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The High Court today (Monday) sanctioned the merger terms of the Stock Exchange of Hong Kong and Hong Kong Futures Exchanges, paving the way further for the proposal to merge the Exchanges and the Clearing Houses.

The drafting of the Bill necessary for the implementation of the merger is in active progress and will be completed shortly. The Government wishes to obtain the approval of the Executive Council within this month for introducing the Bill to the Legislative Council for scrutiny early next month.

Speaking this at a briefing for the LegCo Panel on Financial Affairs on the 1999 Policy Address, the Acting Secretary for Financial Services, Mrs Rebecca Lai, said time was of the essence in order to prevent Hong Kong from lagging behind the fast changing international environment.

She said: "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."

The Bill will 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. Major provisions of the Bill include:

(1) To add a new class of regulated body in the name of "exchange controller" to the existing market regulatory framework, and to put such exchange controllers (i.e. those who hold or control over 35% of the voting power of any exchanges or clearing houses) under regulation. The Hong Kong Exchange and Clearing Ltd will be made the recognized exchange controller and will need to comply with the regulatory requirements;

(2) To formulate regulatory measures on exchange controller, and to empower the Securities and Futures Commission (SFC) to perform the regulatory function. Areas covered by the regulation include 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.

Consequential amendments will also be made to the existing securities-related ordinances, including Securities Ordinance, Commodities Trading Ordinance, Stock Exchanges Unification Ordinance and Securities and Futures Commission Ordinance.

Regarding the legislative reforms for the securities and futures market, Mrs Lai was glad to see that the public were generally supportive of the overall direction of the legislative reforms. The present 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 SFC and the Department of Justice are actively working towards this target.

On the proposals to enhance the financial infrastructure, Mrs Lai said to remain in the league of leading international financial centres in the new millennium, Hong Kong must reap the opportunities afforded by advances in technology.

She said a Steering Committee on the Enhancement of the Financial Infrastructure under the chairmanship of the SFC had completed a series of studies to enhance the financial infrastructure in Hong Kong. Its specific recommendations and the implementation timetable had been submitted to the Financial Secretary last week.

The recommendations include a single clearing arrangement, a straight-through processing of financial transactions and a scripless securities market. 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 cooperation of the securities and derivatives markets, etc.

"The Financial Secretary is considering the Steering Committee's recommendations. We will brief the Panel on details of the study shortly," said Mrs Lai.

On the human resources development in the financial services sector, Mrs Lai said the Steering Committee on the Feasibility Study on the Financial Services Institute had completed its study on the subject and had submitted its report to the Chief Executive last week.

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," added Mrs Lai.

End/Monday, October 11, 1999

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