ENG-1990 — Page 95

FINANCIAL AND MONETARY AFFAIRS

The Hong Kong Futures Exchange offers contracts in sugar, soyabeans, gold, Hang Seng Index futures and interest rate futures. Trading in interest rate futures contracts commenced in February. These contracts provide a new hedging instrument against in- terest rate risk for three-month Hong Kong interbank offered rate.

The Chinese Gold and Silver Exchange Society operates one of the largest gold bullion markets in the world. Gold traded through the society is of 99 per cent fineness, weighed in taels (one tael equals approximately 1.2 troy ounces) and quoted in Hong Kong dollars. Prices follow closely those in the other major gold 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 expanded in recent years.

Regulation of the Financial Sector

The government has consistently worked towards providing a favourable environment in the financial sector, with sufficient regulation to ensure, as far as possible, sound business standards and confidence in the institutional framework, but without unnecessary im- pediments of a bureaucratic or fiscal nature.

The authority for the prudential supervision of banks, restricted licence banks and deposit-taking companies, collectively called authorised institutions, is vested in the Commissioner of Banking. His authority is derived from the Banking Ordinance which replaced earlier Banking and Deposit-taking Companies Ordinances in 1986. The pro- visions 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 overseas branches of Hong Kong incorporated authorised institutions. 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 worldwide supervision of banking groups based in Hong Kong, are accepted and practised.

The Securities and Futures Commission, which was established in May 1989 in response to the weaknesses in Hong Kong's financial markets at the time of the October 1987 world stock market crash, exercises prudential supervision of the securities, financial investment and commodities futures industry in Hong Kong. It administers the Securities and Futures Commission Ordinance, the Securities Ordinance, the Protection of Investors Ordinance, the Commodities Trading Ordinance, the Stock Exchanges Unification Ordinance, the Securities (Disclosure of Interests) Ordinance and the Securities (Insider Dealing) Ordinance.

The Securities Ordinance and the Stock Exchanges Unification Ordinance, together with the Securities and Futures Commission Ordinance, provide a framework within which dealings in securities are conducted and the Stock Exchange operates, enabling trading in securities to be regulated. They require the registration of dealers, dealing partnerships,

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