The most important factor in the success of the Hibor contacts launch on the futures exchange is the market-maker system which will guarantee liquidity and ensure a reasonable level of transactions, according to Mark Cranfield, head of treasury for Dresdner Bank in Hong Kong. The reason for the contracts failure after they were launched the first time in 1990 was that there was no commitment to liquidity. Observers hope this obstacle has been removed by the introduction of the market-maker system. Several large banks, including Hongkong Bank, Standard Chartered and Bank of China have put their weight behind the Hibor contracts by guaranteeing they will continuously support the prices in the market. 'What that means is that, during normal trading hours, these banks will be responsible for at least making sure they will buy and sell a certain number of contracts; if third parties want to do transactions, then at least they have some one to trade with,' Mr Cranfield said. 'This arrangement was not in place when the contract was last launched and the result was many hours when there was no trading at all. 'There was very little consultation and, from an early stage, people thought the market could be manipulated by one or two big players. So people had doubts about it right from the beginning.' While Mr Cranfield agreed that nothing was guaranteed, he was optimistic that it would succeed. 'The futures exchange has gone about it in the right way this time. They had a lot of discussions with all the banks and asked the opinions of those who will be involved,' he said. Satisfying the needs of third parties who used the contracts for hedging purposes was important. According to Mr Cranfield there were a number of foreign banks in Hong Kong whose major business was not in Hong Kong dollars, but they had a significant interest in Hong Kong dollar loans and deposits. They were the natural third party users of Hibor contracts. 'They have to have confidence that, when they go to the market, there will be good liquidity, that prices will be fair and that contracts will not be too expensive,' he said.
