Accord follows month-long row over plans for futures contract on Hang Seng Index

Hong Kong and Singapore have agreed to begin co-operating on controversial plans by the Singapore International Monetary Exchange (Simex) to launch a rival Hong Kong stock index futures contract.

The breakthrough came yesterday during bilateral talks between Chief Executive Tung Chee-hwa and Singapore Prime Minister Goh Chok Tong on the sidelines of the Asia-Pacific Economic Co-operation summit in Malaysia.

Mr Tung said the concerns of the SAR that Hong Kong stock futures trading offshore would be hard to monitor and could open avenues for regulatory arbitrage which speculators could exploit.

To allay such fears, the two governments have agreed to co-operate on a regulatory front. They accepted that competition in their respective financial services sectors was good, but only provided proper checks and balances were in place.

Mr Tung said: 'What is important is that Mr Goh and I agreed that in these areas where there is competition we really must work very closely together in terms of getting regulatory authorities to communicate with each another.' Mr Goh, a long-time friend of Mr Tung, said: 'This kind of rivalry is good . . . provided we both co-operate in many other ways.' The new accord follows a month-long international dispute over Simex's plans to launch a futures contract on November 23 similar to that already offered by the Hong Kong Futures Exchange (HKFE).

Simex's contract would be traded and regulated in Singapore, based on an index prepared by Morgan Stanley Capital International based on the Hang Seng Index (HSI).

This has come under fire from various quarters in Hong Kong as having potential to distort trading on the Stock Exchange of Hong Kong as well eat into HKFE trading activity.