ENG-1997 — Page 112

FINANCIAL AND MONETARY AFFAIRS

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with a term of maturity of at least three months. At the end of December, there were 115 deposit-taking companies, with total deposit liabilities to customers of $14.5 billion.

Only members of the SEHK and the Hong Kong Futures Exchange Ltd (HKFE) may trade on the stock and futures exchanges respectively. At year's end, the SEHK had 555 corporate and individual members while the HKFE had 137 members.

Securities transactions on the stock exchange are executed by the Automatic Order Matching and Execution System. SEHK members began trading via a second terminal located in their own offices in January 1996. The system has not only supplemented those terminals already available on the trading floor, but also greatly enhanced order entry and trade confirmation efficiency and further expanded the availability of audit trails. In 1997, almost 63.2 per cent of transactions on SEHK were done by the second terminal.

The SEHK launched two new products for trading in 1997 regional derivative warrants and convertible bonds to further enhance Hong Kong's status as the regional capital raising centre. The government has exempted the transactions on these products from stamp duty with a view to facilitating their development in Hong Kong. By end-1997, 21 regional derivative warrants were listed on the SEHK.

The HKFE linked up with the Philadelphia Stock Exchange in April 1997 to allow the latter's currency options contracts to be traded in Hong Kong during Asian business hours and with the New York Mercantile Exchange in June on the trading of futures contracts of petroleum and other commodities locally. The trading of Hong Kong Inter-bank Offer Rate futures contracts was also changed from the outcry system to the Automated Trading System in September.

The Hong Kong Securities Clearing Company (HKSCC) 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. It is an automated book-entry system that handles the settlement of securities. To further enhance its services, the HKSCC was working on the implementation details to gradually extend CCASS to retail level investors in the second quarter of 1998.

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 impediments of a bureaucratic or fiscal nature.

The Hong Kong Monetary Authority (HKMA)

The HKMA was established in April 1993 by merging the Office of the Exchange Fund with the Office of the Commissioner of Banking. The Exchange Fund (Amendment) Ordinance 1992 provided for the establishment of the HKMA.

The HKMA's policy objectives are to maintain currency stability, within the framework of the Linked Exchange Rate System, through sound management of the Exchange Fund, monetary policy operations and other means deemed necessary; to ensure the safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of