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FINANCIAL AND MONETARY AFFAIRS

payments and for payment versus payment (PvP) between Euro and US dollar or Euro and Hong Kong dollar foreign exchange transactions. The system also maintains a seamless interface with the Central Moneymarkets Unit (CMU) to cater for the delivery versus payment (DvP) of Euro denominated debt securities and repo facilities.

The CMU Service, established in 1990, is operated by the HKMA to provide a clearing and custodian system for Exchange Fund Bills and Notes, as well as private sector debt issues. There are 172 CMU members, most of which are financial institutions in Hong Kong. At year-end, there were 1 255 issues with a total value of $217.7 billion equivalent lodged with the CMU. The CMU system accepts both Hong Kong dollar and foreign currency denominated debt instruments. It has been fully integrated with the interbank payment systems, and is linked up with the international central securities depositories like Euroclear and Clearstream to enable overseas investors to trade CMU securities. It also has established links with the regional central securities depositories in Australia, New Zealand and the Republic of Korea. Through a seamless interface with the US Dollar and Euro RTGS systems, the CMU enables members to settle US dollar and Euro securities on a DvP basis, thereby enhancing settlement efficiency and eliminating settlement risk. The interface also enables automatic intraday repo to provide intraday liquidity to participants of the US Dollar and Euro RTGS systems.

Hong Kong Monetary Authority

The HKMA was established in April 1993. The Exchange Fund (Amendment) Ordinance 1992 provides for its establishment.

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 safety and stability of the banking system through the regulation of banking business and the business of taking deposits, and the supervision of AIs; and to promote efficiency, integrity and development of the financial system, particularly payment and settlement arrangements.

The HKMA is an integral part of the Government, but can employ staff on terms different from those of the Civil Service to attract personnel of the appropriate experience and expertise. Its staff and operating costs are charged directly to the Exchange Fund instead of the general revenue. The HKMA is accountable to the Financial Secretary, who is advised by the Exchange Fund Advisory Committee on matters relating to the control of the Exchange Fund.

The HKMA seeks advice on policy matters routinely from the Banking Advisory Committee and the Deposit-Taking Companies Advisory Committee. Both committees are established under the Banking Ordinance. They are chaired by the Financial Secretary and comprise members from the banking industry and other relevant professions. Members of the committees are appointed by the Financial Secretary under the authority delegated by the Chief Executive.

The Banking Ordinance provides the legal framework for banking supervision in Hong Kong. Under the ordinance, the HKMA is the licensing authority responsible for the authorisation and revocation of all AIs, as well as the approval and revocation of money broker licences. The HKMA seeks to maintain a regulatory framework that is fully in line with international standards. The objective is to devise a prudential