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Following is a speech by the Financial Secretary, Mr Donald Tsang, at the unveiling ceremony for the new corporate logo of Hong Kong Futures Exchange today (Monday):

Dear Mr Wong, Mr Gilmore, ladies and gentlemen,

It gives me great pleasure to be here this evening as the guest of honour of this ceremony to unveil the new corporate logo of the Hong Kong Futures Exchange.

Corporate logo is a symbol that crystallises the values and mission with which an organisation identifies itself. By giving itself a new logo, the Hong Kong Futures Exchange manifests its renewed commitment to the development of Hong Kong's capital and derivatives market and sets out its vision for the future. I wish the Exchange every success in its future endeavours in helping to develop a matured financial market of international standing in Hong Kong.

Indeed, this is a good opportunity also for us to pay tribute to the leadership and management, present and past, of the Futures Exchange for their persistent efforts towards this significant cause. They have built an Exchange that is dynamic and responsive to market needs. They have put it firmly in the leading position in the region. Today, the Futures Exchange trades an average of more than 26,000 index futures contracts a day, and offers over 20 products including stock indices futures and options, currency futures and interest rate futures to its increasingly diversified clientele. The Futures Exchange also triumphs over its rivals in terms of liquidity, which is a great asset to any successful financial market.

The growth of the derivatives market has fundamentally transformed financial institutions' risk management and their customers have been able to lower their funding costs and structure risks to the desired level and configuration. As a result, "risks" and their accompanying "returns" have become tradable commodities, just like any other financial instruments, between those who wish to be covered from market volatilities and secure predictable returns and those who are willing to undertake the exposure with a view to exceptional yields.

For a mature financial market with depth and breadth, risk management has become an indispensable component. A well developed, liquid and orderly derivative market is essential to allow risks to be easily transferred at market prices from one investor to another. This in turn offers support for trading and turnover at the cash market and increases overall market stability and liquidity.

While we should welcome the phenomenal growth of the derivatives market over the last two decades, it does lead to concerns of market participants and brings new challenges to regulators. Such debate is of course not unfamiliar to you who are witnesses of the turmoil in the Asian financial market. Once I read this advice from a US writer, "To avoid stubbing your toes, walk backward". We have heard a lot of similar advice from different quarters of the society when experiencing the unprecedented volatility in our securities and futures markets in the last eight months or so. These views have suggested that we downsize our market, close out more risky operations and limit trading. These may offer some comfort to those who feel more at home with the traditional world of stocks and shares. But even they must accept that, in a free and open market, what has to go up will go up and what must go down will go down. For every assertion that derivatives magnify volatilities, there is an equally valid assertion that they do, in fact, smoothen volatilities.

In any case, the Government has made clear its response to these concerns in our Report on Financial Market Review, in which we reiterated our commitment to maintain Hong Kong as an international financial centre and recognised the useful roles that a properly run and well developed derivatives market plays in this context. At the same time, we also recognise the need for improvement in the market. In this connection, we welcome the initiative the Futures Exchange is taking to increase transparency of the market and enhance trading efficiency through the upgrading of its trading system and eventual migration of the trading of the Hang Seng Index futures contracts to the Automated Trading System.

Let me conclude by quoting a sentence from the letter from US General Patton to his son written on June 6, 1944, or the D-Day of the World War II. There General Patton advises his son, "Take calculated risks. That is different from being rash." I guess that also correctly summarises the futures market as well as the experience of life itself.

Thank you.

End/Monday, June 8, 1998

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