ENG-1999 — Page 122

FINANCIAL AND MONETARY AFFAIRS

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system is overseen by the Sub-Committee on Currency Board Operations of EFAC which was established in August 1998. The sub-committee may also, through EFAC, recommend to the Financial Secretary, where appropriate, measures to enhance the robustness and effectiveness of Hong Kong's currency board arrangements.

The HKMA pursues a policy of transparency to ensure that the financial industry and the wider public are fully informed of the currency board operations and to instil public confidence on the link. The Aggregate Balance has been disclosed on a virtually real time basis since December 1996, when the RTGS system was launched. Forecast changes to the Aggregate Balance as a result of foreign exchange transactions have also been published daily since June 1998. Furthermore, starting from November 1998, the size of the monetary base and its components have been published daily, and the records of the meetings of the Sub-committee on Currency Board Operations have been published within six weeks of each meeting. The Currency Board Account has also been published monthly since March.

In early September, the HKMA announced the introduction of an enlarged Discount Window and a term repo facility in the fourth quarter of 1999 to relieve potential pressures in the money market arising from concerns related to Year 2000. The enlarged Discount Window increased the amount of Hong Kong dollar liquidity that could be obtained by licensed banks through the Discount Window by temporarily removing the existing restriction on repeated borrowing and enlarging the pool of debt securities as eligible collateral. The enlarged Discount Window was available from November 15, 1999, and would be available until January 31, 2000. The term repo facility, which was available from December 1, 1999 and would be available until January 31, 2000, allows licensed banks to obtain in advance Hong Kong dollar liquidity from the HKMA for the year-end at a known price. These facilities were structured in such a way as to maximise consistency with currency board discipline.

Asian Financial Turmoil

The financial market of Hong Kong continues to recover from the Asian financial turmoil while at the same time the Government continues to pursue the implementation of various improvement measures introduced in the wake of the financial crisis.

Regulation of securities margin financing activities

In late 1997, the administration had commenced the study on the regulatory issue in relation to securities margin financing activities and their operators. The collapse of the C. A. Pacific Group, which operated, inter alia, securities dealing and margin financing businesses, added urgency and impetus to the study. A proposal on the regulation over securities margin financing was put to public consultation in May 1998, which seeks to subject the activity and its operators to the regulation by the SFC. Under the proposed regulatory framework, such operator would in future be required to be registered with the SFC and comply with more stringent financial resources and business conduct requirements. The relevant legislation has been submitted to the Legislative Council in late 1999 and is expected to be enacted in early 2000.