Status Report on New Product and Market Development Initiatives (Status as of 16 January 2006)

Corporate

25 Jan 2006

Status Report on New Product and Market Development Initiatives
(Status as of 16 January 2006 )

	Initiative	Status on 15 October 2005	Status on 16 January 2006
1.	Review of the derivative warrant market	HKEx is reviewing the derivative warrant market, aiming at further raising the market’s transparency. HKEx will also increase its efforts in market education on derivative warrants.	HKEx reviewed the derivative warrant market and published its views in last October. It continues to work closely with the Securities and Futures Commission (SFC) and the industry to further develop specific market enhancement proposals. To further expand the disclosure and dissemination on the HKEx website of information about derivative warrants, the warrant market and related educational materials, HKEx is proposing to develop a Derivative Warrant Resource Centre.
2.	Amendments to the Listing Rules to require Main Board issuers to publish short announcements in newspapers instead of full announcements	HKEx will establish an enhanced dissemination infrastructure for listed issuer information and will improve the security features and user-friendliness of the eSubmission system. HKEx plans to publish an exposure paper by the end of this year to seek public views on the transitional arrangements, proposed rule changes and requirements for listed issuers to establish their own websites and/or for third party websites.	HKEx published an exposure paper in mid-November last year with regard to its proposal to abolish the requirement for Main Board issuers to publish paid announcements in the newspapers and related matters, and had been seeking market views by 13 January 2006. HKEx plans to implement the proposal in the third quarter of the year. Work for the enhancement of electronic submission service and Issuer Information System will commence in the first quarter.
3.	Review the composition and structure of the Listing Committees	HKEx is finalising the consultation conclusions and rule amendments with the SFC, the HKEx Board and the Listing Committee. The consultation conclusions and recommended amendments to the Listing Rules for implementing the conclusions will be published around the end of this year.	HKEx will amend the Listing Rules regarding the composition of the Listing Nominating Committee and the Listing Committee. An announcement on the matter is scheduled to release shortly.
4.	Review of the Growth Enterprise Market (GEM)	HKEx has established an internal working group to coordinate studies and develop proposals for the comprehensive review of GEM. Informal views are being sought from investors, issuers, professional bodies, market participants and other stakeholders. HKEx plans to publish a formal consultation paper by the end of this year or early next year.	HKEx has conducted over 40 interviews with stakeholders, board members and Listing Committee members to ascertain their views on GEM, and carried out research on alternative markets in other jurisdictions. HKEx is preparing a paper to seek market views for the release soon. (Note: HKEx published the GEM Discussion Paper on 20 January 2006.)
5.	Exploration of new financial products / services and review of existing products / services	Callable Bull/Bear Contracts (CBBCs) HKEx’s discussion with the SFC on the regulatory approval of CBBCs has reached the final stage. HKEx hopes that the market infrastructure for the introduction of the product will be ready early next year, subject to the SFC’s approval and depending on the progress of investor and market education.	The CBBC market model and related rule changes were approved by the SFC on 21 November 2005. The market will be developed with the requisite market education measures and HKEx plans to introduce the product in the first half of the year.
		Revamp stock options market Futures and options on Bank of Communications, China Netcom and Ping An Insurance will be introduced on 7 November. The second round of marketing calls/visits on stock options has been started. It covers broking agents and 42 Options Trading Exchange Participants. HKEx is reviewing the market-maker obligations in stock options with a view to further enhance the stock options market’s liquidity.	HKEx has been recruiting additional market makers to provide continuous quotes in more stock option classes covering 10 to 15 classes. HKEx is preparing a proposal to improve market makers’ service by shortening the time allowed to respond to quote requests and extending the holding time of each quote response.
		Long-dated Index Options HKEx plans to introduce additional contract months in long-dated Hang Seng Index Options contracts and long-dated H-shares Index Options contracts early next year, subject to the SFC’s approval.	The Derivatives Market Consultative Panel and active institutional investors have extended their support to this product concept. HKEx is planning to introduce longer dated contract months in Hang Seng Index Options and H-shares Index Options covering maturities up to 3.5 years and 2.5 years respectively, subject to the SFC’s approval.
		Introduce new Combo orders Not included in this issue.	HKEx is studying introduction of tailor-made Combo orders and is studying the feasibility of the introduction of Standard Combination Order Books for selected HSI Option strategies in derivatives market.
6.	Review position limits for stock options, Hang Seng Index products and H-shares Index products	HKEx is seeking approval of the SFC to revise the position limit and reporting level for stock options. Further discussion with the SFC is necessary for index product changes.	The SFC has agreed to amend the Securities and Futures Ordinance to increase the position limits for stock options and revise the reporting requirement. The changes to the subsidiary legislation are expected to take effect on 10 February 2006.
7.	Harmonisation of collateral policies for the three clearing houses	Not included in this issue.	The first part of the HKCC and SEOCH collateral policy changes was implemented in August 2005. Remaining changes will be implemented in the first half this year, following that HKCC and SEOCH will accept Euro-denominated government debt securities issued by Germany as non-cash collateral for margin obligations, and SEOCH will accept US-treasury bills and notes as non-cash collateral.
8.	Network consolidation for major market systems on a new network (SDNet)	The construction and implementation of the SDNet has been completed according to plan. Following the successful completion of various tests, including market rehearsals, and approval of the required rule changes by the SFC, SDNet is ready for production use. The migration of Participants’ links for HKATS, DCASS and PRS to SDNet is being performed in four batches over four weekends in October. The first batch of Participants’ links started to operate on SDNet on 10 October. The HKATS/DCASS/PRS line rentals will be reduced by 20 per cent.	Following the migration of Participants’ links for HKATS, DCASS and PRS to SDNet, the second phase of the network consolidation with migration of CCASS network to SDNet will be implemented in the second quarter of this year.
9.	Market systems capacity upgrade	The AMS/3 capacity upgrade exercise has commenced and HKEx plans to complete it in the fourth quarter this year. The capacity planning for HKATS, DCASS and PRS has also been formulated and HKEx plans to implement it by the end of this year.	The AMS/3 capacity upgrade was completed in late December last year. HKEx is upgrading the capacity of HKATS, DCASS and PRS in January or February this year. The software used for the HKATS Network Gateways will also be upgraded in the second and third quarter.
10.	Renovation of the Trading Hall	The renovation of the Trading Hall is in progress. Since early August, part of the hall has been sealed off for the construction of the new trading facilities. The renovation of the sealed-off area is expected to be completed in late December and floor traders will be able to move in to their new booths in January next year. The design of the facilities in the new non-trading area is ongoing and construction work on this area will begin in January next year. New trading booths will be provided at a monthly fee of $2,800 per trading booth for a binding three-year period.	Phase one of the renovation project was completed and the trading area and media booths in the Trading Hall were opened for use on 16 January 2006. HKEx plans to complete phase two of the renovation project and officially open the Trading Hall and its connected public gallery in April.

	Initiative	Status on 15 October 2005	Status on 16 January 2006

Note: AMS/3, the Third Generation Automatic Order Matching and Execution System, is the trading system for the securities market. CCASS, the Central Clearing and Settlement System, supports 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 25 January 2006.

Updated 25 Jan 2006