Annual Review : Achievements and New Initiatives

1
Annual Review Achievements and New Initiatives
Paul Chow Chief Executive, Hong Kong Exchanges
and Clearing Limited 13 January 2006
2
Agenda

• New Records Set In 2005
• 2005 Major Achievements
• 2006 Major Initiatives
• Conclusion

3
New Records Set in 2005New Records in the
Securities Market
2005(up to year-end)
HK
Pre-2005 Record
8,260.3 bil 4,520.4 bil 953.3 bil 856.6
bil 165.7 bil 137.4 bil71.6 bil 1,682
(21 Dec 2005)
Market Capitalisation
6,695.9 bil 3,974.1 bil 941.1 bil524.5
bil 132.1 bil 52.4 bil 43.6 bil 1,259
(31 Dec 2004) (Year 2004) (Year
2004) (Year 2004) (Year 2000) (Year 2000) (Year
2000) (Year 2004)
Total Market Turnover
Securities Achieved Highest Turnover Record
Trading Turnover of H shares Trading Turnover
of Derivative Warrants

• New Funds Raised Records by Initial Public Offers
  
• IPO equity capital raised
• IPO equity capital raised by H shares
• Largest single IPO by a listed company

Number of Newly Listed Derivative Warrants
The figures represent the total market
capitalisation of all equity securities listed on
the Main Board and Growth Enterprise Market (GEM)
and exclude other listed securities such as REITs
and government bonds. Trading only stocks under
pilot programmes are also excluded.
IPO equity capital raised exceeded post-IPO
capital raised for the first time.
The figure excludes funds raised by REITs,
which are classified as Unit Trusts. Total IPO
funds raised by the Link REIT (0823), Prosperity
REIT (0808) and GZI REIT (0405) was 25.8 billion.
4
New Records in the Derivatives Market
Volume
Previous All-time-high (Contracts)
Number of Contracts in 2005 (Up to year-end)
Total Futures and Options
19,629,692 11,884,152 7,745,540 8,601,559 5,611,83
2
(Year 2004) (Year 2004) (Year 2004) (Year
2004) (Year 2004)
25,523,007 13,433,386 12,089,621 9,910,565 8,722,3
93
Total Futures
Total Options
Hang Seng Index Futures
Stock Options
5
HKEx strategic plan for 2004 2006
Building a Quality Market
Consolidation
Building a quality market
Becoming a Mainland partner
Time

• Cost rationalisation
• Prioritise projects streamline internal
  processes
• Upgrade obsolete systems
• Improve operational efficiency
• Strengthen staff team
• Strengthen risk management

• Strengthen regulatory regime
• Foster Corporate Governance culture
• Improve market infrastructure
• Increase market liquidity
• Raise customer satisfaction investors
  confidence
• Improve investor education information
  dissemination

• Expand Mainland China offerings
• Strengthen co-operation with Mainland entities

6
2005 Achievements Building a Quality Market

• Listing Regulation
• Enhanced regulation of sponsors IFAs (Jan)
• Revised Corporate Governance Best Practices (Jan)
• Solicited public views on new structure for
  Listing decision-making (Feb-May)
• Support establishment of statutory listing
  requirements (submission made in Mar)

7
2005 Achievements Building a Quality Market

• Listing Regulation
• Published second Listing Committee Annual Report
  (Jun)
• Set out future model for dissemination of
  regulatory information by Main Board issuers
  (Nov)
• First phase of Listing Committee structure rule
  amendments approved by the Exchange (Dec)
• Prepared for a major review of GEM (H2 2005)
• Implemented case database for Listing Division

8
2005 Achievements Building a Quality Market

• Trading
• Commenced Trading Hall renovation (Jul)
• Reduced minimum trading spreads for shares above
  30 phase 1, and changed AMS/3 parameters to
  complement spread reductions (Jul)
• Exempted placing or fund-raising activities by
  Exchange Participants from current prohibition of
  dealings in suspended securities under trading
  rules (Sep)
• Increased maximum number of outstanding orders
  per price queue from 2,000 to 4,000 orders in
  AMS/3 (Nov)
• Increased Exchange Participants Open Gateway
  trading capacity via sale of total 271 standard
  throttles

9
2005 Achievements Building a Quality Market

• Product and Market Development
• Enhanced measures for stock options (Feb)
• Introduced new products, including FTSE/Xinhua
  China 25 Index Futures and Options, and six
  additional classes for stock options futures
  (May, Jul, Nov Dec)
• Obtained SFCs agreement to increase position
  limits for stock options
• Reviewed derivative warrant market (HKExs views
  published in Oct)
• Enhanced market-making arrangement for Exchange
  Traded Funds (ETFs)
• Introduced Real Estate Investment Trusts and more
  ETFs
• Explored the introduction of Callable Bull/Bear
  Contracts
• Provided continuous education and training for
  7,200 employees of Exchange Participants

10
2005 Achievements Building a Quality Market

• Clearing
• Upgraded Clearing Service Call Centre and
  Interactive Voice Recording System (Jan)
• Waived monthly stock custody fee for delisted
  securities and securities in prolonged suspension
  (Feb)
• Abolished DCASS standard instruction
  input/processing fee for performing external
  trade transfer (Mar)
• Improved CCASS Nominee Services by extending
  CCASS deadline for Participants to submit voting
  instructions and corporate action instructions
  (Apr and Aug)
• Implemented Derivatives Market Clearing Houses
  fee changes on interest retention rate and
  accommodation charge (Jun)

11
2005 Achievements Building a Quality Market

• Clearing
• Introduced further fee concessions for Investor
  Participants Account Services in CCASS (Jul)
• Enhanced CCASS money settlement (Aug)
• Harmonised capital requirements of different
  categories of clearing participants of the three
  clearing houses (Oct)
• Announced elimination of scrip fee on deemed book
  close dates (Nov)

12
2005 Achievements Building a Quality Market

• Market Related Systems
• Upgraded the operating systems of the HKATS,
  DCASS and CCASS/3 (Jun)
• Commenced consolidation of four existing market
  system networks into SDNet phase 1 migration of
  the HKATS/DCASS/PRS network completed (Oct)
• Upgraded HKEx website capacity and substantially
  enhanced disaster recovery arrangements (Sep -
  Nov)

13
2005 Achievements Building a Quality Market

• Market Related Systems
• Migrated AMS/3 Order Routing System to an
  integrated technology platform (Nov)
• Upgraded system capacity of AMS/3 (Dec)
• Replaced all (over 400) AMS/3 off-floor terminals
  installed since 1998 and upgraded the
  corresponding security solution (Oct - Dec)
• Consolidated AMS/3 satellite systems (Dec)     

14
2005 Achievements Building a Quality Market

• Information Services
• Introduced new service for redistribution of
  historical data products and signed the first
  vendor in September
• Extended special offer for Mainland users of
  real-time market data (Nov)

• Business Development
• Continued to organise conferences to promote the
  Hong Kong market
• Provided training programmes

15
2005 Achievements Business Corporate
Citizenship Recognition

• Financial Reporting
• Hong Kong Management Association Bronze prize
  for Best Annual Reports Awards 2005
• Corporate Governance
• Hong Kong Institute of Certified Public
  Accountants Best Corporate Governance Disclosure
  Awards in 2003, 2004 and 2005 and Significant
  Improvement Award in 2004 (Non-Hang Seng Index
  Constituent category)
• The Hong Kong Institute of Directors Director of
  the Year Awards 2005 (Listed Companies Main
  Board Constituents of Hang Seng Indices group)
• CLSA and Asian Corporate Governance Association
  CG Star in 2005
• Investor Relations
• A member of the FTSE4Good Index Series since
  September 2005

16
2005 Achievements Business Corporate
Citizenship Recognition

• Cash Market Infrastructure Systems
• Hong Kong Computer Societys IT Excellence Award
  Won the Gold Award in the Applications Category
  for securities trading system (AMS/3) in 2004 and
  for securities clearing and settlement system
  (CCASS/3) in 2005
• Charity Donation
• Total donations of about 40 million in 2005 and
  over 130 million since 2000 to The Community
  Chest via Stock Code Balloting for Charity Scheme

17
2006 Major Initiatives

• Listing Regulation
• Implement abolition of paid announcements and
  enhance issuer information content on HKEx
  website
• Continue work towards the establishment of
  statutory listing requirements
• Revamp listing decision-making structure 2nd
  phase
• Study on introducing a comprehensive Listing case
  management and information system
• Further refinement of IPO vetting process
• Continue review of GEM
• Further enhance corporate governance
• Support establishment of Financial Reporting
  Council
• Establish China Affairs Team

18
2006 Major Initiatives

• Trading
• Complete Trading Hall renovation (Trading Hall
  and media booth open on 16 Jan Public
  Gallery opens in Apr)
• Consider reducing minimum trading spreads of
  shares traded below 30 (phase 2)
• Launch and develop Callable Bull/Bear Contracts
  market
• Strengthen derivative warrant market, including
  web-based resource centre
• Establish more favourable position limit regime
  for derivatives trading
• Review market-maker model for derivatives market
• Review possible introduction of tailor-made Combo
  orders in derivatives market

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2006 Major initiatives

• Clearing
• Further enhance CCASS nominee services
• Harmonise collateral policies of the three
  clearing houses
• Study expanding admission of Investor
  Participants to CCASS
• Explore Third Party Clearing

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2006 Major initiatives

• Market Systems
• Upgrade the capacity of HKATS, DCASS and PRS (Jan
  Feb)
• Upgrade software of HKATS Network Gateways
  (Q2-Q3)
• Implement phase 2 of network consolidation with
  migration of CCASS network to SDNet (Q2)
• Replace hardware and software of AMS/3 Open
  Gateway and Multi-Work Station (Q2/2006
  Q1/2007)
• Feasibility study and prepare for migration of
  AMS/3 for a higher version of server technology
  (Q3 Q4)

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2006 Major Initiatives

• Business Development
• Continue to organise listing promotion events to
  attract potential issuers from the Mainland,
  including the Mainland operations of companies
  from Taiwan and Japan
• Continue to provide training programmes for
  issuers

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• Thank you