****************************
Following is a transcript of the remarks made by the Financial Secretary, Mr Donald Tsang, while attending the meeting of the LegCo's Financial Affairs Panel this (Tuesday) afternoon.
The Hon Christine Loh: (It seems that the Government will be prepared to intervene in the market again under what is described as extreme conditions. I would like to have a definition of what extreme conditions are in terms of currency, interest rates and stock crisis.
I understand that the HKMA has already said that it is not bound by some laws where after it has acquired certain proportions of shares in companies that it is not obliged to divulge the information. I would like to ask whether for example the Securities (Insider Dealing) Ordinance has been contravened. Secondly, the Securities Ordinance does prohibit price fixing and it discourages manipulation. Whether what the MA did contravenes any law?)
Financial Secretary: Well, as far as extreme conditions go, it is not possible to give a precise definition in terms of what level of interest rate and what level of selling of Hong Kong dollars will constitute such a situation. But we have in normal situations in terms of the amount of money in the aggregate balance, we have a daily interest rate which will move up generally with the market. But if the interest rate suddenly is under pressure, when it is likely to rise, in fact twice of figure that is what we have obtained in the market on a daily basis. Or in terms of selling of Hong Kong dollars, when the volume of transactions had been sustained or in fact accelerating, then of course we would see that would be a very serious condition whereby you will have the exhausting of the aggregate balance very quickly and then the interest rate rising almost rapidly not caused by general economic trend but rather by speculative or manipulative attacks. And if it is likely to cause some chaos in the other financial markets like the securities market, I would generally describe it as a very severe condition. But it has to be looked at in terms of the level of activities, and the period which it will be sustained. I would certainly describe the situation we had in the middle of last month, as I described yesterday, in terms of the transactions that were going through the currency market, the fact that we have been purchasing in a period of one week is US$ 2 billion, and another week it was US$ 4.2 billion. That was extraordinary high.
And then also the likely effect on interest rate. Also looking at the open positions in the futures market rising well above the general figure of about 70,000 open positions into 100,000 open positions, and increase of about 10,000 in three trading days. Those to us is extreme conditions. I think that there will be no dispute about that.
Now as regards the position of HKMA holding securities and the need to make a declaration of disclosure. Because it is a property acquired by the HKSAR Government, we are entitled, under the law, not to disclose it. But as I said yesterday, as soon as this episode is over, I will be quite willing to disclose the amount of stock in our possession and the quantities we have acquired in respect of individual company. It is only right at this moment when the manipulators are not completely out of the market, we do not wish to give information that would be able to help them.
Thirdly, we have no intention of manipulating in the market nor do we wish to do any price fixing. What we want to do is not to create a situation where the share prices, interest level, interest rate in Hong Kong is totally dictated by the manipulators, hence we did what we had to do in August this year.
The Hon Christine Loh: (Under what conditions will the Government intervene and what about insider dealing?)
Financial Secretary: I am sorry I forgot. I do beg your pardon I have not answered the question. The group of colleagues who were dealing with the incursion in the market belong to a select group of people within the Hong Kong Monetary Authority. They have not been, and they were not involved in any work relating to the supervision of banks and financial institutions, which belong to another group of people in the Monetary Authority. That has been a strict rule from the outset.
Furthermore, I have already told members that our intention is to establish a company under the Exchange Fund whereby the assets we have acquired will be professionally managed. And the details of that I will certainly disclose as soon as possible.
I will make sure again that there will be no instances whereby our supervisory staff who are involved or who have access to privileged information about individual companies would be involved in anyway in the supervision of the assets we have acquired. Also please accept my position that the assets that we have acquired are temporary phenomenon. We do not want to sit on those shares and stock forever. There would be a situation, I hope it will come, before far too long, whereby we are able to release them into the market so that the question of conflict of interest will diminish over time in any way. But I would assure members that we attach utmost importance to integrity of the system that our supervisory staff will not be involved in any way in the management of the assets that we have acquired.
End/Tuesday, September 8, 1998
Financial Secretary's transcript (Chinese)
NNNN