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Following is the translated version of the speech by the Acting Secretary for Financial Services, Mrs Rebecca Lai, delivered at LegCo's Financial Affairs Panel on the Chief Executive's 1999 Policy Address today (Monday):
Introduction
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Today, I will briefly talk about a few key areas stated in the Financial Services Bureau's Policy Objective Booklet. Then, a colleague of the Hong Kong Monetary Authority will report on their direction of work. My colleagues and I are happy to answer any questions from Members afterwards.
Overall Situation
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First, I would like to talk about the overall position of the policy area of the Financial Services Bureau, I will then brief you on the results of our work in the previous year. Maintaining monetary and banking stability in Hong Kong, continuing to improve the regulatory framework, improving the infrastructure required for a first class international financial centre and spearheading the further development of the financial markets are targets that we are committed to achieve. In the past year, we focused on these four areas and have undertaken 36 initiatives covering 44 items that we pledged to implement in 1998 or before. I am pleased to report to Members that 37 items have been completed or are being implemented according to schedule. Only 7 items are progressing behind schedule, two of them need extra time for revision to the proposal and further consultation arising from comments from the general public and the industries. Two have been withheld till the Mandatory Provident Fund Schemes Authority formally takes over the registration of occupational retirement schemes. One has changed its mode of service delivery to cater for the changing need of the society and another two items were delayed by slippage in the related computer information system. But, all in all, we have plans to complete all of them in the near future.
Briefly, achievements of the Financial Services Bureau in the last year included the following:
i. spearheading the reform of the securities and futures markets;
ii. implementing the measures recommended in the Report on Financial Market Review and under the 30-point programme;
iii. introducing the Securities (Margin Financing) (Amendment) Bill;
iv. the Hong Kong Monetary Authority (HKMA) has introduced seven technical measures to further strengthen Hong Kong's currency board arrangements and reduce possible instability of the interbank market and interest rates caused by speculative market manipulation;
v. the HKMA has completed a comprehensive review of the banking sector in Hong Kong and put forward an integrated package of strategic reforms;
vi. having developed a regulatory framework for the Mandatory Provident Fund System. The executive functions have been successfully transferred to the Mandatory Provident Fund Schemes Authority, which has embarked on the full range of work, including recruitment, setting up the information management system, the examination and vetting of product applications for approval, etc.
vii. continuing to review the Companies Ordinance and relevant legislations with a view to creating in Hong Kong an even more attractive business environment to investors.
viii. completing the study on the enhancement of our financial infrastructure;
ix. completing the study on the human resources development in the financial services sector;
On the first item, that is the demutualisation and merger of the exchanges and clearing houses, I would like to report on the progress and the legislative work ahead.
Demutualisation and Merger of the Exchanges and Clearing Houses
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The current securities and futures market comprises two Exchanges and three Clearing Houses. The two Exchanges are essentially mutual, membership-driven organizations. This market structure has served Hong Kong well for the last decade, laying a sound foundation for the enormous growth of the market. However, with the advancement in technology, the globalisation of the international financial market as well as the increasing sophistication of investors, our market has to face new challenges. As a result, our competitive advantages have been gradually eroded as the global market place evolves. To maintain our competitive edge and secure our position, we must reform the local market so as to maintain Hong Kong's leadership in the region and to reinforce our position as an international financial centre.
In delivering his Budget Speech in March, the Financial Secretary proposed to demutualise and merge the exchanges and clearing houses into a new public holding company, the Hong Kong Exchanges and Clearing Limited. A Policy Paper was published on the same day and another one in July proposing the details of the reform. Feedback from the market, the Legislative Council as well as the public at large has been clearly in support of the direction of the reform.
In the light of the need for the merger transaction, the Hong Kong Exchanges and Clearing Limited has been set up as a private company in July this year to prepare for the merger. Subsequently, members of the two Exchanges voted and approved by a majority the two scheme of arrangement documents for the merger on September 27. We are pleased to learn that the Court has sanctioned the merger terms this afternoon. Meanwhile, the Government is actively formulating a Bill to add new measures to the existing regulatory framework for the securities and futures market, with a view to accommodating the new market structure and ensuring efficient regulation, as well as making consequential amendments to the existing securities-related ordinances (including Securities Ordinance, Commodities Trading Ordinance, Stock Exchanges Unification Ordinance and Securities and Futures Commission Ordinance). Major provisions of the Bill include:
(1) To add a new class of regulated body in the name of "exchange controller" (i.e. one who holds or controls over 35% of the voting power of any exchanges or clearing houses) to the existing market regulatory framework; the Hong Kong Exchanges and Clearing Limited will be made the recognised exchange controller and subject to the relevant regulatory requirements;
(2) To formulate regulatory measures on exchange controller, and to empower the Securities and Futures Commission to perform the regulatory function. Areas covered by the regulation include, inter alia, the shareholding restriction in respect of an exchange controller, risk management mechanism, the appointment and removal of the chairman and the chief executive officer, the chief operating officer of an exchange controller, and mechanism for approval of fees;
(3) To make corresponding provisions to provide clear legal basis and procedures for the conversion of Hong Kong Clearing from a company limited by guarantee to a company limited by shares;
(4) To make consequential amendments to reflect the new market structure.
The drafting of the Bill is in active progress and will be completed shortly. The Government wishes to obtain the approval of the Executive Council within this month and introduce the Bill to the Legislative Council for scrutiny early next month. The Government aims to implement the merger by the end of January/early February next year. We wish that the relevant legislation would receive the support of the members.
Legislative reforms for the securities and futures market
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Regarding the legislative reforms for the securities and futures market, our aim is to introduce the composite Securities and Futures Bill into the Legislative Council by the end of this year. At present, the Financial Services Bureau, the Securities and Futures Commission and the Department of Justice are actively working towards this target. Apart from consolidating the existing laws governing the securities and futures market and modernizing the regulatory framework, the Bill will also introduce new measures to enhance disclosure, and facilitate the introduction of new investment products and new trading systems. These will help strengthen our competitiveness as an international financial centre. In the drafting process, we have consulted major trade and industrial organizations, market organisations, as well as professional bodies relating to the financial services sector on the major proposals under the Bill. Moreover, we have already started useful discussions with the Legislative Council Subcommittee on the Securities and Futures Bill on the proposals. We are glad to see that the public are generally supportive of the overall direction of the legislative reforms.
Improvement to the financial market infrastructure
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Next, I want to talk about how we propose to enhance the financial infrastructure in Hong Kong. With the advent of technology, the way that transactions in the financial markets are conducted are undergoing rapid changes. With a fully electronic financial infrastructure, we can overcome geographic constraints and conduct various financial transactions within the electronic network. This will not only be cheaper and faster, but can also enhance information flow, increase the transparency of the markets and greatly reduce the risks and help strengthen the stability and competitiveness of the marke. We envisage that to remain in the league of leading international financial centres in the new millennium, we must reap the opportunities afforded by advances in technology.
In his Budget Speech in March this year, the Financial Secretary announced the establishment of a Steering Committee on the Enhancement of the Financial Infrastructure (the Steering Committee) under the chairmanship of the Chairman of the Securities and Futures Commission (SFC). The Steering Committee has completed a series of studies to enhance the financial infrastructure in Hong Kong. On single clearing arrangement, the Steering Committee recommends to consolidate the stock options clearing platform and futures clearing platform, to upgrade the technology architecture of the current securities clearing system, and to establish integrated risk management and cross-market processing systems for the clearing operation of the securities and derivatives markets, etc. To achieve straight-through processing of financial transactions and a scripless securities market, the Steering Committee recommends to implement new systems to streamline procedures and reduce processing time, and to implement electronic share registration and encourage conversion of physical scrip into electronic records, etc. The Steering Committee submitted its specific recommendations and the implementation timetable to the Financial Secretary last week. The Chairman of the SFC will also announce the detailed recommendations of the Steering Committee tomorrow.
If the Panel is interested, we would be more than willing to arrange for a briefing on details of the study shortly.
Human resources development of the financial services sector
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Lastly, I would like to give a brief account of a study on the human resources development in the financial services sector. The Steering Committee on the Feasibility Study on the Financial Services Institute has completed its study on the subject and submitted its report to the Chief Executive last week.
According to the analysis of the Steering Committee, the problems besetting the financial services sector are the lack of communication between the sector and the training providers and the lack of an on-going mechanism to co-ordinate the supply and demand of training. The Steering Committee does not consider it necessary to set up yet another physical training institution to provide training courses especially for the financial services sector. This is to avoid duplication of resources or confusion over the role among existing tertiary institutions or training providers.
The Steering Committee proposes to set up a new advisory committee to enhance communication among the financial services sector and existing training providers, to co-ordinate the long term needs of human resources development and to promote relevant efforts in maintaining the competitiveness of Hong Kong as an international financial centre.
We are considering the recommendations of the Steering Committee and hope to come to a view soon on the establishment of the new advisory committee.
End/Monday, October 11, 1999
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