Status Report on New Product and Market Development Initiatives (Status as of 15 July 2003)

Corporate

29 Jul 2003

Status Report on New Product and Market Development Initiatives
(Status as of 15 July 2003)

The following initiatives are subject to market support and regulatory approval so they may not be implemented. HKEx will announce further details of these initiatives as they progress.

Initiative	Status on 15 April 2003	Status on 15 July 2003
Review of practices on dissemination of listed issuers announcements	A further announcement will be made in the second quarter of 2003.	Overall plan is being finalised. In particular, certain milestones are being considered as possible preconditions to full implementation to ensure smooth implementation and maximum market acceptability.
Proposed amendments to the Listing Rules relating to corporate governance issues	Not included in this issue.	A report on conclusions from the market consultation was issued on 17 January 2003. Rule amendments are being handled and are expected to be considered by the Listing Committee in the third quarter of 2003.
Exploration of new financial products and review of existing products	Capital Protected Instruments HKEx is discussing viable structures for the introduction of capital protected instruments on the Stock Exchange with regulators and market participants.	Capital Protected Instruments HKEx is discussing with the Securities and Futures Commission (SFC) the launch of Capital Protected Instruments under Chapter 15A of the Stock Exchange Listing Rules, which covers structured products.
	Interest Rate Swap Futures HKEx is liaising with the compiling agent and market participants on the development of a widely accepted market benchmark for an Interest Rate Swap futures contract.	Interest Rate Swap Futures HKEx is assessing the market acceptance of the Hong Kong dollar Interest Rate Swap Fixings after their refinement in May 2003
	Flexible Options A proposal on narrowing the strike intervals for selected stock option classes is being studied and HKEx is consulting market participants on it.	Flexible Options HKEx will narrow the strike intervals for existing stock option classes by phases instead of developing Flexible Options. The strike intervals for options on HSBC Holdings Plc and Hang Seng Bank Ltd for selected months were narrowed by 50 per cent effective 30 April 2003 and market responses have been positive
	Cash settled Exchange Fund Note futures HKEx plans to further consult the Hong Kong Monetary Authority (HKMA) on the introduction of a cash settled Exchange Fund Note futures contract in the fourth quarter of 2003.	Cash settled Exchange Fund Note futures The introduction of a cash settled Exchange Fund Note futures contract will be subject to further review by the HKMA in the fourth quarter of 2003.
	Phase II of Equity Linked Instruments Not included in this issue.	Phase II of Equity Linked Instruments HKEx plans to have discussions with market participants in the fourth quarter of 2003 with a view to expanding the scope of eligible underlying securities for the issuance of Equity Linked Instruments.
	Regional Exchange Traded Funds Not included in this issue.	Regional Exchange Traded Funds HKEx plans to discuss with potential issuers the issuance of regional Exchange Traded Funds on the Stock Exchange.
Development of energy derivatives	HKEx and Shanghai Futures Exchange will look into the possibility of developing an Asian energy derivatives market under a Memorandum of Understanding signed on 11 April of this year.	Working group comprising representatives of both organisations has been formed. Study on market and clearing model is in progress.
Extension of trading hours	Not included in this issue.	There is no immediate timetable for the implementation of extended trading hours.
Consultation on reducing board lot size and narrowing minimum spreads	HKEx plans to consult the market in the second quarter of this year.	The study on board lots has been temporarily shelved due to lack of strong preference from the market. HKEx intends to consult the market on proposals to tighten the trading spreads later this year.
Introduction of CBroker facility	A survey on broker demand is being conducted; HKEx is also requesting information from potential service providers for the CBroker service.	Due to insufficient demand for the CBroker facility, the project has been shelved.
Upgrade of HKATS to OM 17.1	Testing of OM 17.1 software has begun.	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. Target for rollout is the fourth quarter of 2003.
Integration of derivatives clearing	The DCASS (Derivatives Clearing and Settlement System) project is progressing in accordance with the revised schedule.	The remaining DCASS development and testing is progressing in line with the revised schedule. The DCASS implementation programme, including production readiness and market rehearsals will be scheduled on completion of the prerequisite HKATS upgrade, scheduled for the fourth quarter of 2003. The launch of DCASS is now targeted for the first quarter of 2004.
Enhancement of IP (Investor Participant) accounts in the Central Clearing and Settlement System	The operational model for an enhanced IP Account service is under consideration and subject to further review and discussion with market intermediaries and regulators.	HKEx is preparing a consultation paper to set out the proposed IP account model and the implications of implementing the model on market stakeholders in Hong Kong, and to seek market feedback thereon. The consultation paper is expected to be issued in the third quarter of 2003.
Third Party Clearing (TPC)	The operating model and implementation timetable is being finalised to take further market feedback into account. In parallel, HKEx will assess more carefully likely market response to TPC, especially the response from small brokerages.	HKEx is revisiting the agency arrangement and the explicit model within the overall TPC framework. A consultation paper is being prepared which will be published in the third quarter of 2003. The conclusions to the July 2002 consultation paper on the implicit TPC model will also be published for further market comment.
Scripless Market (as recommended in the 1999 report by the Steering Committee on the Enhancement of the Financial Infrastructure)	HKEx and the SFC completed a cost and benefit analysis on the implementation of a scripless securities market in Hong Kong.	HKEx is preparing a consultation paper to set out the implications of implementing a scripless securities market in Hong Kong and to seek market feedback thereon. The consultation paper is expected to be issued in the third quarter of 2003.
Consolidation of Clearing Houses	Not included in this issue.	HKEx is evaluating the implementation a single clearing house covering both securities and derivatives market products in Hong Kong.

Initiative	Status on 15 April 2003	Status on 15 July 2003

This report is carried in HKEx's quarterly publication, Exchange, published on 29 July 2003.

Updated 29 Jul 2003