ENG-1996 — Page 119

FINANCIAL AND MONETARY AFFAIRS

and trade confirmation efficiency and has further expanded the availability of audit trails.

The Hong Kong Securities Clearing Company operates 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. The CCASS is an automated book-entry system that handles the settlement of securities.

Hong Kong as an International Financial Centre

Hong Kong's favourable geographical position, bridging the time gap between North America and Europe, together with strong links with China and other economies in South-East 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. The educated work force and the ease of entry for professional expatriate staff further contribute to the development of financial markets in Hong Kong.

Hong Kong has a very strong presence of international financial institutions. At the end of the year, there were 166 foreign-owned banks. Of the world's top 100 banks in terms of monetary assets, 80 have operations in the territory. In addition, 168 subsidiaries or related companies of banks operate as restricted-licence banks and deposit-taking companies, and 157 banks have representative offices.

Equally well established is the interbank money market. Wholesale deposits are traded actively both among local authorised institutions, and between local and overseas institutions, with an average daily turnover of $165 billion in 1996. The interbank money market is mainly for short-term money, with maturities ranging from overnight to 12 months, for both Hong Kong dollars and foreign currencies. The traditional lenders of Hong Kong dollars are mostly the locally-incorporated banks, while the major borrowers are foreign banks without a strong Hong Kong dollar deposit base. At the end of the year, the Hong Kong interbank market accounted for 19 per cent of the Hong Kong dollar liabilities of the banking sector.

The territory also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with other overseas centres enables foreign exchange dealing to continue 24 hours a day around the world. Based on the latest survey co-ordinated by the BIS, the daily average foreign exchange turnover in Hong Kong in April 1995 was US$91 billion, which represented six per cent of the world total. Hong Kong overtook Switzerland to become the fifth-largest in the world.

Hong Kong's derivatives market is among Asia's largest, reflecting the increased sophistication of its financial markets. Currency derivatives contracts (including forwards, currency swaps, options and futures) registered an average daily turnover of US$56 billion in April 1995 and the outstanding contracts amounted to US$970 billion. Interest rate derivatives recorded a turnover of US$18 billion per day and the

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