Slide 1

Ladies and Gentlemen,

Today is my first meeting with you as the chief executive of HKEx and it is my great pleasure to update you on the company's latest developments. There have been a number of press reports recently about changes at HKEx and our strategy. Unfortunately, some of those were highly speculative and several were incorrect. So I would like to take this opportunity to explain what is happening at our company and answer any questions you may have. However, as our upcoming interim results will cover the six-month period to 30 June 2003, I won't discuss the company's financial performance in the first half of the year or other price-sensitive information.

Slide 2

Firstly, I would like to talk about HKEx's development strategy. The top priorities of HKEx remain reinforcing and developing the Hong Kong markets as:

1. The key international capital market for Mainland and Hong Kong enterprises;

2. The Asian time-zone pillar in the global securities and futures markets; and

3. The preferred Asian partner for major equities and derivatives exchanges seeking to build global alliances.

We are confident about achieving the first objective as we have an excellent track record. Over the last 10 years, our market has raised over $726.6 billion for H-share and red-chip companies. As of today (8 July 2003), we have 58 H-share and 71 red-chip companies listed on our Main Board, and 23 H-share and one red-chip companies listed on our GEM. To strengthen our market's position as a key international capital market for Mainland enterprises, we will continue our market education and promotion efforts in Mainland China. For example, several large-scale road shows are being planned for the coming months.

In connection with these efforts, we are delighted about the Government's announcement last week that HKEx will be permitted to establish a representative office in Beijing under CEPA, the Closer Economic Partnership Arrangement. We will soon apply for permission and we plan to set up the Beijing representative office as soon as permission has been granted. We believe the establishment of its Beijing office will help us provide quicker and better services to potential issuers on the Mainland and thus attract more new listings on our exchange.

Having said that the Mainland is our top priority, becoming more international remains the best direction for our market's future.

Internationalisation doesn't mean we have to invest in overseas exchanges and clearing houses. We have no particular investment target at this time and are not particularly interested in making investments.

We believe the global securities and derivatives markets will develop in such a way that major North American, Asian and European markets will be linked up in an international trading platform operating across time zones whereby investors dealing in blue chips listed in major world markets may trade continuously from one time zone to another. In this scenario, Hong Kong enjoys several advantages, as it shares with New York and London, key markets of the North American and European time zones, a common language - English - and the practice of the common law. Surely, difficulties remain, including differences in accounting standards, regulatory frameworks and market requirements. But they can be resolved.

Slide 3

In the longer term, HKEx will join with other financial institutions and professionals to work towards the following objectives:

1. Hong Kong has a solid foundation in the rule of law and market regulations and facilities of the highest international standards. It has also established important international ties in areas such as market operations and regulation. The Hong Kong financial market is well-prepared to offer Mainland enterprises and investors financial services of the highest international calibre and to assist Mainland enterprises and investors in entering the international market;

2. Hong Kong has a large pool of professional financial expertise. The professional standards, conduct and international experience of its financial professionals have gained wide international recognition. The professionals are well-versed in the politics, legal systems, government policies, economics and cultural backgrounds of the Mainland, Hong Kong and neighbouring Asian regions. As a result, Hong Kong is well-positioned to develop policies on rating services, to establish an environment that caters to the development of rating services and to set internationally recognised standards for the services. The goal is to set up a rating mechanism appropriate for the region and to develop a new rating services industry in the region.

3. Development of the Hong Kong investment fund industry is bound to move forward once a channel for the mutual flow of legitimate capital between the Mainland and Hong Kong has been established. As the capital supply here increases, Hong Kong will think of luring more important blue chip companies from around the world to list on its market so as to turn itself into the most important investment and fund management centre in the Asian time zone where analysts assemble;

4. On full convertibility of the renminbi, securities and derivatives futures markets in Shanghai and Shenzhen will integrate with those of Hong Kong to develop into Asia's biggest financial market.

HKEx will have a major role in developing Hong Kong in these directions.

Slide 4

Our corporate structure was revised last month to strengthen operational efficiency and put HKEx in a stronger position to seize future opportunities.

The main structural changes involved the Exchange Business Unit (EBU) and the Listing, Regulation and Risk Management Unit (LRRM), has been renamed the Listing Unit. The participant admission and surveillance functions of the Regulation Division of LRRM have been transferred to the EBU, and the sponsor regulation function of the Regulation Division has been consolidated in the Listing Unit. The Listing Unit is now headed by Richard Williams, who was head of the Listing Division of LRRM, and he has succeeded Karen Lee as secretary to the Main Board and Growth Enterprise Market Listing Committees. Ms Lee is now the chief financial officer of HKEx.

As part of a continuing effort to enhance the competitiveness of the corporation, we have further streamlined our operations. As a result, the employment of nine senior executives and five secretaries was terminated at the end of May. Other staff affected by the streamlining exercise were redeployed to fill comparable vacancies in other units. The streamlining is consistent with the overall cost control policy of the company.

The corporate restructuring of HKEx has been largely completed now, though there may be further adjustments among various units. Upon the completion of a review on the workflow and business processes, the jobs currently performed by the 50 to 60 contract or temporary staff could be partly or fully taken up by HKEx's internal human resources. The contract or temporary staff could then be phased out in the following 12 months.

HKEx conducts an annual review of staff salaries. At the end of June, HKEx had 768 permanent employees (compared with 797 at the end of December 2002). Like other reviews, the staff salaries review might result in reductions or increases, depending on the performance of individual staff members.

Slide 5

This diagram shows the new corporate structure of HKEx.

Slide 6

Looking ahead, we will focus our resources in proceeding with the projects that will create value for shareholders or market users. These projects include those relating to listing regulation, market facilities and the development of products and services.

On listing matters, we continue to work with the Government on the review of the listing regime in Hong Kong. The Financial Secretary announced on 10 April 2003 that in view of the far-reaching implications of the recommendations of the Expert Group, the community would be further consulted. The Government expects the consultation exercise to be started in the third or fourth quarter of this year and concluded in early 2004. Related legislative amendments, if necessary, could be introduced to the Legislative Council in the 2004/2005 legislative session. HKEx will work closely with the Government and the SFC in this process. We still hold the view that for the long-term benefit of the market, HKEx is best positioned to be the front-line regulator on listing matters. We will substantiate our view and present it clearly to the community.

We will continue to strengthen our market quality by introducing new rules on corporate governance practices. We issued a report on 17 January 2003 on conclusions from the market consultation on corporate governance issues. Rule amendments are being handled and are expected to be considered by the Listing Committee in the third quarter of this year.

We are consulting the market together with SFC on proposed rule amendments on the regulation of sponsors. This consultation will close at the end of this month.

We are also reviewing the market responses to our consultations on initial and continuous listing eligibility criteria and delisting mechanism. We hope to draw conclusions from the responses and draw up recommendations soon.

Slide 7

Turning to market infrastructure and facilities, we are upgrading the software programme of our derivatives trading system, HKATS, the Hong Kong Futures Automated Trading System. Internal tests (Users Acceptance Test, Integration Test) have been completed successfully. HKEx has invited an independent party to review the coverage and adequacy of these tests as requested by the SFC. External tests with Participants will be conducted from August this year. The target for rollout is the fourth quarter of this year.

In parallel with the completion of the rollout of our new securities clearing system, CCASS/3, the development and testing of our integrated derivatives clearing system, DCASS, is also progressing as per the revised schedule. The DCASS implementation programme, including production readiness and market rehearsals will be scheduled on completion of the prerequisite HKATS upgrade I mentioned a few moments ago. The launch of DCASS is now targeted for the first quarter of 2004.

We are preparing a consultation paper to set out the proposed Investor Account model and the implications of implementing the model on market stakeholders in Hong Kong. We aim to consult the market in the third quarter of this year.

On the Third Party Clearing proposal, we are revisiting the agency arrangements and the explicit model within the overall TPC framework. A consultation paper is being prepared which will be published in the third quarter of this year. The conclusions to the July 2002 consultation paper on the implicit TPC model will also be published for further market comment.

We will also study the Scripless Market Model as recommended in the 1999 report by the Government's Steering Committee on the Enhancement of the Financial Infrastructure. HKEx and the SFC had completed a cost and benefit analysis on the implementation of a scripless securities market in Hong Kong. HKEx is planning to consult the market in the third quarter of this year on the implications of implementing the scripless market model in Hong Kong.

To further improve market efficiency, HKEx is evaluating the implementation a single clearing house covering both securities and derivatives market products in Hong Kong.

On the trading side, we intend to consult the market on the trading spreads of high-priced securities around the third quarter of this year. However, the study on board lots has been temporarily shelved due to a lack of strong preferences from the market.

Slide 8

On the product development front, we continue to explore new financial products and review existing products.

Together with Shanghai Futures Exchange, we are looking into the possibility of developing an Asian energy derivatives market under a Memorandum of Understanding signed on 11 April of this year. A working group comprising representatives of both organisations has been formed. Study on market and clearing models is in progress.

We are discussing with the SFC the launch of Capital Protected Instruments under the Stock Exchange Listing Rules that cover structured products.

We also plan to hold discussions with market participants in the fourth quarter of this year with a view to expanding the scope of eligible underlying securities for the issuance of Equity Linked Instruments.

We will continue our discussions with potential issuers of regional Exchange Traded Funds on the Stock Exchange.

We will narrow the strike intervals for existing stock option classes by phases instead of embarking on the development of Flexible Options. The strike intervals for options on HSBC and Hang Seng Bank for selected months were narrowed by 50 per cent in May 2003 and market responses have been positive.

We are also assessing the market acceptance of the Hong Kong dollar Interest Rate Swap Fixings after their refinement in May 2003, with a view to introducing Interest Rate Swap Futures.

Slide 9

We can't talk about our financial performance in the first half of this year but surely we can discuss the performance of our markets.

This table summarises the performance of our securities market for the first half of 2003.

The average daily turnover (MB plus GEM) in the first half of 2003 was down 6.8% from the corresponding period last year. However, it was 6.1% higher than the average for all of 2002.

We had 28 new listings in the first half of the year, compared with 62 new listings (MB:34 and GEM:28) in the same period last year. For all of 2002, there was total of 117 new listings, including two companies switching to Main Board from GEM.

Market Statistics

	(As of 30 Jun 2003)		(As of 30 Jun 2002)		(As of 31 Dec 2002)
	Main Board	GEM	Main Board	GEM	Main Board	GEM
Number of listed companies	824	175	787	137	812	166
Newly listed companies this year	16	12	34	28	60	57
Average daily turnover this year	6,956 mil	103 mil	7,341 mil	235 mil	6,474 mil	178 mil
Market capitalisation	3,907,287 mil	60,965 mil	3,791,697 mil	60,521 mil	3,559,099 mil	52,220 mil
Price earnings ratio	13.09	28.13	14.82	25.47	14.89	21.75
IPO funds raised this year	6,541 mil	577 mil	3,479 mil	2,299 mil	44,974 mil	7,011 mil
Number of H share companies	58	22	50	13	54	20
Number of Red Chip companies	71	1	69	1	71	1

Slide 10

Turning to the derivatives market, the average daily volume of HSI Futures increased by 26% against the average for all of 2002. The mini contracts were also doing better, with average daily volume edging up 3%.

The total trading volume of HSI Options in the first six moths was substantially higher than that of last corresponding period, up 185.3% from the first half of last year, or up 110% from the average for all of 2002.

The number of HIBOR contracts traded was lower in this first half due to two reasons. Firstly, the size of HIBOR contracts has been increased by five times since 27 May 2002. Secondly, the contracts are mainly traded by banks, whose trading interests were lower during the SARS outbreak in this first half.

We have also seen a small reduction of 3.9% in the average trading volume of stock options compared with the average for all of last year.

Slide 11

This comes to the end of my presentation. I'll be happy to answer any questions you may have. Thank you.