ENG-1987 — Page 73

THE ECONOMY

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276 public companies, with a total market capitalisation by the end of the year of $420 billion, were listed on the Stock Exchange. This made it the largest stock market in Asia outside Japan.

The Hong Kong Commodity Exchange Limited operates five markets offering contracts in cotton (but no trading in cotton has taken place in recent years), sugar, soyabeans, gold, and the Hang Seng Index futures. The last of these markets started trading on May 6, 1986. The Chinese Gold and Silver Exchange Society operates a gold bullion market. Gold traded through the Society is of 99 per cent fineness, and is measured in taels (one tael equals approximately 1.2 troy ounces) and quoted in Hong Kong dollars. After allowing for exchange rate fluctuations, prices follow closely those in the major markets in London, Zurich and New York.

There is another active gold market in Hong Kong, in which the main participants are banks, major international bullion houses and gold trading companies. It is commonly known as the loco-London gold market, with prices quoted in US dollars per troy ounce of gold of 99.95 per cent fineness and with delivery in London. Trading in this market has grown significantly in recent years.

Regulation of the Financial Sector

The authority for the prudential supervision of banks and deposit-taking companies, collectively called authorised institutions, is vested in the Commissioner of Banking. His authority is derived from the new Banking Ordinance which was introduced in March 1986, replacing the previous Banking Ordinance and Deposit-taking Companies Ordinance. The provisions of the ordinance relate to the regulation of banking business, particularly the business of taking deposits, and the supervision of authorised institutions, so as to provide a measure of protection to depositors and to promote the general stability and effective operation of the banking system.

The Commissioner's Office obtains regular returns from and sends examination teams to the authorised institutions, including the overseas branches of Hong Kong incorporated banks and deposit-taking companies. The principles of the revised concordat issued by the Committee on Banking Regulations and Supervisory Practices, which meets regularly at Basle in Switzerland, and the principles of world-wide supervision of banking groups based in Hong Kong, are accepted and practised.

The Commissioner for Securities and Commodities Trading exercises prudential super- vision of the securities, financial investment and commodities futures industry in Hong Kong by administering the Securities Ordinance, the Protection of Investors Ordinance and the Commodities Trading Ordinance.

The Securities Ordinance provides a framework within which dealings in securities are conducted and the Stock Exchange operates, enabling trading practices in securities to be regulated. It requires registration of dealers, dealing partnerships, investment advisers, and investment advisers' partnerships and representatives. The ordinance also provides, inter alia, for the investigation of suspected malpractice, and for the maintenance of a Compensation Fund to compensate clients of any defaulting stockbroker.

The Protection of Investors Ordinance prohibits the use of fraudulent or reckless means to induce investors to buy or sell securities, or to induce them to take part in any investment arrangement in respect of property other than securities (the latter being controlled by the Securities Ordinance). It regulates the issue of publications related to such investments by prohibiting any advertisement inviting investors to invest without the advertisement first being submitted to the Office of the Commissioner for authorisation.