TNAG-2306-FCO40-3340-Future-of-Hong-Kong-stock-market-and-exchange-rate-1991 — Page 43

CONFIDENTIAL

FM HONG KONG

TO PRIORITY F C O

TELNO 1533

OF 16121OZ MAY

FOR PAUL, HKD

HKD (13)

CONFIDENTIAL

(100/1

Масков

035713

MDLIAN 1687

TOP COPY Q DIST?

GOVERNANCE OF THE STOCK EXCHANGE OF HONG KONG

YOUR TELNO 930:

(SEHK)

1.

IT IS OUR PERCEPTION THAT, BECAUSE OF THE PROMPT RESCINDMENT OF THE RESOLUTIONS AND THE CLEAR INDICATION THAT THE SECURITIES AND FUTURES COMMISSION (SFC) WOULD HAVE BEEN ABLE AND PREPARED TO TAKE CORRECTIVE ACTION HAD THE NEED ARISEN, PUBLIC AND INTERNATIONAL CONFIDENCE IN OUR STOCK MARKET HAS NOT BEEN SIGNIFICANTLY ERODED. WE NEED, HOWEVER, TO USE THIS WINDOW OF OPPORTUNITY TO CARRY THROUGH THE FURTHER REFORMS TO THE STRUCTURE

OF SEHK WHICH WE SEE AS NECESSARY.

2. THE MOST SIGNIFICANT OF THESE ARE THE CONVERSION OF SEHK INTO A NON-PROFIT MAKING (OR MORE CORRECTLY NON-PROFIT DISTRIBUTING) BODY AS RECOMMENDED BY THE DAVISON COMMITTEE, AND THE INTRODUCTION OF A BROADER SPREAD OF MEMBERSHIP ONTO THE COUNCIL OF THE EXCHANGE, INCLUDING MORE PUBLIC INTEREST AND USER INTEREST PERSONS. WITH HINDSIGHT THE DAVISON COMMITTEE PROPOSALS DID NOT GO FAR ENOUGH IN THIS LATTER RESPECT, AS A RESULT OF WHICH EFFECTIVE POWER HAS BEEN LEFT IN THE HANDS OF THE SMALL

LOCAL BROKERS. WE WOULD VERY MUCH HOPE THAT WE CAN ACHIEVE THESE FURTHER REFORMS AS A RESULT OF CONSULTATION AND DISCUSSION BETWEEN GOVERNMENT, SFC AND SEHK. BUT, SHOULD THE NEED ARISE, THE SFC HAS POWERS UNDER ITS ORDINANCE TO IMPOSE SUCH REFORMS AFTER

CONSULTATION WITH THE FINANCIAL SECRETARY.

3.

MEDIA COMMENT REMAINS GENERALLY SUPPORTIVE, THOUGH THERE HAS BEEN A TENDENCY IN SOME QUARTERS WRONGLY TO CONFUSE REGULATORY ACTION WHICH SFC HAD ALREADY BEEN IN THE COURSE OF TAKING IN RESPECT OF PHILIP WONG, THE SENIOR VICE PRESIDENT OF THE EXCHANGE (WHO HAS NOW RESIGNED) WITH GOVERNANCE ISSUES. WE ARE CONSCIOUS, TOO, OF THE NEED TO AVOID THE POLARISATION OF VIEWS, LOCAL BROKERS VERSUS INTERNATIONAL, THAT OCCURRED AT THE TIME OF THE OCTOBER 87 CRASH. THERE HAVE BEEN ONE OR TWO INTEMPERATE REMARKS BY INTERNATIONAL BROKERS WHICH HAVE NOT

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CONFIDENTIAL