TNAG-2475-FCO40-3605-Hong-Kong-exchange-fund-report-and-accounts-for-1991-1992 — Page 18

CONFIDENTIAL

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vale

THE HONG KONG FUTURES GUARANTEE CORPORATION LIMITED

12.

the

Kong

was

Following the October 1987 crisis in world stock

markets, a revolving credit facility of $1,982.5 million (the

"Lifeboat") was provided to the Hong Kong Futures Guarantee

Corporation Limited (HKFGC) to enable it to finance

settlement of its obligations members of the Hong

Futures Exchange (HKFE). Of this, $982.5 million

contributed by the major brokers and the shareholders of the

HKFGC (the Brokers' and Shareholders' loan) and $1 billion by

the Fund. The Fund's contribution was made on a last in first

out basis and was fully drawn down.

13.

In order to facilitate the reforms of the futures

market along the lines recommended by the Securities Review

Committee, the Lifeboat was restructured following intensive

negotiations between the Fund, the Broker and Shareholder

lenders, the HKFGC and the HKFE. Under the terms of the

restructuring, which took effect on 13 March 1989, the

outstanding revolving credit facility which would be drawable

on the Fund was reduced to $100 million. This residual

revolving credit facility could be drawn, and redrawn, on the

Fund up to 31 October 1989. No drawings were in fact made up

to the date when the facility ceased to be drawable.

As part

of the restructuring package, repayment of principal with effect from 13 March 1989 was to be applied to repay up to $200

million of the Brokers' and Shareholders' loan prior to

repayment of the principal of the outstanding loan due to the

Fund being resumed. In return, the Broker lenders were

required to make deposits of $60 million by 31 October 1989

towards the reserve fund for the new clearing house of the HKFE.

14.

On 15 October

1990 the Lifeboat was again

designed to

restructured as part of a package of measures

increase turnover in the HKFE stock index market. The effect

of the restructuring was to reduce the special levy on each

transaction, buying or selling, in the stock index market from

$30 to $5. The special levy is one of the smaller sources of

repayment for the Lifeboat. Following the reduction in the

rate of levy the sums of money realised from this source will

CONFIDENTIAL