which to build the foundations of the

CONFIDENTIAL