PLC Paper No. CB(1) 836Senior Director of Supervision of Markets, Securities and Futures Commission
(These minutes have been
seen by the Administration)
Clerk in attendance :
Staff in attendance :
- Ms Estella CHAN
- Chief Assistant Secretary (1)4
I. Confirmation of minutes and matters arising
- Mr Andy LAU
- Senior Assistant Secretary (1)6
(PLC Papers No. CB(1)319, 406 and 489 - Minutes of the meetings on 11 September, 6 October and 11 October 1997)
The minutes of the meetings on 11 September, 6 October and 11 October 1997 were confirmed.
II. Information papers issued since last meeting
(PLC Paper No. CB(1)336 - A joint submission from 19 passenger shipping companies requesting a reduction or abolition of embarkation fees on passengers leaving Hong Kong by sea
PLC Paper No. CB(1)344 - Regional Monitor - Issue No. 6 : September 1997
PLC Paper No. CB(1)387 - Information paper on the creation of a permanent post of Deputy Commissioner of Inland Revenue.
PLC Paper No. CB(1)407(01) - Information paper on the proposal to close the Electrical and Mechanical Services Department Suspense Account and the Electrical and Mechanical Services Department Workshop Services Suspense Account).
2.Members noted that four information papers had been issued since the last meeting.
III.Items for discussion for the next meeting scheduled for 1 December 1997
3.Members agreed to discuss the following items at the next regular meeting to be held on 1 December 1997:
(Post meeting note : At the request of the Administration, the Panel Chairman agreed that item (c) above be deferred until further notice and that a new item on "Resolution to amend the resolution of the Capital Works Reserve Fund under section 29(1) of the Public Finance Ordinance" be put on the agenda for the meeting to be held on 1 December 1997 instead.)
- Review of Financial Secretary's authority in using the Exchange Fund;
- Shortage of coins; and
- Co-ordination among Government bureaus/departments and other monitoring authorities in dealing with speculators attacks on the local financial market
4.Members noted that the Finance Committee had referred to the Panel the issue of interest on tax reserve certificates and suggested the Panel to examine the policy aspect of the issue. Members agreed to discuss the subject in a future meeting.
5.Members also noted that the President had referred to the Panel an open letter from Mr Tong FUNG to all council members of the Stock Exchange of Hong Kong (the Exchange) on ways to improve the operation of the Exchange. In considering whether to follow up the issue, members agreed that the Exchange should be invited to provide a response to Mr FUNG's views. Upon receipt of the response, the Panel would decide whether it was necessary to discuss the subject in a future meeting.
IV.Report on the 1997 World Bank Group/International Monetary Fund annual meetings
(PLC Paper No. CB(1)490(01) - Information paper provided by the Administration)
6.The Executive Director, Hong Kong Monetary Authority (ED/HKMA) briefed members on the salient points of the information paper.
7.Some members expressed dissatisfaction that invitation had not been extended to the Panel for attending the Annual Meetings of the Boards of Governors of the World Bank Group (the Bank) and the International Monetary Fund (the Fund), and other seminars (the Meetings). A member was dissatisfied that Panel members were required to register as "staff" of the event and opined that better arrangement could have been made.
8.ED/HKMA responded that given the nature of the Meetings, the attendance was out of the control of HKMA. Despite the fact that Hong Kong was the host city for the event, the quota on the number of participants assigned to Hong Kong by the Bank/Fund was very limited. As such, invitations could only be extended to some Members of the Executive Council and the Provisional Legislative Council. For instance, Mrs Rita FAN and Mr Paul CHENG had been invited in their capacities as the President of the Provisional Legislative Council and Chairman of the Financial Affairs Panel respectively. On this point, the Chairman observed that some other Members of the Provisional Legislative Council were also present at the Meetings.
9.ED/HKMA further said that the arrangement was already the best that they could do to facilitate participation in the event. The Administration had tried to negotiate with the Joint Secretariat of the Bank/Fund for free registration for members of the Panel. To this end, arrangements had been made to enable members to either register as "staff" of the event, or as paid registrants at a cost of US$1,250. He added that the former arrangement was a proper channel for participation and many of the senior Government officials from various Bureaux had attended the event in this capacity.
10.Regarding disposal arrangements for the equipment, venue and other meeting facilities used in the event, ED/HKMA said that items under short term rental had been returned to the vendors. As for the purchased items, some of the reusable items had been returned to the Government for distribution to other Departments and some building material from the dismantling of the temporary offices had been donated to voluntary organizations. Regarding computers, he advised that they were all sponsored by a local computer company and the items had already been returned to the vendor after the meetings.
11.In response to questions on the yardstick by which the Meetings were evaluated as highly successful and whether the original objectives had been achieved, ED/HKMA said that HKMA was tasked with the responsibility for coordinating the provision of services and facilities for the Meetings. The planning work had commenced several years in advance and regular review sessions were conducted before and during the Meetings. Overall speaking, the Bank/Fund and delegates were very satisfied with the meeting facilities and hospitality arrangements offered by HKMA. They were particularly impressed by the advanced authentication and security system employed and also, the good work relating to the provision of logistical arrangements and meeting facilities. As a result, commendations were received from a large number of participants including heads of the Bank/Fund, Finance Ministers and Central Bank Governors.
12.A member highly commended the logistical and hospitality arrangements made for the Meetings. However, he was concerned that there were complaints about the exorbitant rates charged by some hotels and urged the Administration to review the shortcomings experienced in the event with a view to further improving the services provided by Hong Kong in organizing future meetings of a similar scale. ED/HKMA responded that the Administration was also very concerned about the hotel arrangements for participants. HKMA was able to solicit a 10% discount from most of the hotels. However, given that hotel charges in Hong Kong were generally much higher than those of other countries, there might be some individual cases of complaints and they would follow up any referral of such cases with the Hong Kong Tourist Association. In fact, the hotel rates offered to participants were already lower than the rack rates. He would take note of the member's comments in organizing future events.
13.Noting that out of the 19,568 participants at the Meetings, 5,608 were, indeed, contractors and other local staff, a member enquired whether the number of registered participants, being the largest in scale in the history of the Bank/Fund, had been exaggerated. ED/HKMA responded that in order to organize the event, the Administration had seconded a team of civil servants to assist HKMA in making all the necessary preparatory work. This, together with other staff from HKMA, added up to some 2,000 persons. The rest of the team were made up of 3,000 staff members from the Hong Kong Convention and Exhibition Centre. Furthermore, over 1,000 officers from the Police Force had been deployed to take charge of the security of the event. He advised that it had been a practice for the Joint Secretariat of the Bank/Fund to take the manpower employed into account in calculating the number of participants in the event. He undertook that in terms of overseas participants alone, the Hong Kong meeting had the highest attendance.
14.Regarding the comment that Hong Kong had set a high standard which would be difficult to match with in future Meetings, a member asked if this was attributable to the high expenses incurred. ED/HKMA advised that the estimates for the event were drawn up by referencing the expenses of similar meetings held in Thailand and Spain. Relatively speaking, Hong Kong had been more cost-efficient in organizing the Meetings, despite the higher local living standard. Apart from securing sponsorship from the private sector and relevant organizations, HKMA was also able to exercise prudent and tight control over expenditure through better design of networking systems and through the use of some furniture and equipment produced by the Correctional Services Department. As a result, some HK$139 million in savings were achieved.
15.Noting that the Administration had concluded that the Meetings had helped strengthen the image of the Mainland in the international financial community as well as Hong Kong's role as an international financial centre, a member queried the reason for the downgrading of the outlook of local banks by an international credit rating agency soon after the Meetings in September. He asked whether this was the perception of participants when they attended the Meetings earlier. The Deputy Secretary for Financial Services (DS for FS) replied that the downgrading decision was only an isolated event and there was no sign of such a perception amongst the participants in the Meetings. In fact, the Administration had already queried the basis of such an assessment and had expressed grave concern that the credit rating agency had not approached the Government for appropriate data in projecting the economic performance of Hong Kong.
16.As to whether the holding of the Meetings in Hong Kong had given international speculators an opportunity to spot the weaknesses in Hong Kong's system and subsequently, led to the recent financial turbulence, ED/HKMA responded that there was no relationship between the two incidents. The recent financial turbulence in Hong Kong was triggered off by the currency crisis in Asia, in particular, the depreciation of the Taiwan currency. In fact, the holding of the Meetings in Hong Kong had provided a valuable opportunity to show Hong Kong's stability and prosperity to the Finance Ministers and Central Bank Governors of the world. Overall, the Meetings successfully presented Hong Kong as a showcase of prosperity and stability under the "One Country, Two Systems" principle.
V. Report on the current status of the "Life Boat Loan" set up after the 1987 stock market crash
(PLC Paper No. CB(1)490(02) - Information paper provided by the Administration)
17.At the invitation of the Chairman, the Senior Director of Supervision of Markets, Securities and Futures Commission (SD/SFC) briefed members on the salient points of the information paper.
18.Regarding the special levy imposed on both the Stock Exchange and the Futures Exchange to facilitate the repayment of the "Lifeboat" loan, a member pointed out that although the levy was presently suspended, concerns had been raised in the past about the imposition of the levy. He therefore urged the Administration to plough back the surpluses of the levy income to the securities industry. On the retention of the excess recoveries in the Reserve Fund of the Hong Kong Futures Exchange Clearing Corporation (HKFECC), a member opined that the surpluses actually belonged to general investors rather than HKFECC. He also queried why the International Central Clearing House Ltd (ICCH), an insolvent company, was tasked with the responsibility of managing the affairs of debtors in bankruptcy.
19.DS for FS gave a brief account of the rationale for the setting up of the "Lifeboat" loan. She said that the loan, made up of $1 billion from the Government and another $1 billion from lifeboat lender including major participants in the futures market and shareholders ofprecipitated a grave problem in the Hang Seng Index (HSI) futures market, which suspended trading at the same time as the stock market the Hong Kong Futures Guarantee Corporation (HKFGC), had been set up subsequent to the market crash in October 1987 to provide credit continue operation, the government put together a rescue package to provide credit facilities to enable the HKFGC to finance the settlementfinance the settlement of Hang Seng Index (HSI) futures contracts. The arrangement had been made on the consideration of the likely serious consequence in the securities market should the outstanding obligations arising from HSI futures contracts not be handled properly. The arrangement had been restructured in 1989, in which the Government, HKFGC and the Lifeboat lenders had agreed that after the full repayment of the Lifeboat loan, the right to claim and receive recoveries from defaulters would thereupon be assigned to the HKFECC.between the stock market and the future markets, it was anticipated that without such a rescue package, stocks amounted to some $7 billion to $12 billion would be dumped to the market when trading was resumed. To avoid further damage to the markets, a "Lifeboat" loan was established. In accordance with the agreement reached amongst the Government, HKFGC and the Lifeboat lenders, HKFGC was empowered to pursue legal actions against futures market defaulters and pay net recoveries to the Lifeboat lenders. The agreement was subsequently revised in 1989 and provided that after the full repayment of the Lifeboat loan, the right to claim and receive recoveries from defaulters should thereupon be assigned to HKFECC, a wholly-owned subsidiary of the Exchange. Now that ICCH and HKFGC were no longer active in the clearing activities, the related tasks had been taken over by HKFECC.
20.Regarding the query on the continued existence of HKFGC, and when the company would be wound up to save investors monies, the Chief Exeuctive Officer, Hong Kong Futures Exchange advised that HKFGC was still acting as an agent for the HKFECC and responsible for making any further recovery. The Hong Kong Futures Exchange (HKFE) was monitoring the performance of the HKFGC to ensure that the recoveries would cover the expenses incurred. On the continued existence of HKFGC, DS for FS remarked that the Administration, in conjunction with SFC and HKFE, will monitor the situation closely and make changes to the current arrangement as necessary. SD/SFC also clarified that the agreement reached after the 1987 market crash did not force the ICCH or the HKFGC into insolvencyand when the company would be wound up to save investors monies, the Chief Executive Officer, Hong Kong Futures Exchange Ltd.HKFGC was acting as an agent for the HKFECC and be responsible for making any further recovery. The Hong Kong Futures Exchange was monitoring the performance of HKFGC to ensure that the recoveries would cover the expenses incurred. SD/SFCcrash did not force the ICCH or the HKFGC into insolvency. He also advised that suitable arrangements would be made for the winding up of the two companies in due course.
21.In response to members concern about the disposal arrangements for the surpluses, SD/SFC said that the special levy on transaction under the Stock Exchange and the Futures Exchange amounted to HK$1.55 billion and HK$67 million respectively. A HK$71 million surplus representing excess recoveries had been applied to the HKFECC's Reserve Fund. DS for FS said that whilst the surpluses had been appropriated to the HKFECC as provided for under the arrangement as re-structured in 1989, the Chairmen of the two Exchanges, the SFC and the Government had had an understanding that the monies would be used for infrastructural developments beneficial to both the securities and futures markets. The Administration would maintain regular dialogue with the Exchanges in this respect.surpluses, SD/SFCFutures Exchange were HK$1.55 billion and HK$6.7 million respectively. A HK$71 million surplus representing excess recoveries after the full repayment of the Lifeboat loan received by the HKFECC had been applied to the company's Reserve Fund. DS for FSunder statutory provision, the Chairmen of the two Exchanges, the Securities and Future Commission and the Government had reached a consensus on its usage. In general, the monies would be invested in major infrastructural developments which would help improve the trading and risk management facilities of both the securities and futures markets. The Administration would maintain regular dialogues with the Exchanges in this respect
22.A few members opined that the incident clearly reflected the market and system defects of the HKFE. clearing systems. They opined that the Administration should identify the cause of the incident and put in place appropriate measures to prevent its recurrence. DS for FS said that over the years, a lot of improvements had been put in place to improve the market systems, particularly in respect of trading, settlement, clearing and risk management. The recent financial turmoil had clearly proven that those measures had significantly improved the reliability and capacity of our market systems, which had weathered the test strongly and confidently. had weathered the test that they were designed to withstand. The trading, clearing and settlement, and risk management in place had enabled the markets to operate smoothly and efficiently. The Administration would continue to explore ways to further improve the market systems. Responding to a member's further query on the responsible parties for the incident and the penalties imposed, DS for FS said that necessary legal actions, such as recovery of defaults, had already been taken over the years after the market crash in 1987. responsible for the defaults in the clearing systems and whether appropriate penal actions should be taken, DS for FScome to an end and that necessary legal actions had already been taken. At the request of the Chairman to provide a more detailed explanation in writing, she undertook to provide further information on actions taken so faractions undertaken.
VI. Any other business
Error! Bookmark not defined. There being no other business, the meeting ended at 5:50 pm.
Provisional Legislative Council Secretariat
22 January 1998