TNAG-1765-FCO40-2519-Hong-Kong-stock-market-and-exchange-rate-1989 — Page 88

CONFIDENTIAL

056754 MDLIAN 2929

12. THE FINANCIAL SECRETARY, MR PIERS JACOB, REITERATED ON 12 JULY THAT ''IT IS THE GOVERNMENT'S FIRM INTENTION TO IMPROVE THE REGULATION AND OPERATION OF THE SECURITIES AND FUTURES INDUSTRY, WHICH IS IMPORTANT FOR HONG KONG'S DEVELOPMENT INTO A MAJOR

REGIONAL CAPITAL MARKET. THE GOVERNMENT IS FULL COMMITTED TO PROCEED WITH THE NECESSARY REFORMS TO BRING HONG KONG UP TO THE REGULATORY STANDARDS OF MAJOR INTERNATIONAL FINANCIAL CENTRES. IT IS BELIEVED THAT WITH THESE REFORMS HONG KONG WILL HAVE A ROBUST. PRACTITIONER-BASED REGULATOR SYSTEM, TO BE SUPERVISED BY AN

·

EFFECTIVE WATCHDOG. AND SUCH A REGULATORY SYSTEM SHOULD PROMOTE,

BUT NOT STIFLE, MARKET GROWTH

POINTS TO MAKE

·

(A) THE GOVERNMENT HAS ACCORDED TOP PRIORITY TO THE IMPLEMENTATION OF THE SECURITIES REVIEW COMMITTEE RECOMMENDATIONS, THE BULK OF WHICH SHOULD BE PUT INTO EFFECT WITHIN THE NEXT 2 YEARS.

(B) A NEW INDEPENDENT REGULATORY AUTHORITY, TO BE CALLED THE SECURITIES AND FUTURES COMMISSION, IS EXPECTED TO BE ESTABLISHED AT THE BEGINNING OF 1989.

(C)

THE GOVERNMENT ENDORSES THE VOLUNTARY EFFORTS OF THE STOCK EXCHANGE OF HONG KONG TO INTRODUCE CONSTITIONAL REFORMS FOR A MORE BROADLY BASED AND PROPERLY REPRESENTED GOVERNING COUNCIL, AS RECOMMENDED BY THE SECURITIES REVIEW COMMITTEE. IF THESE EFFORTS SUCCEED, THE NEW COUNCIL WILL BE IN OFFICE IN LATE SEPTEMBER. OTHERWIDE LEGISLATION WILL BE REQUIRED TO ESTABLISH THE COUNCIL

AT THE BEGINNING OF 1989.

(D) THE HONG KONG FUTURES EXCHANGE HAS STARTED TO NEGOTIATE WITH THE CLEARING HOUSE AND GUARANTEE CORPORATION FOR A REVAMP OF THE EXISTING RISK MANAGEMENT STRUCTURE. IT HAS ALSO TAKEN POSITIVE STEPS TO BRING IN CONSTITUTIONAL CHANGES. IT IS HOPED THAT THE WHOLE PACKAGE COULD BE IN PLACE BY THE END OF THIS YEAR.

(E) THE GOVERNMENT IS DETERMINED TO IMPROVE THE REGULATION AND OPERATION OF THE SECURITIES AND FUTURES INDUSTRY. A SPECIAL UNIT HAS BEEN ESTABLISHED IN THE MONETARY AFFAIRS BRANCH TO EXPEDITE THE IMPLEMENTATION, TO MONITOR THE RESULTS OF THE EXCHANGES' VOLUNTARY EFFORTS AND TO SEE IF LEGISLATION IS REQUIRED.

WILSON

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CONFIDENTIAL