TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 185

knowledge

and

evolving

industry,

of

the

settlement

experience to cope with the

and expanding securities and insufficiently independent

governing Committee.

The

system, based on a 24-hour

cycle, had failed to function properly and

indeed could not have been expected to do

so in the face of the increasing volumes

and internationalisation of the market.

There were serious shortcomings in the

listing arrangements, and surveillance of

members

Thus, while the

governing Committee had been successful in

developing the business of the Exchange,

they had not introduced proper management

and regulatory arrangements and, in

particular, had failed to take into

account the risks in an overheated system;

was cursory.

was

(b) at the re-vamped Hong Kong Futures

Exchange (7),

the

management

somewhat better but was built on shaky

foundations.

In particular, the

tripartite structure of Exchange, Clearing

House and Guarantee Corporation confused

lines of responsibility and effectively

obstructed the development of an adequate risk management system, which is essential to any futures market. All three agencies

should have acted to contain the dangers

in

the expansion of business and the build

of large positions by a few investors;

up

(7) It

was. relicensed in 1984 after an earlier crisis and subsequently reorganised.

4