Status Report on New Product and Market Development Initiatives (Status as of 15 October 2007)

Corporate

26 Oct 2007

Status Report on New Product and Market Development Initiatives
(Status as of 15 October 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 16 July 2007	Status on 15 October 2007
1.	Electronic Disclosure Project (EDP)	The Electronic Disclosure Project commenced on 25 June and operations have been smooth overall. Subscribers for the free Issuer News Alert Service increased by about 50 per cent to nearly 31,000 between mid-April and mid-July.	Phase 2 will commence on 25 December. From that date onwards, Main Board issuers with their own websites will no longer be required to publish notifications in newspapers, while a Main Board issuer without its own website will be required to publish the full announcement in the newspapers as well as on the HKEx website. From 25 June next year onwards, every issuer must have its own website where the public must be able to access documents free of charge.
2.	Review of the Growth Enterprise Market (GEM)	HKEx will publish its consultation paper at the end of July. (Note: HKEx published the consultation paper on 27 July.)	Comments on the proposals in the consultation paper should be submitted on or before 31 October. HKEx will consider the comments received and take them into account in planning GEM’s further development.
3.	Consultation on Periodic Financial Reporting	HKEx plans to publish a consultation paper in the second half of this year on possible amendments to the Listing Rules on periodic financial reporting.	HKEx published a consultation paper on 31 August on possible amendments to the Listing Rules on periodic financial reporting. Comments on the proposals in the consultation paper should be submitted on or before 5 November.
4.	Possible introduction of depositary receipts	HKEx is studying the possible introduction of a framework that would allow issuers to list depositary receipts on the Stock Exchange.	Work is in hand to develop rules to facilitate the use of depositary receipts as a mechanism for listing within the existing Listing Rules framework for retail equity products.
5.	Dedicated issuer website	Not included in this issue.	HKEx plans to establish a dedicated issuer website solely for the regulatory filings and dissemination of issuer information to provide additional support for the electronic disclosure regime introduced under EDP (see Initiative 1 above) in June. The website will be developed in stages.
6.	Web Proof Information Pack	Not included in this issue.	HKEx has developed proposals for the posting of information packs in the nature of near-final draft prospectuses on the HKEx website prior to initial public offerings. The market response was generally positive and supportive when similar information packs were posted on the HKEx website for the A+H share initial public offerings of ICBC and China Citic Bank.
7.	Proposed introduction of a closing auction session in the securities market	The consultation period ended 7 May. Twenty-three sets of market comments were received. The majority of the respondents supported the proposal. (Note: The consultation conclusions were published on 19 July.)	Subject to the approval of the necessary rule amendments by the Securities and Futures Commission (SFC), implementation of the closing auction session is tentatively scheduled to take place in the first half of next year.
8.	Five-digit stock codes	Not included in this issue.	To cater for the growing number of new listings, HKEx announced on 8 October that its securities market would introduce five-digit stock codes on 7 April next year, subject to market readiness. HKEx will conduct seminars, testing sessions and rehearsals for market participants and promote public awareness via education materials before implementation.
9.	Exploration of new financial products / services and review of existing products / services	Not included in this issue.	HKEx is working with the SFC to facilitate the listing on its securities market of structured products with non-Hong Kong underlying assets and/or with duration beyond five years.
		HKEx announced on 18 July the appointment of consultants to study the feasibility of trading commodities derivatives and emissions-related products in Hong Kong. The study is expected to take about four months.	HKEx expects to receive the consultants’ final reports before the end of the year.
		Not included in this issue.	HKEx is exploring the possible introduction of a Mini-H-shares Index futures contract similar to its Mini-Hang Seng Index futures contract.
10.	Suspension of the tick rule for short selling	HKEx is working closely with the SFC to finalise a proposal on the suspension of the tick rule for short selling in normal business situations; the proposal is targeted to be implemented in the fourth quarter of this year. Suspension of the tick rule is expected to further enhance the efficiency of the price discovery process on the Stock Exchange.	HKEx submitted the proposed rule amendments to the SFC in August. The SFC notified HKEx that it needs more time to assess and determine the appropriate time to implement the proposal before approving the rule amendments.
11.	Remote Participants in the securities and derivatives markets	Not included in this issue.	HKEx is looking into the feasibility of trading on its exchanges by brokerage service providers that are not incorporated in Hong Kong and have not established a licensed brokerage in Hong Kong. The firms would be admitted as Remote Participants and required to arrange for their transactions to be cleared by third parties. Third party clearing services can be offered in HKEx’s derivatives market now and they will soon be permitted in the securities market (see Initiative 12 below).
12.	Introduction of Third Party Clearing (TPC) in the securities market	Discussion forums were held for experienced clearing service providers to speak to Exchange Participants about outsourcing of clearing and settlement operations. The TPC model has been finalised. An overview of the model will be published on HKEx website in August together with Frequently Asked Questions (FAQ). Implementation remains scheduled for the fourth quarter of this year.	An explanatory document on TPC, FAQ and a list of clearing service providers have been published on the HKEx website under Market Operations and Infrastructure. Implementation is now progressing on schedule with a tentative launch date in early December this year.
13.	Harmonisation of collateral policies for the three clearing houses	HKEx is continuing with the efforts described in the previous status report.	HKEx is reviewing the draft amendments to the rules and procedures of the respective clearing houses in relation to the admission of new types of non-cash collateral.
14.	Derivatives market system upgrades	The DCASS and HKATS capacity upgrades were completed in May and July respectively. The PRS capacity upgrade is planned for August.	The PRS capacity upgrade was completed in August.
14.	Derivatives market system upgrades	The HKATS and DCASS upgrade to application software Release 19.1 is in progress. HKEx plans to complete the upgrade by early next year.	The internal acceptance test and integration test were completed successfully in September. Production readiness drills and market rehearsals with Exchange Participants are planned for November and December. The HKATS and DCASS system upgrades to Release 19.1 will be rolled out early next year.
15.	AMS/3 capacity upgrade	Not included in this issue.	The HKEx Board approved in July and September a technology upgrade for the AMS/3 system. Migration of AMS/3 to the new Itanium platform will increase its daily processing capacity at its optimal performance level more than threefold to 5 million trades. The AMS/3 upgrade will be rolled out in January of next year.

Initiative		Status on 16 July 2007	Status on 15 October 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 26 October 2007.

Updated 26 Oct 2007