TNAG-2306-FCO40-3340-Future-of-Hong-Kong-stock-market-and-exchange-rate-1991 — Page 21

CONFIDENTIAL

XCC(91)151

in only half of such nominations). These two elements in the statutory package are designed to help counterbalance the effect of a continuation of proxy voting in the event that the voluntary package does not get the necessary approval at the EGM of SEHK.

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These statutory reforms, unless otherwise rescinded by the SFC, will become effective on 31 October. The SFC has, however, undertaken to meet on 30 October, following the EGM, to review the position in the light of the situation prevailing then. If the voluntary package receives the support of 75% of its members at the EGM on 30 October, the SFC will consider whether the restriction notices should be rescinded. (Given that the legislation on proxies cannot be enacted by that date, SFC may well decide that it would be prudent to proceed with the statutory package agreeing to its replacement by the new voluntary package only when the proxy legislation is in place.)

Proxy Background

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The SFC has analyzed the voting pattern and the results of the 1989 and 1990 SEHK Council elections. In the 1989 Council election, only 142 of the 510 votes cast (28% of the total) were cast in person. The remaining 368 votes (72%) were cast by proxies, out of which 213 proxy votes, representing 42% of the total cast, were actually cast by three Individual Members. In the 1990 Council election, only 78 of the 494 votes cast (16% of the total) were in person. The remaining 416 votes (84%) were cast by proxy, out of which 259 proxy votes, representing 52% of the total votes cast, were cast by three Individual Members. There is very strong reason to believe that these three Individual Members concerned were acting in concert. It is a fact that the successful candidates were all elected with overwhelming blocks of votes which must have included practically all the proxies, whereas the unsuccessful candidates only received a very small number of votes.

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(a)

There were also allegations from the brokerage community that - considerable pressure had been exerted on some brokers to appoint proxies to vote for particular persons in both the 1989 and 1990 Council elections (it is relevant to note that some brokers are dependent on others for business);

Executive Council