TNAG-2306-FCO40-3340-Future-of-Hong-Kong-stock-market-and-exchange-rate-1991 — Page 104

CONFIDENTIAL

Background

References A: Mr Hay Davison's CV

B:

Mr Paul's submissions of 7 December and

30 November

1. Mr Hay Davison is a former Chief Executive of Lloyds and is currently Chairman of Credit-Lyonnais.

2.

After the October 1987 Stock Market crash, Mr Hay

Davison was appointed to head an enquiry into the operation and regulation of the Hong Kong Stock Exchange.

The Hay Davison Report, which was published in June 1988,

recommended that Hong Kong should aim to be the primary

capital market for the South East Asian region: to that end it should encourage the development of new markets and reinforce the international element of existing ones by

strengthening its systems and regulatory arrangements. The

report strongly criticised the management of the Hong Kong

Stock Exchange on the grounds that "an inside group treated

the Exchange as a private club rather than a public utility

for the general benefit of members, investors and issuers"

and that "its executive staff was ineffective, lacking

adequate knowledge and experience to cope with the evolving

and expanding securities industry, and insufficiently independent of the governing Committee".

3. A new Securities and Futures Commission, headed by

Mr Robert Owen (a former UK merchant banker and former

member of the DS), was set up in May 1989 to implement the

Hay Davison recommendations. Because Hong Kong had

previously been extremely under-regulated, this involved a

large dose of reforms within the space of two years. There

have inevitably been some people who have grumbled that Hong

Kong is in danger of over-regulating its markets.

This was

ASHAFH/1

SB

CONFIDENTIAL