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Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Conference on Asian Securities Lending by Pan Asia Securities Lending Association and Risk Management Association today (March 24) (English only):
Welcome distinguished guests, ladies and gentlemen, a very good morning to you all. For those participants coming from other places, welcome to Hong Kong. Besides having a productive business programme, I sincerely hope that you will have a pleasant and fruitful stay in this international city.
I am honoured to be invited by the Pan Asia Securities Lending Association (PASLA) and the Risk Management Association (RMA) to address this conference on Asian Securities Lending.
My compliments to the organisers for picking the right time and the right place for this important event. Imagine, a year ago this conference would not have been possible in Hong Kong or in many other cities in Asia given the outbreak of SARS. We have come through a difficult period, but with the concerted efforts of the whole community, Hong Kong's economy staged a V-shaped rebound over the past few months. Consumer and investor confidence has picked up. The average daily turnover of the Stock Exchange of Hong Kong significantly increased to some HK$20 billion in January and February, 2004. In its recent assessment, the International Monetary Fund (IMF) reaffirmed its growth outlook of Hong Kong. We have exceeded IMF's upside potential forecast of 4.5 to 5% GDP growth in 2004, and adjusted it further upwards to 6%.
The Hong Kong Advantage
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Allow me to spend a few moments to tell you why I believe Hong Kong is the right place for your business. As the equation goes for most businesses - the more investment there is, the more borrowing and lending activities, including on securities.
Here I am most optimistic for Hong Kong as a destination in Asia in attracting investment. Our strong economic rebound demonstrated not just the resolve of Hong Kong people, but Hong Kong's advantage in leveraging on our special relationship with the Mainland while engaging the world at large. The new page of economic co-operation, under the Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA) signed last summer, reinforces and re-engineers Hong Kong's traditional position as the "gateway" to the Mainland. CEPA provides Hong Kong with "first-mover" advantages in the further opening up of the Mainland market. On the goods front, CEPA enables over 370 Hong Kong-made products to be exported to the Mainland tariff-free.
On the services front, CEPA provides our professionals and businesses in a wide range of service sectors with WTO-plus market access to the Mainland. It encourages further co-operation in banking, securities and insurance sectors between the two places.
For instance, notable achievements have been made in the banking sector. The substantial lowering of the total asset requirement would enable 7 additional Hong Kong banks to access the Mainland market. Since last month, over 30 banks in Hong Kong are allowed to conduct personal RMB business. Total RMB deposits in Hong Kong have already exceeded RMB 2.5 billion.
For the securities sector, besides facilitating our securities professionals in attaining Mainland qualifications, CEPA further supports listing of qualified Mainland enterprises in Hong Kong. Hong Kong is privileged to have developed into the largest listing and trading centre for shares of Mainland enterprises outside the Mainland. Over the past decade or so, Mainland enterprises have raised more than HK$790 billion in Hong Kong. With the continued economic development and market reform in the Mainland, some analysts expect that the size of the offerings of Mainland enterprises in Hong Kong will only continue to grow.
Our advantage goes beyond our strategic relationship with the Mainland. Hong Kong is keen to engage the world at large and maintain our position as an international financial centre:
* We are committed to the rule of law and a simple personal and corporate tax regime.
* We are committed to free trade, free flow of information, a stable and freely convertible currency, and fair competition.
* We are committed to a robust yet light regulatory regime, market integrity and corporate governance.
* Last but not the least, we are committed to a small Government that is responsive to financial sector concerns.
As a result of the above, we have attracted the right critical mass of financial institutions and financial service providers, including the audience this morning, which provides abundant supply of professional support services.
While we are reaping our advantages, the fact that Hong Kong plays a key role in fostering Mainland's economic development is often overlooked - our professionals provide a high standard of expertise and a global outlook. Thus, the listing of Mainland companies in Hong Kong helps upgrade the standards of corporate governance of Mainland enterprises. The benefits are mutual.
Deepening Our Advantage
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We have been striving, not only to sustain, but also to strengthen our advantage. Our Chief Executive, Mr Tung Chee-hwa, has set out in his Policy Address earlier this year our ambition to become a world-class international asset management centre. As you may be aware, Hong Kong is already a major private banking centre in Asia. In 2000, one survey showed that Hong Kong captured some 5% of internationally invested private wealth and ranked first in Asia. Our fund management industry has also achieved rapid growth in the recent years. There is a report that with more new funds launched and significantly more capital raised in 2003, Hong Kong is consolidating its position as a dominant hedge fund centre outperforming its Asian counterparts. In fact, the strengthening economic co-operation with the Mainland would ensure that Hong Kong is well placed to meet future challenges. In order to attract more capital, the government has already made clear its intention to exempt offshore funds from profits tax and is studying the possibility of adjusting estate duty. Following the guiding principle of "market leads and government facilitates", we welcome suggestions from the market as to the areas where we can further improve our advantage.
Another important initiative of the government is to develop and deepen the development of our bond market to further enhance Hong Kong's position as an international financial centre. Since my appointment as the Secretary for Financial Services and the Treasury, I have spearheaded a series of measures to foster the development of the Hong Kong bond market so as to provide more diversified investment choice for our retail and institutional investors, which would in turn promote local demand for these financial products and encourage more enterprises from other parts of the world to come to Hong Kong to issue bonds. This not only helps to attract overseas capital, but also enhances the overall stability of our financial markets.
The government has achieved much progress in this respect, including the provision of the necessary financial infrastructure, a simplified issuance process and tax incentives. Apart from expanding the avenues for retail issues, the government will continue to encourage public corporations to issue bonds and will itself issue different types of instruments such as securitisation and government bonds. I have paid particular attention to the distribution of bonds at the retail level (e.g. through banks and brokers) in order to provide an additional investment option to the public.
With all the well-known strengths I mentioned earlier, Hong Kong is well-positioned to develop into a regional bond centre for investors and issuers from various parts of Asia, in particular the Mainland. Indeed, we are seeing more and more investors and issuers in Hong Kong, from the Mainland or the rest of the region participating in our bond market. I envisage that this trend will sustain and accelerate in the years to come.
Securities lending
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I worked in the banking sector for some years before I took up the current office in 2002. I can appreciate the positive market function of borrowing and lending of securities in mitigating risks, thereby enhancing market liquidity and price efficiency. Securities lending also makes attractive commercial sense as it provides lenders with low risk yield enhancement to their portfolios. At the same time, there remains varying degrees of uncertainty or scepticism about the nature of securities lending and the related short-selling transactions, which partly explains the less than developed market in Asia. I believe events like today's conference will be helpful to promote understanding of the industry.
I believe the key to healthy development of the industry lies with a high degree of market transparency and accurate disclosure of price sensitive information to help investors assess risks and returns. We have been mindful of this objective when we devised the regulatory regime for stock borrowing and lending and other short-selling transactions in the course of the enactment of the brand new Securities and Futures Ordinance, which we are about to celebrate its anniversary in operation. I wish to take this opportunity to thank the PASLA and other market participants for their giving us very valuable advice during the legislative process.
The government recognises that the regulatory regime has to evolve in step with market development and needs, in order to ensure that it continues to be user-friendly and effective in ensuring market quality. Accordingly, in response to market demands, the SFC has introduced rules which came into operation last year to make possible short selling exemptions for all types of market-making and related hedging transactions. This will make it easier for market makers to perform their functions, which will in turn help provide liquidity to the markets. The rules have also introduced alternative means for sellers placing short selling orders pursuant to a stock borrowing and lending agreement to comply with the short selling reporting requirements and to enable timely execution of transactions. Furthermore, I chair a Financial Market Development Task Force in the government which co-ordinates various initiatives for the development of Hong Kong's financial markets. On the agenda are various initiatives to facilitate the growth of securities market by addressing bottlenecks and removing any hindrance to the market. These include:
* The possibility of improving the disclosure regime to minimise the compliance burden of certain classes of participants in securities borrowing and lending market without compromising investor protection;
* Following on the tick rule exemptions granted to certain market-neutral transactions, the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEx) are jointly considering the possibility of making further exemptions from the tick rule in response to any market demand; and
* HKEx is soliciting views from market participants on the need for a centralised stock borrowing and lending facility for a more efficient and effective operating platform for trade execution.
Here one point deserves emphasis. While we fully support all these market-friendly initiatives, we are aware that the systemic risks associated with short-selling are in equal measure, we would definitely need the enforcement of the regulators and the co-operation of market players in ensuring the fairness and transparency during the conduct of investment activities.
Concluding Remark
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I will leave it to Mr Mark Dickens, the next speaker to elaborate further on these initiatives. Suffice to point out that the government is keen to facilitate market development in order to reinforce our status as a major international business and financial centre. At the same time, I see Hong Kong's fundamental advantage is in having the rule of law, a robust regulatory regime, good market integrity and discipline. Here I count on market participants like you to co-operate with us in maintaining Hong Kong's competitive edge.
I am very happy to join you all today and give you a warm welcome. Noting you have a very rich programme these few days, I hope you enjoy the candid exchange of views among yourselves. Thank you very much.
Ends/Wednesday, March 24, 2004
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