FS' Statement on Report on Penny Stocks Incident

*****************************************

Following is a statement made by the Financial Secretary, Mr Antony Leung, on the report of the Panel of Inquiry on the penny stocks incident at the Central Government Offices this (September 10) afternoon:

FS: Good afternoon, First of all, I must take this opportunity to thank the two panel members - Mr. Robert Kotewall and Mr. Gordon Kwong - for their dedication and excellent work in the independent inquiry. They have completed the inquiry and prepared the Report under a very tight time schedule.

I believe that the inquiry has been conducted in a comprehensive, impartial and fair manner. The Panel has received a total of 71 written submissions from 20 organizations and eight individuals. It has also interviewed 11 individuals, including myself. The length of the Report and the different angles it has considered has spoken for the thoroughness of the proceeding of the Panel.

I accept the Report and its findings, and I welcome its recommendations. The Report has provided a detailed account of the incident and the Panel's views on the roles and responsibilities of parties involved. I have pledged to the Chief Executive this morning that I will carefully study the findings and recommendations of the Report in detail and review the incident. I hope that all parties will learn from this experience, and work better in the future.

I must reaffirm the importance of maintaining Hong Kong's position as a premier international financial center. As I mentioned in my Budget Speech, the financial services sector is a major driver of our economy. To enhance the quality of our financial markets and reinforce our position as the fund-raising centre of high liquidity in the region, we need to keep on moving forward with our reform measures. The early completion of the Report has cleared an obstacle to the further reforms of our financial markets.

Given my overall responsibility for financial and monetary policies, I will continue to closely monitor market reforms at policy level. I will ensure that the Financial Services and the Treasury Bureau, the Securities and Futures Commission, the Hong Kong Exchange and Clearing Limited and market participants will work closely with each other, and the Government will perform its role as a facilitator and coordinator under the three-tier regulatory structure.

I expect the SFC and the HKEx will continue to consider initiatives to improve our markets along the direction of enhancing corporate governance and accounting standards of listed companies, improving regulatory environment, improving regulatory enforcement, streamlining procedures for listing, and providing a mechanism for delisting of companies of unacceptable quality.

I have expressed support for market reforms along the above directions, including the introduction of a mechanism for delisting. And I will continue to do so. I expect the HKEx and the SFC will take full account of the relevant findings and specific recommendations of the Report in taking the matter forward.

The Panel has made a number of other recommendations in the Report, and I will carefully consider how to take them forward. For instance, the Panel considers that the three-tier system itself is sound, but there is room for some refinements and improvements in specific areas, particularly in respect of the division of responsibilities between the SFC and HKEx over listing matters. Moreover, I also note that the Panel recommends the Government to clarify the relationship and division of responsibilities between the Financial Secretary and the Secretary for Financial Services and the Treasury, both from statutory and organizational points of view. We shall study the relevant recommendations carefully, and consider the best way forward.

(Please also refer to the Chinese portion of the statement)

End/Tuesday, September 10, 2002

NNNN