ENG-1980 — Page 74

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FINANCIAL SYSTEM AND ECONOMY

enables a bank in Hong Kong without an adequate local deposit base to acquire the resources to lend to a customer in Hong Kong, if it cannot borrow those resources at an acceptable rate of interest on the domestic money market.

There is no exchange control at all in Hong Kong, and a number of banks and deposit- taking companies are very active participants in the market, with many international banks dealing (through their local branches) on behalf of their other branches during the hours that the Hong Kong market is open. The government does not normally intervene in the foreign exchange market to influence the exchange value of the Hong Kong dollar, although it does occasionally seek to smooth out erratic fluctuations in the Hong Kong dollar exchange value.

One important development during the year was the issue by one bank in Hong Kong of United States dollar certificates of deposit. This was the first time this particular instru- ment had been issued in Hong Kong, and a number of other issues were subsequently brought to the market.

Stock Exchanges

There have been four stock exchanges in Hong Kong since 1972. During the course of 1980, the government took steps to bring about its long-term aim of unifying all four exchanges. The Stock Exchanges Unification Ordinance, which provides for the establish- ment of a unified exchange in place of the existing four, was enacted on August 7, 1980. Under the ordinance, The Stock Exchange of Hong Kong Limited, which was incorporated on July 7, will have the exclusive right to operate a stock market in Hong Kong, from a date to be appointed by the Financial Secretary. This date must not be more than three years after the commencement date of the ordinance, and so it will be not later than early 1984. Immediately after the commencement date of the ordinance, invitations will be extended to all members of the existing four exchanges to apply for shares in The Stock Exchange of Hong Kong Limited. These shares will carry with them membership of the unified exchange. The establishment of the unified exchange is expected to result in a broader market, and to increase the attractiveness of Hong Kong securities to overseas investors. Unification will also assist the better management of the stock market and the more effective regulation of stockbrokers.

In the meantime, trading continues on the existing exchanges. The turnover for 1980 was: Far East Exchange, $43,595.5 million; Hong Kong Stock Exchange, $19,371.9 million; Kam Ngan Stock Exchange, $32,481,0 million; and Kowloon Stock Exchange, $236.6 million. The total of $95,684.7 million was an increase of 273.3 per cent over the 1979 figure of $25,633.2 million. The Hang Seng Index stood at 1,473.59 on December 31, 1980 (July 31, 1964-100), up from 879.38 on December 31, 1979.

Staff of the Office of the Commissioner of Securities continued to monitor financial transactions concerning securities, and to scrutinise unusual movements in individual prices. One of the functions of the office is to investigate possible instances of insider dealings in securities to establish whether there is a prima facie case to be examined by the Insider Dealing Tribunal. In June, 1980, the tribunal was convened to inquire into possible insider dealings in the shares of Hutchison Whampoa Ltd. at some time prior to September 26, 1979. On April 25, 1980, the Committee on Takeovers and Mergers issued a statement to make it clear that although the holding of 50 per cent of a company's voting rights is conclusive evidence of control, this is not an exclusive definition and other factors will be taken into account by the committee in considering whether control of a company has passed, thus requiring a mandatory bid to be made to all shareholders. The market, however, has shown