Status Report on New Product and Market Development Initiatives (Status of 1 July 2002)

Corporate

17 Jul 2002

Status Report on New Product and Market Development Initiatives
(Status of 1 July 2002)

The following initiatives are subject to market support and regulatory approval so they may not be implemented. Hong Kong Exchanges and Clearing Limited (HKEx) will announce further details of these initiatives as they progress.

Initiative	Status on 13 March	Status on 1 July
Development of the Exchange Traded Funds (ETF) market	Market making had been introduced for ETF listed without IPO to improve liquidity. Other market infrastructure enhancements were being developed.	Rules on Designated Specialists as market makers have been approved. Market Making Open Gateway and AMS/3 Terminal rules have also been approved.
Derivative warrants market	New derivative warrants started to list on the Stock Exchange from 28 January. HKEx expected to conduct a review in June.	Rule changes announced in June came into effect on 1 July. Changes will permit a wider range of derivative products (including ELI) to be listed on the Stock Exchange.
Development and trading of Equity Linked Instruments (ELI)	Market model was being developed for listed ELI. Listing rules were expected to be published in the second quarter of this year.	Market model has been finalised. Rule changes announced in June came into effect on 1 July. First listings are expected in early August.
Further development of the bond market	HKEx was working with the SFC on simplification of the procedures for retail bond issues.	In progress.
Changing the stock codes from four to five digits	Not included in this report.	HKEx has held preliminary discussions with Exchange Participants and information vendors but there are no immediate plans for changes. The issue remains under review to ensure market development needs are met.
Review on the corporate governance requirements under the Listing Rules	Consultation Paper on Proposed Amendments to the Listing Rules relating to Corporate Governance Issues was published on 21 January. The consultation period was scheduled to end on 22 April.	The consultation period was extended to 24 May. HKEx received a large number of responses in different formats. Comments are being consolidated for analysis.
Review of practices on dissemination of listed issuers' announcements	Consultation Paper was published on 12 March. The consultation period was scheduled to end on 2 April.	Market response has been generally favourable. HKEx will finalise its position shortly and inform the market of any new developments.
Upgrade of Central Clearing and Settlement System (CCASS/3)	Market rehearsals were scheduled for March and April. Implementation was to be in stages following the successful completion of the rehearsals.	CCASS/3 Stage 1 was launched at the end of May and is now under an extended stabilisation period. Market rehearsals for Stage 2 rollout are scheduled for July.
Integration of derivatives clearing	General and technical briefings for Participants were held in March. Implementation was scheduled for the fourth quarter this year.	The new Derivatives Clearing and Settlement System (DCASS) will replace the existing HKCC (Intracs) and SEOCH (TOPS) clearing systems to provide an integrated and state-of-the-art solution for futures and options clearing. The implementation of DCASS is progressing through a formal test programme and the system is scheduled to be introduced in the fourth quarter this year.
Third party clearing	Third party clearing entails the transfer of clearing obligations from a trade-executing Exchange Participant to a Clearing Participant. Market participants were being consulted informally.	The project was put to the HKEx Clearing Consultative Panel for comments on 5 June and received general support from the panel. A consultation paper will be published soon for full market consultation.*
Upgraded Stock Segregated Account with Statements (SSA)	Not included in this report.	Upgraded version of CCASS's SSA service is being promoted to Exchange Participants and investors as another option for custody of investors' securities.
Co-listing and possible trading collaboration with London Stock Exchange	Not included in this report.	HKEx will consult market participants on co-trading with London Stock Exchange.

Initiative	Status on 13 March	Status on 1 July

Note* The Consultation Paper on Third Party Clearing has been published on 10 July.

Updated 17 Jul 2002