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An Exchanges and Clearing Houses (Merger) Bill which seeks to enable the implementation of the merger of the Stock Exchange of Hong Kong, Hong Kong Futures Exchange and their associating clearing houses into a single holding company - the Hong Kong Exchanges and Clearing Houses Limited (HKEC), has been approved by the Executive Council for introduction into the Legislative Council.

"The merger of the two Exchanges and their clearing houses is an integral part of the strategic financial market reform announced by the Financial Secretary in March this year," a spokesman for the Financial Services Bureau said today (Thursday).

"The coming into effect of the merger schemes is conditional upon the enactment of the enabling legislation, that is the Exchanges and Clearing Houses (Merger) Bill," he explained.

The spokesman said that the Bill would modify the existing legislative framework for the securities and futures market to accommodate the new market structure and ensure efficient regulation following the merger. Major provisions of the Bill include -

(a) Prohibition of any persons to control either directly or indirectly any exchange companies or clearing houses unless recognised by the Securities and Futures Commission (SFC) as a "recognised exchange controller" (REC) and to subject the REC to the regulation by SFC.

(b) Imposition of a five per cent shareholding limit on a "recognised exchange controller", an exchange company or a clearing house to prevent control of the HKEC by any person either alone of with any associate(s).

(c) Making of corresponding provisions to provide clear legal basis and procedures for the conversion of Hong Kong Securities Clearing Company from a company limited by guarantee.

(d) Making of consequential amendments to reflect the new market structure.

The spokesman added that the Bill set out the regulatory provisions pertaining to a REC. HKEC would be deemed a REC and thereby subject to the regulation for REC under the new regulatory regime.

Consequential amendments will also be made to the existing securities-related ordinances, including Securities Ordinance, Commodities Trading Ordinance, Stock Exchanges Unification Ordinance and Securities and Futures Commission Ordinance.

The spokesman added that the merger would take place on the basis of the schemes of arrangements approved by the members of the exchanges on September 27 and sanctioned by the court on October 11.

"Time is of essence for the reform. The target of the Government is to complete the merger by late January/early February 2000, or latest by March 2000, failing which the schemes of arrangements for the merger will lapse unless the Court approves a later expiry date for the schemes of arrangements," he said.

"What remains now for the implementation of the merger is the enactment of the enabling legislation. We hope that the enabling legislation will receive support from the Legislative Council Members as the merger is essential for Hong Kong to enhance its competitiveness in response to the global challenges in the new millenium," he added.

The Bill will be gazetted on November 5 and introduced into the Legislative Council for first and second readings on November 10.

End/Thursday, November 4, 1999

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