TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 34

]

Comment or recommendation

18. Paragraph 7.40 "We therefore recommend

that from the outset the senior full- time management of the Clearing House should be employees of the Exchange (or the Clearing Corporation, if appropriate).'

11

19. Paragraph 7.40 "We recommend that the

Clearing House Manager should have high rank within the Exchange organisation."

20. Paragraph 7.41 "We therefore recommend

that the Clearing House should be a counterparty-to every trade."

Action taken by the HKFE

the Clearing House should not simply be made up of persons whose interest lies exclusively with Brokers, but should be composed so as to provide the necessary support and guidance to the General Manager/Managing Directors. For this reason, although Article 6 indicates the nature of interests which may be represented on the Board, it does not stipulate that any particular number of directors should be Clearing Members or any particular number should be Independent. To provide thus would, in the view of the Exchange, detract from the more important purpose of constituting a sound Board of the Clearing House.

As the Clearing House is yet to go into operation, this is not a matter already in hand, but it is the intention of the new Clearing House that its General Manager will be both a director and the executive with responsibility for the day-to- day management of the Clearing House. It is likely that the General Manager will be the Managing Director of the Clearing House who will be answerable to the Board of the Clearing House and will report through the Chairman of the Clearing House. It is expected that the Chief Executive of the Exchange will be the Chairman of the Clearing House.

Please see the above comments.

The Rules in Chapter III of the Clearing House Rules state clearly that the Clearing House becomes a counterparty to every trade. The mechanism by which