TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 86

CONFIDENTIAL

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MDLIAN 2929

KONG FUTURES EXCHANGE: AND

(D) EXTENSION OF THE SETTLEMENT PERIOD AND ESTABLISHMENT OF A

CENTRAL CLEARING SYSTEM FOR STOCK TRANSACTIONS.

E STABLISHMENT OF A SECURITIES AND FUTURES COMMISSION

4.

THE KEY TO IMPLEMENTING MANY OF THE COMMITTEE'S RECOMENDATIONS

IS TO ESTABLISH THE SFC TO ASSUME THE ROLE OF THE SECURITIES

COMMISSION, COMMODITIES TRADING COMMISSION AND THE OFFICE OF THE COMMISSIONER FOR SECURITIES AND COMMODITIES TRADING (OCS). THE

EXECUTIVE COUNCIL HAS APPROVED THE PRINCIPLES FOR ESTABLISHING THE

SFC AT ITS MEETING ON 12 JULY. THE GOVERNMENT INTENDS TO INTRODUCE

THE NECESSARY BILL FOR ITS ESTABLISHMENT INTO THE LEGISLATIVE

COUNCIL EARLY IN THE NEXT SESSION SO THAT IT WILL BE IN PLACE AT

THE BEGINNING OF 1989.

5. AS ENVISAGED BY THE SRC AND APPROVED BY EXCO, THE SFC WOULD BE OUTSIDE THE CIVIL SERVICE: GOVERNED BY A SMALL BOARD TO BE APPOINTED

BY THE GOVERNOR AND WITH AN EQUAL NUMBER OF EXECUTIVE AND NON-

EXECUTIVE DIRECTORS: SUPPORTED BY A GOVERNMENT-APPOINTED ADVISORY

COMMITTEE COMPRISING MARKET EXPERTS AND TO BE CHAIRED BY THE SFC

CHAIRMAN: AND FUNDED LARGELY BY THE MARKETS IN THE FORM OF A TRANSACTION LEVY, FEES AND CHARGES AND ALSO PARTLY BY THE GOVERNMENT.

6.

IN DRAFTING THE LEGISLATION, SPECIAL ATTENTION WILL BE GIVEN TO PROVIDING ADEQUATE CHECKS AND BALANCES AND A RIGHT OF APPEAL AGAINST

SFC DECISIONS. IN CONSIDERING DETAILED FUNDING ARRANGEMENTS, DUE

ACCOUNT WILL BE TAKEN OF THE NEED TO MINIMISE THE COSTS OF THE SFC

TO MARKET USERS, WHILE NOT TRANSFERRING THE BURDEN TO THE ORDINARY TAX PAYER.

RE-CONSTITUTION OF THE STOCK EXCHANGE OF HONG KONG

7. THE STOCK EXCHANGE IS TAKING VOLUNTARY STEPS TO REFORM ITS

CONSTITUTION TO ALLOW FOR A MORE BROADLY BASED AND PROPERLY

REPRESENTED GOVERNING COUNCIL. IT WILL HOLD AN EXTRAORDINARY

GENERAL MEETING ON 20 JULY AT WHICH ITS MEMBERS WILL DECIDE WHETHER

THE PROPOSED CONSTITUTIONAL REFORMS SHOULD BE ACCEPTED. IF ITS

VOLUNTARY EFFORTS SUCCEED, A NEW COUNCIL WILL BE IN PLACE BY ABOUT LATE SEPTEMBER. OTHERWISE LEGISLATION WILL BE REQUIRED TO ESTABLISH

A NEW COUNCIL AT THE BEGINNING OF 1989.

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SETTLEMENT AND CLEARING SYSTEM

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CONFIDENTIAL