ENG-2004 — Page 133

Financial and Monetary Affairs | 103

To foster debt securities settlement between the Mainland and Hong Kong, the HKMA signed an agreement in April 2004 with the China Government Securities Depository Trust & Clearing Co Ltd (CDC) to establish a direct link between the HKMA's CMU and CDC's Government Securities Book-entry System (GSBS). This is a one-way link from the GSBS to the CMU so that CDC members (including banks, trust companies and other financial institutions in the Mainland) that are authorised to invest in foreign debt securities may settle and hold Hong Kong and foreign debt. securities through the CDC's account with the CMU.

The Government is implementing measures to review the existing regulatory framework for offers of shares and debentures under a three-phased approach. Measures under the first phase involved the issuance of various facilitative guidelines by the SFC in February 2003, permitting awareness advertisements and putting in place a 'dual prospectus' structure. They also included two class exemptions by the SFC in relation to prospectuses for offers of debentures, which came into operation in May 2003. As for the second phase, the prospectus-related provisions in the Companies (Amendment) Ordinance 2004 came into operation in December 2004. Major improvement measures contained in the ordinance included exempting 12 types of offers from the prospectus regime, such as offers to 'professional investors' and offers to not more than 50 persons.

In the third phase, the SFC will conduct a comprehensive review of laws and procedures governing public offers of securities as well as regulatory reforms introduced in other leading jurisdictions, with a view to putting in place a framework that provides the most efficient, competitive and fair environment for issuers and investors alike. The SFC has started the review and aims to put forward proposals for public consultation in mid-2005.

The Government continues its efforts to develop the domestic and regional bond markets through active participation in ongoing international and regional initiatives. The HKMA, which has spearheaded the Asian Bond Fund Initiative under EMEAP since 2002, played a pivotal role in the launch of the US-dollar denominated Asian Bond Fund (ABF1) in June 2003.

In December 2004, the HKMA, together with 10 other member central banks and monetary authorities of the EMEAP Group, announced the launch of the domestic currency-denominated Asian Bond Fund (ABF2). All 11 members of the EMEAP Group will invest in the ABF2. The ABF2, which will have an initial size of US$2 billion, will invest in domestic currency bonds issued by all EMEAP economies except Australia, Japan and New Zealand. It will consist of a Pan-Asian Bond Index Fund (PAIF) and eight single-market funds. The PAIF will invest in domestic currency bonds issued by sovereign and quasi-sovereign issuers in the eight EMEAP economies, whereas the eight single-market funds will invest in the same type of bonds issued in the respective markets. Implementation of the ABF2 is divided into two phases. In Phase 1, investment will be confined to EMEAP central banks, whereas in Phase 2 the PAIF and the eight single-market funds will be open to investment by other public and private sector investors. EMEAP has decided that the PAIF and the Hong Kong fund will be listed on the Stock Exchange of Hong Kong. Hong Kong was chosen as