Exchange Participants and fund managers have a high level of confidence in the Hong Kong securities and derivatives markets and generally consider the markets to be fair and orderly, according to a survey conducted by the Hong Kong Exchanges and Clearing Limited (HKEx) in August to September 2004. In addition, the survey results showed that Exchange Participants were very satisfied with the efficiency and reliability of the trading systems, and the clearing and settlement systems for HKEx's securities and derivatives markets.

The Secondary Market Survey (SMS) 2004 was conducted by HKEx on both its securities and derivatives markets, covering the latter for the first time. The objectives of the SMS 2004 were to collect and assess the view of market users and to identify areas for possible improvement.

The survey revealed overall positive views on the following:

• Confidence in the HKEx stock market and derivatives market.
• The fairness and orderliness of the markets.
• The efficiency and reliability of the HKEx's stock and derivatives market systems.
• The attractiveness of the Main Board to invest in and to list on, and its liquidity.
• The effectiveness of the overall regulation of Main Board companies, and their corporate governance.
• Market transparency in terms of trading data and Main Board companies' information disclosure.
• The effectiveness of stock and derivatives broker regulation, and their business conduct.
• The protection of securities and derivatives investors.
• The efficiency of the trading, clearing and settlement processes.
• Services provided by market intermediaries.
• Development prospects in the Mainland China dimension.

Areas for improvement revealed include:

• The market depth and liquidity of the Growth Enterprise Market (GEM).
• The liquidity of the stock options market.
• The corporate governance and information disclosure of GEM companies.
• The corporate governance and information disclosure of Mainland companies.

Compared with the findings of the previous survey in 1999, perceptions about most of the Main Board aspects had improved.

Commenting on the survey findings, Patrick Conroy, HKEx Chief Operating Officer, said, "We are pleased at Participants' and Fund Managers' high satisfaction with the market operation and with our services. Respondents highlighted the stock options market as an area in which they would like to see more liquidity, and we are working on a series of measures which we hope will bring improvement there."

Richard Williams, HKEx Head of Listing, said, "It is clearly pleasing that Participants and Fund Managers are satisfied with the regulation of Main Board companies and with investor protection. We have taken note of respondents' wish to see improvement in the GEM market: a review of GEM is one of our priorities for the current year. We will also work more closely with the Mainland authorities to help strengthen our regulation of Mainland companies."

The survey was subject to certain limitations. Views would be affected by the prevailing market sentiment. The response rate from fund managers was low, therefore the aggregate responses mainly represent the views of the brokers. For the views of other market users, such as retail investors, reference should be made to other HKEx surveys, for example the recently published Retail Investor Survey 2004 (which is available on the HKEx website).

The SMS 2004 is the third survey in its series. The previous surveys were conducted in 1996 and 1999 on the securities market by The Stock Exchange of Hong Kong, which is now a wholly-owned subsidiary of HKEx. The target respondents of SMS 2004 were Stock Exchange Participants, Futures Exchange Participants, Stock Options Exchange Participants and fund managers. A total of 405 completed survey questionnaires were returned, representing an overall response rate of 64 per cent.

The full report on the Secondary Market Survey 2004 is now available on the HKEx website (http://www.hkex.com.hk/eng/stat/research/research.htm).