ENG-2000 — Page 125

FINANCIAL AND MONETARY AFFAIRS

a review of the compensation arrangements for investors in the securities and futures market with a view to setting up a new compensation scheme to achieve the goal. The SFC would consult the market in 2001 in working out the detailed arrangements for the scheme.

Process Review Panel for the Securities and Futures Commission

In an effort to enhance the transparency and accountability of the SFC, the Government set up in November an independent Process Review Panel to review the SFC's internal operations including its investigative procedures. The panel comprises 12 members appointed by the Chief Executive. They include nine independent, prominent persons from the securities and futures industry, the academia and the legal and accountancy professions, and three ex officio members including the Chairman and a Non-Executive Director of the SFC and a representative of the Secretary for Justice. It will make independent reports to the Financial Secretary on a regular basis.

The Hong Kong Dollar Debt Market

The Hong Kong dollar debt market continued to grow in 2000 amid signs of sustained economic recovery. The amount of Hong Kong dollar debt instruments outstanding at end-2000 was $473 billion, up by 7 per cent from $443.7 billion at end- 1999. Exchange Fund Bills and Notes accounted for 23 per cent of total outstanding amount in 2000, with the remainder composed of debt instruments such as negotiable certificates of deposit, bonds, floating rate notes and asset-backed securities, issued by statutory bodies, government-owned corporations, multilateral agencies, local corporates, authorised institutions, and overseas entities.

The total outstanding amount of Exchange Fund Bills and Notes was $108.6 billion at end-2000, registering a slight increase of $6.7 billion from end-1999. Demand for Exchange Fund paper remained strong. The average over-subscription rate for Exchange Fund Notes was about six times in 2000. In line with the movement of 10- year US treasury bond yields, the yield of 10-year Exchange Fund Notes declined. from 7.7 per cent at end-1999 to 6.5 per cent at end-2000. The yield spread remained. fairly stable at around 130 basis points. The daily turnover of Exchange Fund paper in 2000 averaged $23.6 billion, up 47 per cent from 1999.

Issuance activities of non-Exchange Fund paper remained active, contributed largely by increased activities of overseas entities, authorised institutions, and multilateral agencies. A total of $180.6 billion Hong Kong dollar debt issues were launched in 2000, compared with $155.1 billion in 1999. Of this amount, $79.7, or 44 per cent, was issued by authorised institutions, $57.1 billion, or 32 per cent, was issued by overseas entities, and $19.3 billion or 11 per cent, was issued by multilateral agencies. Fixed-rate debt issuance, excluding Exchange Fund paper, continued to dominate the market and contributed about 70 per cent of total new issues in 2000. The average maturity profile of all outstanding fixed-rate debt at end-2000 was similar to that in 1999.

The growth of the domestic debt market can be attributed to a combination of government initiatives and continued improvement in supply and demand conditions. The launch of the Exchange Fund Bills and Notes Programme in 1990 marked an important milestone in the development of the Hong Kong debt market. With the progressive expansion of the programme in subsequent years, a benchmark yield.

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