Status Report on New Product and Market Development Initiatives (Status as of 16 April 2007)

Corporate

27 Apr 2007

Status Report on New Product and Market Development Initiatives
(Status as of 16 April 2007 )

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 January 2007	Status on 16 April 2007
1.	Electronic Disclosure Project	Preparations for implementation of this initiative are well-developed. Amongst other things, registration for the new electronic submission system is underway. Briefings to the market have also commenced.	On 23 March, HKEx announced the initiative for straight-through electronic disclosure and to abolish the requirement for Main Board issuers to publish paid announcements in newspapers (Electronic Disclosure Project) will commence on 25 June, barring unforeseen circumstances. In preparation for the Electronic Disclosure Project’s implementation: the amended Listing Rules have been posted on the HKEx website; registration of users of the electronic submission system is virtually completed; briefing sessions and hands-on familiarisation sessions have been completed; HKEx’s public viewing room was opened in February to give investors free access to HKEx’s websites, where they can search and view issuers’ documents, and the Securities and Futures Commission (SFC) website; HKEx has issued a Communication Paper to inform the market and stakeholders of the impact of the project.
2.	Consider accepting issuers from more overseas jurisdictions	HKEx is continuing to consider how it can best facilitate the listing of companies from other jurisdictions. HKEx plans to publish further details soon.	HKEx and the SFC have published jointly the Policy Statement Regarding the Listing of Overseas Companies to clarify the Listing Rules requirements governing the listing of overseas companies and assist companies incorporated outside Hong Kong or the recognised jurisdictions (Mainland China, Bermuda and the Cayman Islands) and their advisers when seeking a primary listing on the Main Board or the Growth Enterprise Market, or GEM.
3.	Review of the Growth Enterprise Market (GEM)	HKEx is studying respondents’ comments. HKEx is mindful of the position of existing GEM-listed companies and will consider their interests carefully when formulating proposals. The proposals will be subject to a separate consultation.	HKEx is continuing to explore proposals with the SFC. Once proposals are agreed it plans to consult the market.
4.	Proposed introduction of a closing auction session in the securities market	Not included in this issue.	HKEx has published a consultation paper on the proposed introduction of a single price auction in the securities market after regular trading. The proposal is aimed at improving the determination of closing prices, supporting trading at the market close, bolstering market liquidity and strengthening the securities market.
5.	Exploration of new financial products / services and review of existing products / services in the derivatives market	HKEx is considering the feasibility of introducing a new index futures contract linked to finance-related H-share companies.	HKEx is introducing Hang Seng China H-Financials Index futures on 16 April.
		HKEx is proposing additional expiry months in selected stock option classes to capture trading business in contracts with longer maturity and will seek clearance from SFC on the proposed rule amendments.	HKEx began offering a third calendar quarter expiry month in the following stock option classes on 2 April: Cheung Kong, China Life Insurance, China Mobile, HSBC and Hutchison Whampoa.
		HKEx is proposing the introduction of futures contracts based on US dollar/renminbi (RMB) and Hong Kong dollar/RMB and is consulting regulatory authorities on this proposal.	HKEx is consulting regulatory authorities on this proposal.
		Not included in this issue.	HKEx expects to award a contract by the second half of this year for a study of the feasibility of trading commodities derivatives and emissions-related products in Hong Kong.
6.	Introduction of Third Party Clearing (TPC) in the securities market	HKEx plans to introduce TPC this year to strengthen the securities market infrastructure and better support the participants’ businesses. Like the settlement agent service offered to CCASS Participants, TPC is another clearing option for Exchange Participants (EPs) to outsource their back office clearing and settlement operations. Since the 2002 consultation on a proposed TPC model, HKEx has been working with market participants to assess the potential business impact of TPC on EPs, especially in addressing their areas of concerns. The proposed TPC model is now being finalised for implementation.	Briefing sessions to present the proposed TPC model to CCASS Participants for their better understanding of the TPC proposals were held in March. Seminars are being organised for interested clearing service providers to discuss practical issues and commercial concerns with EPs interested in outsourcing their back office clearing and settlement operations. The TPC model is now being finalised for implementation. The tentative timeframe for the implementation is by end of the year.
7.	Harmonisation of collateral policies for the three clearing houses	HKEx is currently assessing the legal implications of adding and accepting more foreign government debt securities as non-cash collateral and will finalise the draft amendments to the rules and procedures of the respective clearing houses in relation to the admission of all the new types of non-cash collateral for approval in due course.	HKEx is continuing its efforts to address the legal implications of adding and accepting more foreign government debt securities as non-cash collateral before finalising the necessary amendments to the rules and procedures of the respective clearing houses in relation to the admission of all the new types of non-cash collateral.
8.	Network consolidation for major market systems on a new network (SDNet)	The migration of the MDF circuits to SDNet was successfully completed in December last year. MDF information vendors started paying around 40 per cent less in line rental charges on 1 January. AMS/3 line installation for SDNet is in progress and HKEx plans to complete it in the middle of this year.	AMS/3 line installation for SDNet is proceeding according to plan. Briefing sessions for EPs are planned for mid-April. Full scale connectivity tests and market rehearsal will be conducted in May. HKEx plans to do the rollout by batches in June.
9.	AMS/3 Open Gateway (OG) / Multi- Workstation System (MWS) upgrade	Obsolete OG / MWS hardware has been replaced and upgraded to address obsolescence and prepare for future AMS/3 system capacity expansion. The software upgrade started in January as scheduled.	The software upgrade for OGs / MWSs for which the hardware can be retained started in January and the plan is to complete the upgrade by the end of April.
10.	Derivatives market system upgrades	Not included in this issue.	HKEx has done capacity planning for HKATS, DCASS and PRS due to derivatives market growth and intends to implement the plans by phases in midyear.
10.	Derivatives market system upgrades	Not included in this issue.	HKEx also plans to upgrade HKATS and DCASS to Release 19.1, which is provided by OMX Technology. The project starts in April and the tentative target for completion is by early next year.
11.	AMS/3 enhancements	With a view towards improving EPs’ efficiency and the order input capacity in AMS/3, HKEx has tentative plans to expand the maximum number of outstanding orders per price queue from 10,000 orders in the pre-opening session and 8,000 orders in the continuous trading sessions to 20,000 for all sessions. In addition, the maximum outstanding orders per broker ID, now set at 4,000, will be abolished. Separately, HKEx will increase the AMS/3 market data broadcast rate to accelerate updating of the trading screen and devices in view of increased market activities.	The following AMS/3 enhancements were implemented in January: the maximum number of outstanding orders per price queue was expanded to 20,000 for all sessions; the limit on outstanding orders per broker ID was abolished; the market data broadcast rate was increased to accelerate updating of trading screens and devices in view of increased market activities.
		HKEx is also planning to increase the maximum board lots per order, now set at 600, in March and details will be announced in due course.	Effective 26 March, the maximum board lots per AMS/3 order was increased from 600 to 3,000.
		To give EPs an additional control measure to prevent erroneous order inputs, HKEx invited EPs in late December last year to review and determine their own Order Consideration Limit. This limit will be set at firm level and will apply to all orders and reported trades of the EP entered into AMS/3 irrespective of the trading channel. Tests are tentatively arranged in February prior to implementation of the above changes.	The consideration threshold setting to prevent erroneous order inputs has been implemented and about 95 per cent of EPs have configured their own Order Consideration Limit. For the remaining EPs, the implementation of their consideration threshold will be arranged based on their discretion and readiness.
12.	Expansion and improvement of CCASS Stock Segregated Account with Statement (SSA) service	HKEx introduced new features to the service on 2 January. Investors who have opened SSAs through their brokers / custodians can now check their account balances and movements through the CCASS Internet and Phone systems, and they can view and download statements through the Internet system. They can also receive email or SMS messages from CCASS on any account movement. Further enhancements to the service are to be implemented in the middle of this year. HKEx will also increase the number of SSAs it allows each broker or custodian to maintain.	Following the introduction of new features to the service in January, further enhancements which include electronic voting service, affirmation of share movement and money settlement via CCASS are progressing well and scheduled for implementation in the middle of the year. HKEx will work with CCASS Participants and stock broker associations to actively promote the service to investors.

Initiative		Status on 15 January 2007	Status on 16 April 2007

Note:

AMS/3, the Third Generation Automatic Order Matching and Execution System, is the trading system for the securities market. CCASS/3, the Latest Generation Central Clearing and Settlement System, and the Market Data Feed, or MDF, are the other major market systems supporting the securities market. HKATS, the Hong Kong Futures Automated Trading System, is the trading system for the derivatives market. DCASS, the Derivatives Clearing and Settlement System, and PRS, the Price Reporting System, are the other major market systems for the derivatives market.

This report is carried in HKEx's quarterly publication, Exchange, published on 27 April 2007.

Updated 27 Apr 2007