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Following is the speech (English only) by the Financial Secretary, Mr Antony Leung, at the SCMP Fund Manager of the Year Awards today (February 21):

Distinguished guests, ladies and gentlemen,

Thank you for inviting me here tonight to be part of this important annual event for the fund management industry. I would like to wish everybody 'Kung Hei Fat Choi' and a prosperous, healthy 'Year of the Horse'. We are all hoping that the Horse proves to be more profitable and predictable than the Snake. When I was a trader I usually enjoyed the ups and downs of the market, because profits come from market fluctuations, of course provided that you take the right position. Now that I have to look after the public coffers and the economy of Hong Kong at large, I welcome a more steady growth than the ups and downs of the past few years.

The past year has certainly been a particularly difficult one for investors. The September 11 atrocities sent markets around the world tumbling. The continued sluggish performance of the Japanese economy and the slowdown in the US have negatively impacted on Hong Kong and Asia in one way or another. But despite these setbacks and volatility, the markets in Hong Kong have continued to operate normally and smoothly. This is proof positive that we have a deep, mature and resilient financial services sector in Hong Kong. It is indeed an asset to be proud of; it is an asset we must protect and improve; and it is an asset that you here have all helped make a success.

But as they say, every cloud has a silver lining. An interesting statistic from Hong Kong's investment industry last year was the exceptional growth in the sale of guaranteed funds. About 3.8 billion US dollars of guaranteed fund were sold in 2001, accounting for more than 40% of gross fund sales. The fact that this type of investment instruments has witnessed such phenomenal growth in the past year shows that the fund management industry reacts quickly to introduce new and innovative products given the right market conditions and demand. That bodes well for the industry's future here in Hong Kong, especially in light of two important developments this year - China's continued opening up under its WTO agreement, and the introduction of a new regulatory framework for the securities and futures industry.

There is no doubt that there will be increased interest in the Mainland market now that China has entered the WTO. We believe that Hong Kong is the natural choice for Mainland enterprises looking to raise capital in the international market, through either equity or debt issue. We have a tried and tested legal system, a huge pool of financial services professionals and institutions, low taxes, and, importantly, a freely convertible currency. Similarly, we expect more international companies to make good use of this well-developed and sophisticated financial infrastructure when seeking to fund new ventures in rapidly-opening Mainland markets.

Perhaps the most important, long-term change this year will be the introduction of a new legal framework to underpin the development of our financial services industry. We look forward to early enactment of the Securities and Futures Bill in March. It is the result of three years' work that involved the active engagement of all market players as well as valuable input from Legislative Council members and the public. We hope to bring the new legislation into commencement later in the year when all necessary subsidiary legislation is in place.

The Bill has undergone extensive and thorough review of major policies and legal principles. It will provide us with a world-class regulatory framework that brings us into line with international norms and practices. It strikes a reasonable balance between protecting investors and facilitating market development. Moreover, it streamlines and removes unnecessary regulatory requirements; and ensures adequate checks and balances for regulatory powers.

Major points of the new law are: First, improved mechanisms to combat market misconduct through a system of checks and balances that enhance market integrity and investor confidence. A Market Misconduct Tribunal will be established to deal with a wider range of market misconduct than at present handled by the Insider Dealing Tribunal.

Second, increased market transparency to help investors make better informed decisions. For example, the disclosure threshold will be lowered to 5% from the current 10% of shareholding, while the notification period will be reduced to three days from the current five days.

Third, a streamlined, single-licence regime with better delineation of regulated activities. This will reduce compliance costs and enhance the professionalism of intermediaries.

Finally, a flexible and responsive regulatory framework that can respond well to market and product innovation. This will include a flexible and pragmatic approach to the regulation of automated trading services, as well as the use of appropriate subsidiary legislation or codes and guidelines as regulatory tools.

I am sure that the financial services industry will continue to grasp each and every opportunity to bring a wide range of new and innovative investment choices to the market. For example, the recent consultation paper by the Securities and Futures Commission on the offering of hedge funds has caused considerable interest for a product that offers room for growth in the coming years. The Hong Kong Exchanges and Clearing Limited is also introducing new types of Exchange Traded Funds and International Stock Futures and Options. These will provide opportunities for individuals and institutions to gain exposure to some of the world's leading financial products in a single marketplace in a convenient and cost-effective manner. All these will enhance our attractiveness as an investment and financial services centre for Asia.

Ladies and gentlemen, I suspect I may have spoken too long. Once again thank you for asking me to be here tonight. My heartiest congratulations to all those fund managers who find themselves on the winner's podium tonight. And may I also extend my sincere thanks to the South China Morning Post and Standard & Poor's for organising this prestigious event. By doing so they have helped to promote the fund management industry in Hong Kong, Asia's premier international financial centre.

Thank you very much.

End/Thursday, February 21, 2002

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