TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 53

For information

(4.10.88)

CONFIDENTIAL

HKC 100/

XCCI (88) 72

Copy No..

MEMORANDUM FOR EXECUTIVE COUNCIL

23..

92

دادی

McPhail W/10

+ PA

GOVERNMENT CREDIT FACILITY FOR THE FUTURES MARKET

7/10

INTRODUCTION

This

memorandum explains

the package for restructuring the credit facility granted by the Government through drawings on the Exchange Fund to the Hong Kong Futures Guarantee Corporation.

I

BACKGROUND

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Following the crash in the Hong Kong stock market and the Hang Seng Index (HSI) futures market last October, two revolving credit facilities (the "Lifeboat") have been made available to the Hong Kong Futures Guarantee Corporation (HKFGC) to enable it to finance the settlement of its obligations to members of the Hong Kong Futures Exchange (HKFE) in respect of existing and new, Hang Seng Index contracts, the extent that those members' obligations to the HKFGC in respect of the HSI futures contracts are delayed or not met. One facility, of up to $1,000 million, is provided by a number of major participants in the futures market (the "broker-lenders") and by the shareholders of the HKFGC (the "shareholder- lenders). The second facility, also of up to $1,000 million, is provided by the Government through drawings on the Exchange Fund. The two facilities run from 26 October 1987 to 31 October 1989. Terms of the Lifeboat are set out in Annex I. A third standby facility totalling $2,000 million was provided jointly by

by the Government through drawings on the Exchange Fund, the Hongkong and Shanghai Banking Corporation, the Standard Chartered Bank and the Bank of China, and was be called upon should the first two facilities prove inadequate to meet the HKFGC's commitments. In the event, this standby facility was not needed to be drawn upon and it expired on 30 April 1988.

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As at 31 August 1988, the outstanding principal amount drawn under the Government facility stood at $571.5 million, and the balance of $428.5 million, is available for drawing/redrawing until 31 October 1989.

CONFIDENTIAL