Status Report on New Product and Market Development Initiatives (Status as of 15 January 2005)

Corporate

24 Jan 2005

Status Report on New Product and Market Development Initiatives
(Status as of 15 January 2005)

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 October 2004	Status on 15 January 2005
1.	Regulation of sponsors and independent financial advisers (IFAs)	HKEx plans to publish in October 2004 a joint HKEx/Securities and Futures Commission (SFC) consultation conclusions report regarding the regulation of sponsors and IFAs, as well as amendments to the Listing Rules (Main Board and Growth Enterprise Market).	HKEx published on 19 October 2004 a joint HKEx/SFC consultation conclusions report regarding the regulation of sponsors and IFAs, as well as amendments to the Listing Rules. The rule amendments took effect on 1 January 2005.
		The final report and rule amendments were approved by the SFC on 20 September 2004. The rule amendments will commence on 1 January 2005. They are subject to limited transitional arrangements.
2.	Exploration of new financial products and review of existing products	Callable Bull/Bear Contracts (CBBCs) HKEx is contemplating the introduction of CBBCs as a new category of Structured Product to give issuers and brokers an opportunity to explore the market potential of CBBCs.	In November 2004, HKEx conducted a consultation with 19 Structured Product Issuers to collect comments about the proposed market model of CBBCs. Most of the comments are favourable to the introduction of CBBCs. Having carefully considered the comments received, HKEx is now preparing a submission on the CBBC market model to the SFC for deliberation.
		FTSE/Xinhua China 25 Index Futures contract Not included in this issue.	HKEx is studying the feasibility of introducing a FTSE/Xinhua China 25 Index Futures contract. Factors being considered include the development of the underlying market, potential market demand and regulatory requirements.
		Revamp stock options market Not included in this issue.	HKEx is recruiting market-makers to provide continuous quotations in the most popular options classes. HKEx will also narrow the strike intervals for selected option classes to offer more choices in strike prices to better suit trading needs. A series of educational activities on stock options will be conducted jointly with Options Trading Exchange Participants to raise public investors' knowledge about this product.
3.	Consultation on the reduction of minimum spreads	HKEx is now reviewing the responses it received from market participants and will publish the consultation results in due course.	HKEx's Board of Directors has endorsed the proposal to narrow minimum trading spreads for stocks over $30. The proposal is expected to be implemented in the second quarter of 2005.
4.	Review the composition and structure of the Listing Committees	Not included in this issue.	In response to the Government's Consultation on Proposals to Enhance the Regulation of Listing, HKEx plans to consult the market in the first quarter of 2005 on modifications to the composition and structure of the Listing Committees in their administrative decision making and advisory roles. The proposed changes would provide for a broadening of the membership of the Committees and increased investor participation.
5.	Network consolidation (HKEx is consolidating the networks for its major market systems on a new network. The securities market systems comprise AMS/3, the Third Generation Automatic Order Matching and Execution System; CCASS/3, the upgraded Central Clearing and Settlement System; and the Market Data System [MDS]. The derivatives market systems comprise HKATS, the Hong Kong Futures Automated Trading System; DCASS, the Derivatives Clearing and Settlement System; and the Price Reporting System [PRS].)	Not included in this issue. Background information: Implementation of the new network was at the final stage of supplier selection in October 2004. During the supplier selection process, a short list of vendors was drawn up based on the responses to the Request for Proposals. Short-listed vendors were invited to present a Proof of Concept and the best technical solution was chosen.	HKEx has selected PCCW to supply, implement and operate the HKEx consolidated network, SDNet, following an open market competition and thorough tendering and evaluation process. The HKATS/DCASS/PRS network will be migrated in 2005, followed by CCASS/3 in 2006, and AMS/3 and MDS in 2007. As a result of the network consolidation, the usage fees of the AMS/3 trading devices were reduced by 20 per cent on 1 January 2005.
6.	Renovation of the Trading Hall	Not included in this issue.	In November 2004, the HKEx Board approved in principle a proposal to retain the Trading Hall and strengthen its position as an icon of Hong Kong's securities market. HKEx invited designers/ architects to submit expressions of interest in the Trading Hall project by mid-December 2004 and is now reviewing the responses. Short-listed candidates will be invited for tender.
7.	Scripless market (as recommended in the 1999 report by the Steering Committee on the Enhancement of the Financial Infrastructure)	The drafting of the enabling legislation is in progress. To prepare for the initial phase of the scripless implementation, which is the dematerialisation of Central Clearing and Settlement System (CCASS) holdings, HKEx is working with the Federation of Share Registrars on the operational arrangements between CCASS and share registrars upon CCASS dematerialisation.	The SFC is making progress in drafting the enabling legislation. On CCASS dematerialisation, HKEx has discussed with the Federation of Share Registrars the overall operational arrangements to support uncertificated shareholdings of CCASS. The next step will focus on agreeing the details of the operational arrangements. The Federation of Share Registrars also has had discussions with HKEx on the way forward with the electronic linkage to facilitate the transfer of uncertificated shares on the register of members maintained by the share registrars. Various options for the scripless transfer model are being explored.

	Initiative	Status on 15 October 2004	Status on 15 January 2005

This report is carried in HKEx's quarterly publication, Exchange, published on 24 January 2005.

Updated 24 Jan 2005