TNAG-1773-FCO40-2525-Hong-Kong-Exchange-Fund-Hong-Kong-Futures-Exchange-Limited--1988 — Page 87

BANK RESCUE OPERATIONS

CONFIDENTIAL

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12.

After the sale of The Hong Nin Bank Limited to First

Pacific Holdings Limited, the only outstanding matter relating to

that bank (now known as the First Pacific Bank Limited) is the

repayment to the Exchange Fund of the sum of HK$200 million

outstanding at 12 March 1987 (the completion date of the sale) in

accordance with an agreed schedule. As at 31 December 1987, sums

totalling HK$25,214,982.06 and US$3,274,182.33 had been repaid and HK$75,644,946.19 and US$9,822,546.99 remained outstanding and

continue to earn a market rate of return for the Exchange Fund.

THE HONG KONG FUTURES GUARANTEE CORPORATION LIMITED

13.

The October crisis in world stock markets included a

sharp fall in the price of shares on the Hong Kong Stock Exchange and this resulted in serious difficulties emerging in the Hong Kong

Futures Exchange where brokers with long positions in Hang Seng

Index contracts were unable to put up the additional margin required

from them as a result of the fall in the price of contracts. In the

absence of remedial action the financial futures market would have

been obliged to cease trading and this in turn would have had

knock-on effects on the stock market and on the exchange value of

the Hong Kong dollar. The Exchange Fund was used in October 1987 to

participate in two standby facilities provided to The Hong Kong

Futures Guarantee Corporation Limited to enable it to finance the

settlements of its obligations to members of the Futures Exchange.

The Financial Secretary was satisfied that, having regard to the

likely adverse effects on the exchange rate were these facilities

not to be provided, this use of the Exchange Fund was within his

powers under section 3(1) of the Exchange Fund Ordinance.

CONFIDENTIAL