ENG-1994 — Page 111

FINANCIAL AND MONETARY AFFAIRS

implemented in early 1994, under which orders are entered into the screen-based trading system and executed automatically when the buy and sell prices match. The AMS enhances the trading capacity and efficiency of the stock market and enables the instant capture and dissemination of market data, which will contribute to greater market integrity and transparency. The stock exchange is planning to install a second AMS terminal for its members to fully utilise the potential of the system.

Implementation of the AMS also facilitated the introduction of the short-selling of stocks on January 3. A sound regulatory structure was developed to allow such short-selling through registered members of the stock exchange. Twenty-one shares are eligible for short- selling. They are the largest Hang Seng Index constituent stocks, a significant proportion of which are in the hands of the public.

The Hong Kong Securities Clearing Company continues to operate the Central Clearing and Settlement System (CCASS), which is one of the most important reforms to the risk management system introduced after the 1987 market crash. CCASS is an automated book- entry system that handles the settlement of securities among brokers. Its efficient operation was evident in late 1993 and early 1994, when the system was tested by the sharp increase in turnover in an exceptionally volatile market.

Both the stock exchange and futures exchange have introduced codes of conduct for their members. In addition, the SFC introduced a code of conduct that applies to all other persons registered under the Securities Ordinance and the Commodities Trading Ordinance in 1994. All these codes are based on the principles developed by the International Organisation of Securities Commissions, of which Hong Kong is a member.

The government and the SFC are taking steps to rationalise and update Hong Kong's securities and futures legislation into a coherent, well-organised and user-friendly corpus of securities law. A draft bill was being prepared during the year, with the aim of consulting the market on proposed changes in the course of 1995.

Transaction costs of securities trading decreased further during the year under review. Due to strong market activities, the statutory levy was reduced from 0.02 per cent to 0.013 per cent on the value of each purchase and sale of securities.

Hong Kong as an International Financial Centre

The favourable geographical position of Hong Kong, which provides a bridge in the time gap between North America and Europe, together with strong links with China and other economies in Southeast Asia and excellent communications with the rest of the world, have helped the territory to develop into an important international financial centre.

The absence of any restrictions on capital flows into and out of the territory is also an important factor.

Hong Kong's financial markets are characterised by a generally high degree of liquidity and operate under effective and transparent regulations which meet international standards. Hong Kong has a very strong presence of international financial institutions. At the end of the year, there were 148 foreign incorporated banks. Of the world's top 100 banks in terms of monetary assets, 85 have operations in the territory. In addition, 155 subsidiaries or related companies of foreign banks operate as restricted licence banks and deposit-taking companies.

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