The reforms proposed in this year's Budget will merge and demutualise the stock and futures exchanges and their three clearing houses into a new entity to be listed in September next year.

Merrill Lynch has been appointed to advise the stock exchange and Morgan Stanley Dean Witter the futures exchange during the merger.

The two United States investment banks will be responsible for issuing reports to members on the asset and membership values of the two exchanges.

While those two banks will represent the interests of the two exchanges and their brokers, HSBC's role will be to represent the interests of the combined entity.

'It [HSBC] will also need to focus on how to make sure the public interest and market development can be best preserved during the reform process,' a source said.

HSBC will suggest detailed methods for implementing the reforms, so as to enhance the competitiveness of the Hong Kong markets.

Another of its key roles will be to act as a middleman between the advisers of the two exchanges in the event of any dispute.

HSBC could face a bumpy ride, with mounting signs of opposition among stock and futures brokers to the Government's proposals.

Some overseas stock and futures exchange mergers have foundered due to the two sides' inability to agree on their respective shareholdings in the new entity.

The selection would represent a coup for HSBC after it missed out on the lucrative mandate to advise on the sale of more than $100 billion in stock from the Government's portfolio.

Jardine Fleming was selected as the Hong Kong representative on Exchange Fund Investment's (EFI) three-member advisory panel.

HSBC, the biggest local banking group, failed to be chosen after making EFI's shortlist.

The Government's choice of HSBC in this case is being seen by the market as an attempt to 'balance the interests' of the various investment banks.

HSBC was also shortlisted to become the futures exchange adviser, before losing out to Morgan Stanley.

Futures exchange chairman Geoffrey Yeh Meou-tsen has said both HSBC and Morgan Stanley were qualified but the latter was chosen because it offered lower service charges.

Merrill Lynch and Morgan Stanley also missed out on the EFI mandate, although their proposals for disposal of the Government's portfolio were warmly received.

US investment bank Goldman Sachs and ING Barings were the other successful candidates.

It is understood one investment bank offered a cut-price 'package' to act as financial adviser to the Government and the stock and futures exchanges.

The Government rejected the proposal, saying it would be better to achieve different points of view from different banks.