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SCMP Reporter

THE Securities and Futures Commission (SFC) has unveiled its grandiose three-year corporate plan in response to the growing drift of trade in Hong Kong shares to overseas markets and increased regional competition.

  SFC deputy chairman Michael Wu said 1991/92 statistics, the latest available, showed 12 per cent of trade in Hong Kong counters with the highest turnover was in London and New York.

  'It has become a concern to us because the percentage has increased drastically in recent years,' Mr Wu said.

  Anecdotal evidence suggested that as much as two-thirds of Hongkong Telecom trading was done outside Hong Kong.

  SFC chairman Anthony Neoh said time differences and low transaction costs could be reasons.

  Growing competition from other Asian markets and the challenge from global electronic trading systems prompted the forward-looking plan.

  The blueprint outlined by the SFC, the third since the commission was set up in May 1989, was based on a three-pronged initiative: to maintain Hong Kong's competitiveness, to position Hong Kong as the most preferred fund-raising centre for China and to uphold market integrity to lure investors.

  To enhance the market's competitive edge, studies and surveys will be conducted.

   An inter-market competitive study will be launched to explain the drift of trading to overseas markets.

  A tiered market study will be conducted to complement a similar work done by the stock exchange.

  'There may be separate markets for the professional institutional investors and for retail investors,' Mr Neoh said.

  While the exchange examines the feasibility of a second board, a trading-only board for international or regional issues and a depository receipts market, the SFC will review the regulatory issues involved.

  There will be an 'Investor Survey and Market Study: Beyond 2000'.

  In addition, efforts will be directed to promote Hong Kong's international profile, to work on investor education and to set up an investment resources centre.

   The three-year plan also envisages Hong Kong as the major capital market for China's US$774 billion infrastructure bill over the next decade.

  Apart from an international promotion programme to highlight the territory's privileged position and some studies on China's debt market, the Futures Exchange will look at products to complement the activities of China's futures exchanges.

  On improving market integrity, the SFC will seek to regulate international screen-based trading systems.

   The SFC also wants to protect the Stock Exchange monopoly on Hong Kong's share trading.

  Market monitoring will be strengthened through a co-ordinated inter-market surveillance system with the two exchanges to combat cross-market manipulative activities.

  Market consultation on the guidelines for internal control will be published in the second half of 1996.

  A series of reviews on the two exchanges' risk management systems will be installed to ensure that they can cope with increasing market volume.

  To implement these initiatives, the organisational structure of the SFC will undergo slight changes.

  By leaving the day-to-day operation work to the deputy chairman, the chairman will focus more on the overall development and direction.

   These initiatives are separate from the ongoing project on the rationalisation of securities law.

  'Market consultation on the rationalisation will be out in early April,' Mr Neoh said.



SFC three-year plan to address drift in trading