TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 33

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Comment or recommendation

15. Paragraph 6.90 "We recommend that the

proposed class of Associate Members should not be created."

16. Paragraph 6.93 "We therefore recommend

that the continuation of Trade Affiliated Membership should be critically reviewed."

17. Paragraph 7.38 "We recommend that the

Clearing House should be incorporated as a wholly-owned subsidiary of the Exchange.

Its board should include the Exchange Chairman and Chief Executive, the Clearing House Manager and representatives of those backing the risks of the Clearing House.

There

should be a strong independent element."

Action taken by the HKFE

Commission should be satisfied that a firm will be properly supervised, this is a matter outside the control of the

Exchange. But it will be taken up by the new SFC when it is established. It is no longer proposed to create such a class.

It has been determined that existing Trade Affiliated Membership should be allowed to expire naturally so that when Membership comes up for renewal, it will not be renewed. (See Chapter IIIB of the Rules.) Trade Affiliated Members will be encouraged to join as proper Members of the Exchange.

It is proposed that the new Clearing House will be a subsidiary of the Exchange. The Exchange believes that it is unnecessary and undesirable for the Board of the Clearing House to be too large and for this reason Article 6 of the draft Clearing House Articles limits the number of directors to five. Under the terms of Article 6, the Exchange is entitled to appoint and remove all of the directors of the Clearing House. Article 6 contains guidance as to the identity of those directors. However, having reflected carefully on the rationale

behind this recommendation, the

Exchange believes that the spirit of the recommendation

made by the SRC is that the

General Manager of the Clearing

House, who is to be a

professional manager whose

business comprises only managing and directing the Clearing House, should be given a

rational sounding board for his views. That is, the Board of