Following is the full text (English only) of the keynote address delivered by the Financial Secretary, Mr Antony Leung, at the 2001 Conference of the Asian Securities Analysts Federation (ASAF): "Asia - The Third Global Financial Zone" this (December 3) morning:
Positioning Hong Kong in the Global Markets
Distinguished Guests, Ladies and Gentlemen,
It is a privilege for Hong Kong to once again host the Asian Securities Analysts Federation conference. Compared to 15 years ago when Hong Kong last hosted the conference, the world financial markets have changed dramatically to become inter-connected and globalised. With the imminent accession of China to the WTO, it is timely and appropriate to discuss the theme of this year's conference: "Asia - The Third Global Financial Zone".
We start off this conference on a determined and focussed note after the terrible events of September 11. Global and regional markets have weathered the aftershocks quite well although a number of markets suspended trading in the immediate aftermath of the attack. Hong Kong markets were open for business. As in the case of markets around the globe, it experienced huge volatility. However, the fact that one, there was no global financial meltdown; and two, most markets have recovered their losses stemming from the attacks within a month shows the resilience and stability of global markets in general.
Financial trading today continues almost around the clock. After the New York market closes, a calm descends and there is a brief lull in the dynamic and frantic pace of trading before dawn breaks over Asia and trading begins anew. This means that savvy international traders do not get much sleep as fresh opportunities are waiting in our time zone, the Asian Time Zone. It is thus vital that Asian markets move in harmony with major markets such as New York and London to attract global investors and traders.
Trading communities everywhere are seeking their place in the global markets and we in Asia are no different. As we are well aware, globalisation and technology are having significant impact on the changing landscape of financial markets.
Increasing importance of information technology
Technology has accelerated the pace of globalisation. In the past five years we have witnessed the revolution of the Internet and cutting edge advances in telecommunications. Technology has brought the world to our doorstep. It has transformed trading communities once separated by vast distances into an easily accessible global village.
Technology and the need for efficiency will continue to replace outmoded and inflexible systems quickly in all industries, including financial markets. With the aggregate pool of financial assets invested in markets around the world totalling about 33 trillion US dollars - most of it concentrated in the top 10 markets - it is not surprising that the old labour-intensive trading structures are unable to cope with the weight of today's volumes.
Further, with advanced electronic trading systems becoming commonplace, trading is no longer constrained to just one time zone. Investors need to search for value and connect with liquidity in a faster and easier manner. They want instant voice communication, real time global market information, speed-of-thought trade execution and efficient settlement processing.
Big players dominating markets
Parallel to the increasing demand on technology, investors today have also become more sophisticated on service level. They require one-stop customer-focussed service. They require contracts to be executed in their own time zones or home jurisdictions. They want access to a variety of products on a single trading platform that is interconnected and compatible with their own systems.
Exchanges need to cater to the needs of investors as the structure of the industry is undergoing significant changes. With financial industry consolidation and institutionalised savings, global players with multi-billion dollar portfolios will further leverage on their global reach, influence and brand recognition. They will become increasingly dominant on trading, clearing and settlement world-wide.
Top-tier global financial firms are already teaming up to form electronic trading operations, creating alternative exchanges and supporting straight-through processing and faster settlement. This provides competition and will ultimately impact on the profitability and local niche advantage of the regional exchanges in Asia.
Alliances and consolidation
As a result of all these developments, it is becoming increasingly apparent that the physical presence of an exchange can no longer guarantee the inflow of investors. Infrastructure and systems that have the flexibility, capacity and capability to satisfy the ever-increasing demands of globalised investors will be a norm and a minimum requirement. Only those financial markets that can successfully address the needs of the investors stand to gain the critical mass necessary for vibrant and robust markets.
Facing increasing global competition, many exchanges have recognised the need to transform themselves into a commercially-oriented and profit-driven organisation through demutualisation and public listing. This would enable them to obtain the necessary management structure and financial resources to meet the competition and expand the scope and reach of their businesses. It also facilitates the needed consolidation of trading and settlement. All these will deliver substantial benefits of greater efficiency, cost savings and economies of scale.
We have also seen exchanges engaging in alliances and acquisitions to capture new growth opportunities. These are effective means to rapidly enter into new businesses and grow market share. Choosing the right alliances is crucial to the competitiveness of the exchanges. Undoubtedly, such trend will continue.
To sum up, the way that the global financial markets function is changing rapidly. This sends a clear signal to all of us that the ball is in our court to meet these challenges.
Hong Kong as an international financial centre
Having a long history in the development of a free and open economy, Hong Kong markets are built to cater for local, regional and international needs. Strong market participation is the main attribute to Hong Kong's status today as an international financial centre and a leading commercial hub of the region. Moreover, since the 1980s, Hong Kong has prospered in its role as the gateway and bridge between Mainland China and the world for trade and investment flows. Investors are assured of our first-class infrastructure, our efficient workforce, our stable and convertible currency and the rule of law.
As at today, Hong Kong has the 10th largest stock market in the world. It is also the third largest stock market in Asia after Japan and Mainland China. If combined with Mainland China, we would be ranked 5th in the world with a market capitalisation of 992 billion US dollars, just behind the United States, Japan, the United Kingdom and Euronext.
However, Hong Kong must continue to adapt to the fast changing globalised world. We are pursuing a number of key initiatives to enhance the quality of our markets and build upon our status as an international financial centre.
First of all, Hong Kong is replacing its old patchwork of securities laws with a new Securities and Futures Bill. The new Bill is designed to provide a coherent and comprehensive legislative and regulatory framework for Hong Kong's markets. It aims to deliver a high standard of supervision and investor protection, and yet allow flexibility to anticipate and respond to rapid changes in the market. In this way, the new framework would ensure fair, orderly and transparent markets, while promoting competition and innovation.
The Bill will introduce a wider range of disciplinary powers and tighten up disclosure obligations by shareholders and directors of listed companies. It will also empower the Securities and Futures Commission to set rules and guidelines to regulate various types of electronic trading systems. Particularly, it will adopt a flexible and pragmatic regulatory approach on alternative trading services.
Secondly, we will continually direct resources to building a world-class financial infrastructure. An advanced telecommunication network between Asia and major global markets is essential for the smooth functioning of the financial markets. To this end, we established the Steering Committee on the Enhancement of Financial Infrastructure in March 1999. The mission of the Committee is to implement the vision of a financial infrastructure that will allow local and global market participants to access the full spectrum of financial products and services, interconnected by an open, robust, secure, scalable and high performance network.
Our target financial infrastructure includes four main components, including:
*a single clearing arrangement for better risk management,
*end-to-end straight-through processing for cost-effectiveness,
*a scripless securities market for enhanced efficiency and legal certainty, and
*an open, robust and secure financial services network for local and remote connectivity.
We are now well advanced into the implementation stage. Once implemented, Hong Kong will have one of the most modern, efficient and robust financial infrastructures in Asia.
Thirdly, we are proactively strengthening the corporate governance regime in Hong Kong. Our regulators and policy makers are making a concerted effort to raise corporate governance standards through changes in the rules, regulations and laws. The Standing Committee on Company Law Reform is conducting an overall corporate governance review and will make recommendations on changes in the company law.
We are careful not to over-regulate our market. However, there is no doubt that we will spare no effort in removing asymmetries in the market and in combating misconduct, with a view to sustaining a level-playing field.
Fourthly, we are working on the introduction of more types of financial products and services to the markets. The Hong Kong Exchanges and Clearing Limited is introducing new products like Exchange Traded Funds and International Stock Futures and Options. These new products provide opportunities for individuals and institutions to gain exposure to some of the world's leading stocks in a single marketplace in a convenient and cost-effective manner.
While Hong Kong is facing keen competition from our counterparts in other countries, Hong Kong stands ready to face the challenges. Hong Kong is a marketplace where the East truly meets the West. Most, if not all, the big players including top tier international financial institutions have set up their regional headquarters in Hong Kong. We have also a large pool of vibrant local companies operating from Hong Kong. They have made very successful debuts into other world markets. All these companies add depth to our markets. We welcome their continued active participation.
Looking forward, I am confident that the unparalleled growth of the Mainland China's economy, especially after its imminent accession to the WTO, will have a positive impact on Hong Kong and the whole of Asia in general.
China will continue to need substantial amount of capital for its sustained economic restructuring and reforms. Hong Kong can continue to serve as its premier fund-raising centre. In recent years, the majority of the funds raised through Initial Public Offerings in Hong Kong have been for China-related companies. By the end of the third quarter in 2001, China-related enterprises accounted for 27% of the main board market capitalisation in Hong Kong. In addition, Hong Kong also acts as the regional management and product development centres for many Mainland enterprises.
Our large talent pool of financial professionals also stands ready to meet the Mainland's huge requirements for training and education of its financial industry. With ever-closer cooperation and stronger ties with the Mainland, Hong Kong looks forward to playing an ever more significant role in the growth of the Mainland market to the benefit of all concerned.
Ladies and Gentlemen, there are many challenges ahead for Asia in becoming the Third Global Financial Zone. The next three days present an opportunity to learn from the leaders and experts in the field and to share experiences. I wish the conference every success and all of you an enjoyable and memorable stay in Hong Kong. For those who have come from other places, please do get to see more of Hong Kong during your time in our small but fascinating and vibrant city, and contribute to our GDP. Remember, your family or your friends back home are probably expecting that you bring them Christmas gifts from one of the best shopping cities in the world.
Thank you very much.
End/Monday, December 3, 2001