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HONG KONG'S first companies were formed in 1865 after the passing of the Companies Ordinance. Early entrants to the corporate world in Hong Kong were the Union Dock Co, the Hong Kong and Whampoa Dock Co, and the Hong Kong, Canton and Macao Steamboat Co.

  According to the book, Shares in Hong Kong, published by the stock exchange, the exchange has its roots in the 1870s among a group of brokers who did their business in the Hong Kong Club and in the gutter outside along Queen's Road.

  Brokers were from all over the world, reflecting Hong Kong's role as an international trading centre.

  The exchange moved its centre of operations regularly. The first brokers' industry body, the Association of Stockbrokers in Hong Kong, was set up in 1891. The association changed its name to the Hong Kong Stock Exchange in 1914 and put up the Stock Exchange Building in Ice House Street in 1934.

  The market's early days were characterised by massive speculative activity and short squeeze plays.

  In 1921, an all-Chinese Hong Kong Share Brokers' Association was formed.

  The stock market collapsed in 1925 amid an anti-British boycott sparked by a dispute at a Japanese cotton mill and a massacre in Guangzhou where British and French guards killed at least 70 students.

  Prior to the collapse, shares could be dealt three months ahead. This led to settlement problems when the market turned down, and it changed to a cash market, evolving to a 24-hour settlement market in 1933.

  The market was closed during the Japanese occupation but reopened in 1947 with 22 members. The re-opened exchange was a merged entity, consisting of the former Sharebrokers' Association and the Hong Kong Stock Exchange.

  The Hong Kong Stock Exchange enjoyed a monopoly until the early 1970s when Ronald Li Fook-shiu set up the Far East Exchange with rules more suited to local brokers. It was an instant success and its turnover, stimulated by the involvement of the recently formed Sun Hung Kai partnership, soon passed that of the Hong Kong exchange.

  In 1971, the Kam Ngan Stock Exchange was formed and, the following year, the Kowloon Stock Exchange opened for business.

  The first move towards unifying the various Hong Kong exchanges was in 1973 when the Government headed off an attempt to create a fifth exchange and prohibited the creation of any others.

  In 1976, the exchanges refused a proposal to unify put forward by the Securities Commissioner but, the following year, they reconsidered and formed a working party to work towards a unification.

  The exchange's hand was forced in 1980 with the Stock Exchanges' Unification Ordinance and the Stock Exchange of Hong Kong was incorporated in July of that year.

  The unified exchange, as we now know it, opened for business on April 2, 1986, with 900 members. In its first day's trading, shares worth $226 million changed hands.

  Progress at the unified exchange has been dramatic, but the birth of the modern exchange has been painful at times. In 1987, the exchange was closed for four days after stocks fell 12 per cent on Monday, October 19, at the height of the global stock crash. When it reopened on October 26, the market fell another 33 per cent.

  The controversial closure, and subsequent collapse of the futures market, led to a massive bail-out operation by the Government, banks and bigger brokers. It involved the injection of $4 billion.

  On November 16, the Government appointed a Securities Review Committee, chaired by British accountant Ian Hay Davison, to examine the stock and futures exchanges with the aim of maintaining Hong Kong as a major international finance centre.

  The committee's report found that the supervisory bodies had lost control of the markets and that 'the concept of self-regulation and market self-discipline had failed to develop'.

  It said executive staff at the exchange were 'insufficiently independent of the governing committee' which was 'an insider group [which] treated the exchange as a private club, rather than a public utility for the general benefit of members, investors and issuers'.

  The report recommended:    The governance of the exchange be widened to run it 'in the interests of all the members and the users'.

    The exchange develop a staff of professional and independent executives.

     The various existing regulators (including the then-Securities Commission and Commodities Trading Commission) be replaced by a single statutory body outside the civil service.

  The current top securities regulator, the Securities and Futures Commission (SFC), was created by statute on May 1, 1989.

  Relations between the SFC and the stock exchange have been bumpy at times, particularly when its ruling council was being reorganised in 1991, but few doubt the progress that has been made in development since 1987.

  When it unified in 1986, the exchange had 251 listed companies with a market capitalisation of $279 billion. This had grown by the end of August this year to 508 listed companies capitalised at $2,240 billion.

  The exchange assumed sole responsibility for vetting prospectuses in February last year, completing the hand-over of listing and compliance power from the SFC and Registrar of Companies.

  Last year saw the first reformed mainland state companies listed on the exchange, a trend which is certain to continue as China maintains its process of economic reform.

  The Central Clearing and Settlement System (CCASS) and Automatic Order Matching and Execution System (AMS) represent major trading advances.

  CCASS, operated by an exchange associate, the Hong Kong Securities Clearing Co, moved to full continuous net settlement in October 1992 and is used for settlement of nearly all trades in CCASS-authorised stock.

  AMS was extended to all CCASS eligible stocks in January this year and is now used for the majority of trading.

         The exchange has introduced extensive risk-management measures for members, including monthly financial reporting, new rules for financial resources, a high standard broker code of conduct and compulsory broker fidelity insurance.



International broking role existed from earliest days