ENG-1993 — Page 92

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FINANCIAL AND MONETARY AFFAIRS

its first Hong Kong dollar issue of $500 million, and the World Bank launched a $1 billion issue which was priced with reference to the benchmark established in October by the three-year Exchange Fund Notes. All these issues were well received by the market.

To promote and facilitate the development of the Hong Kong dollar debt market, the HKMA launched the Central Moneymarkets Unit (CMU) Service in December, with clearing operations to commence on January 31, 1994. The CMU Service, run by the HKMA, performs the role of a central custodian and clearing agent for Hong Kong dollar debt instruments issued by private sector borrowers. It handles debt instruments which are either immobilised or dematerialised, and the transfer of title is effected by computer book entry. The CMU Service offers an efficient, safe and convenient clearing system, which will go a long way towards reducing transaction costs and settlement risk.

The stock market also serves as an important source of capital. In 1993, after the signing of a Memorandum of Regulatory Co-operation by the regulatory authorities and stock exchanges of Hong Kong and the People's Republic of China, 'H' shares of six state-owned enterprises of China were listed on the local stock exchange.

At the end of the year, 477 public companies were listed on the Stock Exchange of Hong Kong Limited.

With a total market capitalisation of $2,975 billion, the Hong Kong stock market was ranked sixth in the world, after the United States of America, Japan, the United Kingdom, - Germany and France.

The Hong Kong Futures Exchange Limited successfully launched the first traded options contract in Hong Kong. Since they commenced trading in March, Hang Seng Index options have been well-received by investors. Meanwhile, the futures exchange continues to offer futures contracts in the Hang Seng Index and Sub-Indices, interbank interest rates and gold.

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 closely follow 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 adequate regulation to ensure, as far as possible, sound business standards and confidence in the institutional framework, but without unnecessary impedi- ments of a bureaucratic or fiscal nature.

The authority for the prudential supervision of banks, restricted licence banks and deposit-taking companies is vested in the HKMA. Its authority is derived from the Banking Ordinance, the provisions of which relate to the supervision of authorised institutions, in order to provide a measure of protection to depositors and to promote the general stability and effective operation of the banking system.