Hong Kong’s Securities and Futures market - Current Issues Mr Andrew Sheng Chairman Securities and Futures Commission 24 April 2001
Hong Kong’s Securities Market Overview: • Main board and GEM run by HKEx • Third largest stock market in Asia after Japan & the Mainland • 10th largest stock market in the world • Important international fund-raising centre, especially for the Mainland.
Hong Kong’s Securities Market Reasons for growth: • high liquidity • transparency • strong participation by institutional investors • Mainland factor
Moving Up the Value Curve Focused and competitive financial services are needed because of: • Increasing competition due to globalisation, technology and capital movement • Greater expectations from investors
Performance of Major Markets (end Mar 2001, US$ bn) Market change over Market change over P/E Cap Mar 00 Turnover 2000 ratio Australia 323 -20% 214 -3% 19 Hong Kong 544 -17% 295 -14% 18 Indonesia 22 -55% 10 -62% 25 Japan 2,798 -37% 1,952 -12% 182 Korea 157 -42% 456 -46% n.a. China 615 39% 657 12% 59 Malaysia 107 -40% 27 -59% 18 Philippines 26 -43% 5 -72% 44 Singapore 123 -27% 85 -30% 14 Taiwan 306 -35% 789 -32% 22 Thailand 31 -34% 21 -49% n.a. Germany 1,099 -25% 1,766 -10% 52 UK 2,259 -20% 4,524 18% 23 US 13,238 -24% 28,620 20% 55 Turnover - for the 12 months ending Mar 2001, P/E ratio - end Mar 2001 P/E ratio for China includes A shares markets only Sources: FIBV, CSRC and websites of various exchanges
Current Issues • Corporate Governance • Reform of Financial Markets • The Securities and Futures Bill
Corporate Governance • Reliable, accurate and timely information is a market fundamental • Production of good quality information requires good governance • Globalised markets impose high cost on poor governance • Good governance needs strong legal framework and process
Corporate Governance 3 Disciplines • Self-discipline of corporate captains • Regulatory discipline • Market discipline
Quality of Information • Working closely with HKEx to ensure timely disclosure of information • Daily monitoring of stock prices • Moving towards IAS and IOSCO 2000 standards • Publishing more information on HKEx and SFC websites
Quality of Listed Companies • McKinsey survey - Investors are willing to pay a premium for better corporate governance. • Decline of share market capitalisation of family-led listed companies - 24% • Rise of listed companies with institution based ownership - 26% as at Jan 2001
Quality of Intermediaries • Markets are being increasingly dominated by large players • Technology has introduced new players such as e-brokers and ATS’s • Intermediaries have to be more focused and market oriented to survive • Building a broad array of advisory and market groups to raise quality of financial services
Quality of Regulation • No single corporate regulator in Hong Kong • Responsibility for corporate governance is spread across many agencies and regulatory bodies: • Stock Exchange of Hong Kong • SFC • Companies Registrar • Commercial Crime Bureau • Inspector appointed by Financial Secretary • ICAC
Quality of Regulation Regulatory Scope: • Listing Rules of the Stock Exchange • Takeover Code • Market Codes of Conduct • Securities and Futures Bill • Companies Ordinance • Anti-corruption law • Bill of rights • Protection of privacy ordinances
Financial Market Reform • Demutualisation • March 2000 - Merger of 4 exchanges and 2 clearing houses to create Hong Kong Exchanges and Clearing (HKEx) • Benefits of merger: – economies of scale in terms of operational efficiency – ensures HKEx would be responsive to market forces, not only members interest
Financial Market Reform • SCEFI (Steering Committee on the Enhancement of the Financial Infrastructure) created to co-ordinate reform of : • modernising and enhancing financial infrastructure & • rationalising the legal framework
Electronic Infrastructure • Securities and Derivatives Network (SDNet) - electronically linking market participants • Ongoing development of the Financial Network (FINet) • AMS /3 - high efficiency automatic matching system • Electronic application for shares - MTRC
New Securities Legislation Reasons for change: • Complex existing patchwork of 10 Ordinances • Old laws overtaken by market developments and technology • SF Bill cornerstone of new financial framework • New legislation on par with international standards
New Securities Legislation New regulatory initiatives: • Single licensing regime • Civil Market Misconduct Tribunal • Greater investigative powers • Better disclosure of interests • More efficient channels of appeal
The Way Forward Objective of new reforms to enhance : • transparency in Hong Kong’s financial markets • investor confidence • good corporate governance • market integrity • Hong Kong’s position as an international financial centre
THANK YOU .
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