ENG-2000 — Page 124

FINANCIAL AND MONETARY AFFAIRS

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Government announced in March 1999 a comprehensive reform for the securities and futures market. The proposal for modernising the market structure through the demutualisation and merger of the two exchanges and their associated clearing houses was implemented in March. The HKEx as the merged entity is a performance and growth driven commercial entity. The HKEx was subsequently listed in June to ensure that it is subject to strict market discipline. As a commercial entity, it actively seeks to promote the development of the market and improve its competitiveness in order to respond to challenges arising from the globalisation of the financial market. Under the Exchanges and Clearing Houses (Merger) Ordinance, it is also required to perform important public functions to maintain a fair and orderly market and ensure prudent risk management.

Regulatory Reform for the Securities and Futures Market

30-point programme

In 1997, the Government proposed a series of measures under the Report on Financial Market Review and the 30-point programme with a view to further strengthening the regulatory and operation systems and enhancing the discipline and transparency of the securities and futures markets. With the co-operation and efforts of the SFC and the relevant market bodies, most of those recommendations have been completed. Most notably, three important pieces of legislation were enacted during the year. The Securities (Margin Financing) (Amendment) Ordinance, which brought securities margin financing activities and their operators under the regulation of the SFC took effect in June. In July, the Securities (Amendment) Ordinance, which serves to strengthen the regulation of short selling activities in Hong Kong came into operation. Two weeks later, the Securities and Futures Legislation (Provision of False Information) Ordinance also came into operation. The ordinance introduces offences for providing false or misleading information to the SFC or any of the front-line market operators, thus facilitating the performance of the regulatory functions of these bodies.

Securities and Futures Bill

In March 1999, the Government announced the regulatory reform for the securities. and futures market. After a year-long consultation, the Securities and Futures Bill was introduced into the Legislative Council in November 2000. The bill consolidated 10 existing ordinances governing the securities and futures market. Opportunity was also taken to add new elements of regulation into the bill, which included the introduction of a single licence for market intermediaries and the establishment of a more effective regime to combat market misconduct. The proposed regulatory framework would be on par with international standards. It would facilitate development of a fair, orderly and transparent market to promote market confidence; secure appropriate investor protection; reduce market malpractice and financial crimes; and facilitate innovation and competition. Early enactment of the Securities and Futures Bill would enhance Hong Kong's position as an international financial centre and the premier capital formation centre for the Mainland.

New Investor Compensation Scheme

The Administration places great emphasis on investors' protection. As a longer term objective to render better protection to investors, the SFC conducted during the year