ENG-2002 — Page 127

FINANCIAL AND MONETARY AFFAIRS

objectives: the development of an efficient and robust market infrastructure; the improvement of connectivity and interoperability of market infrastructure; and the capture of superior liquidity.

The Government, together with the SFC, the HKMA and the HKEx, is pressing ahead with the implementation of the SCEFI II recommendations.

On scripless trading, a public consultation ended in May. A legislative framework is being put in place to provide the enabling legal environment.

Human Resources Development

A robust physical infrastructure cannot function effectively without the input of trained persons of the right calibre. Hong Kong needs to have a workforce that is adaptable and well-equipped to meet future challenges and to reap the benefits offered by new opportunities. The Advisory Committee on Human Resources Development in the Financial Services Sector was established in June 2000, tasked with the mission to develop a vision on human resources development in the financial services sector. The Advisory Committee coordinated an internship programme for local university students in the summer. It has also sought the assistance of the Vocational Training Council in collecting more statistics on the manpower situation in the banking and finance industry.

Hong Kong Dollar Debt Market

The Hong Kong dollar debt market continued to grow in 2002. Outstanding debt increased by 8 per cent to $532 billion at year-end. The Exchange Fund accounted for about 22 per cent of the total outstanding debt. Other issuers included AIs, statutory bodies or government-owned corporations, multilateral development banks (MDBs), non-MDB overseas borrowers and local corporations.

New issuance of Exchange Fund paper, mainly for rollover purposes, amounted to $216 billion in 2002, accounting for about 55 per cent of the total new issuance. Demand for Exchange Fund Notes remained strong, with an average over- subscription rate of about 4 times in 2002. In line with the movement of the 10-year US Treasury yield, the yield of 10-year Exchange Fund Notes declined to 4.4 per cent at the end of 2002 from 6.2 per cent in 2001. The yield spread tightened to about 57 basis points in 2002, compared with 119 basis points in 2001. The daily turnover of Exchange Fund paper in 2002 averaged $22 billion.

Issuance activities of non-Exchange Fund paper increased in the year, given the low interest rate environment and ample liquidity in the financial system. Hong Kong dollar debt issues launched in 2002 totalled $180 billion, compared with $152 billion in 2001. Of this amount, $71 billion or 40 per cent was issued by AIs, $73 billion or 41 per cent was issued by non-MDB overseas borrowers, and $22 billion or 12 per cent was issued by statutory bodies or government-owned corporations. Alongside the rise in issuance activity was an expansion in the product range. The year saw the launch of a significant number of structured deals, such as step-up bonds with callable features and floating-rate issues with caps and/or floors. Retail interest in fixed income securities was also strong. Following the Hong Kong Mortgage Corporation retail bond issue of November 2001, a number of entities, including the Airport Authority, the MTR Corporation Limited and Wharf Holdings, issued retail bonds, while a number of banks issued retail certificates of deposit. Fixed-rate debt continued to dominate the market and constituted about 80 per cent of total new issues in 2002.

91