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Following is a question by the Hon Lee Kai-ming and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):
Question:
Regarding the Singapore International Monetary Exchange's plan to launch Hong Kong index futures contracts, will the Government inform this Council:
(a) of the specific contingency measures which the relevant financial institutions in Hong Kong plan to take in order to cope with competition from outside;
(b) whether such financial institutions have considered implementing a long-term financial development strategy and developing new products, so as to strengthen the status of Hong Kong as an international financial centre; and
(c) of the measures the executive authorities have in place to enhance the status of Hong Kong as an international financial centre?
Reply:
Madam President,
(a) The MSCI Hong Kong Stock Index ("HiMSCI") futures contract recently launched by the Singapore International Monetary Exchange ("SIMEX") does pose a direct competition to the Hang Seng Index ("HSI") futures and options market in the Hong Kong Futures Exchange ("HKFE"). In response to the challenge, HKFE with the approval by the Securities and Futures Commission ("SFC") extended the trading hours of the HSI futures and options markets by 15 minutes each at both the opening and closing of the day's trading period. With effect from November 20, 1998, the new trading hours of HSI futures and options markets are from 9:45 am to 4:15 pm, the same as the SIMEX HiMSCI futures market. Members of the HKFE also waived the transaction fees for the HSI futures contracts trading in December 1998.
The HKFE Clearing Corporation ("HKCC") also decided to reduce the retention rate of interest income of the margin deposit by Members from 1.8% to 1.2%, with effect from January 1999. The measure will return more interest income derived from margin deposits to HKFE's members.
As a related issue, HKCC, after taking into account the current market volatilities also decided to reduce its initial client margin for HSI futures contracts from $80,000 per contract to HK$63,000 per contract. While HKFE underlined that the decision was essentially based on risk management considerations and was not deliberately aimed to enhance HKFE's competitiveness vis-à-vis SIMEX, a lower margin level would inevitably reduce the cost for trading for clients and therefore increase HKFE's competitiveness. SFC has also agreed to the proposed lowering of margin level, which came into effect on 30 November.
It is important to note that while the Administration is naturally keen to see that our market is capable of meeting this challenge, the integrity and stability of our financial markets continue to be our primary concern. In this connection, the SFC has reassured the Administration that, on approving the extension of trading hours and lowering of margin level, it would remain vigilant in monitoring the market in case there is any manipulative activities and that it is prepared to ask the HKFE to raise the margin level again should the market situation so requires.
(b) In the longer term, we believe the enhancement of our competitiveness as an international financial centre lies in continuously keeping our regulatory regime on par with international standards, expanding our product base, increasing our market efficiency and lowering our transaction costs. Initiatives towards those objectives by the exchanges and clearing houses include, inter alia, the migration of the HSI futures and options market to the Automatic Trading System (ATS) by the third quarter of 1999 and the introduction of new products such as the Hang Seng 100 Index futures and options and one-month HIBOR futures by the HKFE, the plans of the Stock Exchange of Hong Kong ("SEHK") to upgrade its trading system, establish a Second Board and extend its trading hours, as well as the joint initiative on the feasibility study on cross-margining between related products in the SEHK and the HKFE. The SFC has also constantly kept the securities/futures-related rules and regulations updated to meet new market developments and changing market needs.
(c) The Administration is always committed to enhancing the status of Hong Kong as an international financial centre and strengthening Hong Kong's competitiveness in the global financial market. As unveiled in the Chief Executive's Policy Address in October, the Administration will capitalise upon the latest developments in information technology and its applications to enhance system security and efficiency of our financial infrastructures to consolidate our status as an international financial centre and to maintain our competitiveness. We will also encourage the development of new financial products and improvement of our regulatory, infrastructural as well as our analytical and statistical standards to meet the need of our investors and to keep us on par with international market development and regulatory standards.
On the front of human resources development, the Administration has commenced a consultancy study to look into the demand for and supply of human resources development opportunities in the financial services sector. The result of the study will lay out the ground work for further studies on the need for and feasibility of setting up a Financial Services Institute for Hong Kong as undertaken by the Chief Executive in his Policy Address last year.
In addition, we are also committed to work closely with the market regulators including the Hong Kong Monetary Authority and the SFC to maintain a proper and modern regulatory regime in Hong Kong, and through them with overseas regulators on the promotion of international co-operation and best international practices on regulation of financial markets.
End/Wednesday, December 2, 1998
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