ENG-2011 — Page 116

80 | Financial and Monetary Affairs

Developing a Scripless Securities Market

The Scripless Securities Market Working Group comprising representatives from the SFC, the HKEX and the Federation of Share Registrars Limited announced in September 2010 plans to implement a scripless securities market in Hong Kong. The new paperless option will enable investors to hold securities in their own names as registered holders, thus enjoying the full benefits of legal ownership. In 2011, the working group worked on the details of the operational and technical processes and requirements, and examined draft enabling legislation, for the introduction of a scripless securities market.

Development of the Bond Market

The Government boosted development of the bond market in recent years by providing it with the necessary financial infrastructure, simplifying the issuance process, optimising regulatory arrangements, offering tax incentives, encouraging public corporations to issue bonds and strengthening education for bond investors. To better meet the market needs and to enhance the competitiveness of Hong Kong's debt market vis-à-vis those of other financial centres, the Government implemented some improvements to the Qualifying Debt Instrument (QDI) Scheme, under which profits tax concessions are provided to certain types of debt instruments meeting the relevant conditions in the Inland Revenue Ordinance (IRO). The improvements implemented in March 2011 include the extension of the 50 per cent profits tax concession to short-dated QDIs with a tenor of less than three years and the modifications of certain conditions/definitions governing the implementation of the QDI Scheme.

Under the Government Bond Programme (GBP) introduced in 2009, the Government is authorised to issue bonds with an aggregate outstanding principal of up to $100 billion and to have a Bond Fund to manage the sums raised under the GBP5

In 2011, six issues of Government bonds for institutional investors were made under the GBP, attracting a diverse group of investors.

Following the announcement in the 2011-12 Budget, the Government issued $10 billion inflation-linked retail bond (iBond), with a tenor of three years, for the first time under the GBP to Hong Kong residents in July 2011 to promote further development of the retail bond market in Hong Kong. The iBond was well-received by investors, attracting some 155 000 valid applications for about $13 billion in principal amount of the bond.

Outstanding Hong Kong dollar debts, including EFBNS, exceeded $1,261 billion at the end of 2011.

The Bond Fund is not treated as part of the fiscal reserves and is managed separately from other Government accounts. It is used to repay principal, meet the financial obligations and liabilities associated with the GBP, and make investments.