ENG-2012 — Page 101

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Financial and Monetary Affairs

A-share ETFs with a total investment quota of RMB43 billion had been authorised as at the end of 2012, all trading under the Dual Counter model (ie Hong Kong dollar and RMB counters). In November, the China Securities Regulatory Commission further increased the RQFII investment quota by RMB200 billion, bringing the total RQFII investment quota to some RMB270 billion. The RQFII A-share ETF offers local and international investors alternatives to invest in the A-share market, expanding Hong Kong's RMB investment offering and reinforcing the city's role as the leading offshore RMB centre.

Apart from RQFII products, there were a number of other RMB product developments in 2012. In October, Hopewell Highway Infrastructure Limited's RMB-traded shares were listed on the SEHK (in addition to its Hong Kong dollar-traded shares), becoming the first RMB-traded share outside the Mainland. In December, the first derivative warrant traded in RMB was also listed on the SEHK. The RMB Currency Futures contract introduced for trading by the HKFE in September is based on the US dollar and CNH currency pair (ie offshore RMB exchange rate in Hong Kong), and was the world's first deliverable RMB currency futures to be quoted, margined and settled in RMB. The new futures contract helps RMB users manage their RMB exchange rate risk

exposure.

In 2012, the pilot scheme for eligible institutions (including the Clearing Bank and Participating Banks of Hong Kong RMB clearing platform) to invest in the Mainland's interbank bond market was extended to insurance companies in Hong Kong. So far, the HKMA, 39 Hong Kong banks and seven Hong Kong insurance companies have been permitted to invest in the Mainland's interbank bond market.

Mainland and Hong Kong Closer Economic Partnership Arrangement

The Closer Economic Partnership Arrangement (CEPA) between the Mainland and Hong Kong, which came into force in 2004, gives Hong Kong's financial service providers and professionals greater market access and flexibility for their Mainland operations. It has also enhanced Hong Kong's attractiveness to market users and strengthened the city's competitiveness as an international financial centre and the premier capital formation centre for Mainland enterprises.

On 29 June 2012, the Central People's Government and the HKSAR Government signed Supplement IX to CEPA, which further strengthened co-operation in the following financial services:

(a) Banking: allowing eligible Hong Kong banks to offer custodian services for settlement funds of customers of securities companies and margin deposits on futures transactions; allowing Hong Kong financial institutions to set up consumer finance companies in Guangdong Province on a pilot basis;

(b) Securities: allowing Hong Kong securities companies which satisfy the qualification requirements as foreign shareholders of foreign-invested securities companies, and Mainland securities companies which satisfy the requirements for establishing subsidiaries, to set up equity joint venture securities investment advisory companies. in the Mainland. The equity joint venture securities investment advisory company shall be a subsidiary of the Mainland securities company, the scope of business of

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