The Government's Policy Paper on Securities and Futures Market Reform, published at the same time as the Budget in March, provided the blueprint for the historic demutualisation and merger of the exchanges and clearing houses.
It noted that Hong Kong was well placed to benefit from regional growth and its special role as a gateway to mainland China.
'However, others are fast moving to seize a share of this business,' the paper warned. 'Hong Kong needs to move in step with the other leading world markets and address the demands of investors, intermediaries and issuers. In the face of increasing competitive pressure, Hong Kong must take decisive steps to maintain and reinforce its lead as an international financial centre.' The Government said that without reform, the Hong Kong securities and futures industry would not be able to maintain its competitiveness and face global challenges. Its status as a regional and international financial centre would also come under threat.
'Much is at stake. Maintaining the status quo is not an option,' it said.
The existing membership association structure of the exchanges produced 'inherent conflicts between the interests of the members and the market as a whole. Conflicts between the multiple roles of the exchanges as membership associations, service providers, regulators and public bodies are particularly apparent in such areas as development of products and services and regulation of issuers and intermediaries'.
Looking at overseas examples, the paper noted that all major markets were engaged in consolidating and upgrading competitive capacity. Exchanges in Frankfurt, Stockholm, Amsterdam and Australia had demutualised and others had announced similar intentions. The exchanges in Amsterdam and Australia had gone a step further, becoming publicly-listed companies.