Speech – Maintaining and enhancing Hong Kong’s position as an international financial centre (Christopher Cheung)

Deputy President, I thank Mr. NG Leung-sing for proposing this motion on “Maintaining and enhancing Hong Kong’s position as an international financial centre” today. This motion happens to be in line with the motion on “Supporting the development of the securities industry” that I proposed shortly after the start of the Legislative Session last year, and the two motions echo each other.

The financial industry is a high value-added industry. Apart from increasing the per capita Gross Domestic Product of Hong Kong people, it can also facilitate the development of relevant professional services, such as accountancy, financial and legal services. It has played a vitally important role in consolidating Hong Kong’s position as an international metropolis. As the financial markets in the Mainland are gradually opening up and pressing ahead to converge with the international community, the position of Hong Kong as an international financial centre has become increasingly important, and the banking and securities industries are facing a lot of opportunities and challenges. In view of this, I agree that the Government should introduce proactive financial policies and measures. Financial policies should take into account the following points:

(a) After the lunch break was further shortened in March last year, the well-intentioned wish of the Chief Executive of the Hong Kong Exchanges and Clearing Limited (HKEx), Charles LI, who first thought that this could be a way to stimulate transactions, has actually fallen through. On the contrary, as the lunch break is shortened to only one hour, the work of brokers in liaising with their clients has been greatly affected and business has naturally declined. In this connection, the industry considers that a review should be conducted afresh and that the previous arrangement should be reinstated to allow a lunch break of one and a half hours;

(b) The HKEx currently charges local securities firms expensive fees for renting stock quote terminals but Mainland securities firms can enjoy a concession of having their fees halved though they do not bring business to the HKEx. This is unreasonable indeed. A review is warranted and the expensive charges payable by local securities firms for renting the terminals should be reduced expeditiously;

(c) Regarding the Securities and Futures Commission (SFC) levy, the SFC currently has a surplus of $7 billion, which is far higher than the statutory requirement and should hence be adjusted downwards. Besides, as the market is in the doldrums, this has dealt a heavy blow to the income of many brokers. In view of this, they should be allowed to continuously enjoy a waiver of the licence fees for the next few years, in order to alleviate the burden of securities firms and practitioners of the industry; and

(d) Promotion of the bond market: From the most recent issue of iBond by the Government, which is very well-received by investors, we can see that Hong Kong does have the conditions for developing a bond market. In this connection, the Government can encourage more companies to adopt a more balanced approach when issuing bonds. Instead of appointing banks to be underwriters, the arrangements for iBond should be adopted in that a proportion of the bonds should be allocated for underwriting by securities firms and also for listing in the HKEx, and only in this way will an active bond market be developed.

To appropriately refine the existing regulatory system and financial infrastructure, I have a few points to make as follows:

(a) Under the current arrangement, the records of securities firms and practitioners of the industry being reprimanded by the SFC are permanently retained online, irrespective of the gravity of the mistake made. This has given foreign investors a wrong impression that the local securities firms and practitioners do not play by the rules. In this connection, securities firms which made minor or technical mistakes, such as committing mistakes not involving their integrity to clients, should be removed from the SFC’s black list online if they do not repeat their mistakes in three years;

(b) Securities firms should not be required to pay extra insurance premium for clients when they secure financing for an initial public offering (IPO). It is because when the clients take out loans to subscribe for new stock, they have paid 10% of the amount whereas the remaining 90% is met by loans taken out from banks. There is no reason for securities firms, being intermediaries, to be required to pay an extra 5% for risk exposures. In the meantime, it is necessary to review the rules imposed by the SFC on securities firms in taking out mortgage loans because the existing rules are rather stringent. This has made it difficult for the industry to run business in this respect and indirectly resulted in quiet trading in the market, which does not do any good to the overall financial development;

(c) Speaking of financial infrastructure, although I agree to the need for ongoing transformation and innovation to keep abreast of the changes of the time, it is still necessary to meet the practical needs and avoid over-ambitious, unrealistic plans. For example, the Orion trading system introduced by the HKEx aims to facilitate high-frequency and high-speed trading and although it can cater for a huge transaction volume, programme trading, and so on, it is still like a white elephant when trading is quiet in the market at present. Even if the trading volume can rebound to the peak of over $100 billion, it is still a very advanced system. However, the cost of developing this system, which is as high as some $2 billion, is borne by small and medium securities firms. This has put a much heavier pressure on small and medium brokerages in their operation, which is absolutely unfair to them; and

(d) The development of a multitude of derivatives products in the market will greatly increase the financial risks in Hong Kong. Given concerns about the United States’ exit from the loose monetary policy, we have already seen great fluctuations in the stock market and this even triggered a small-scale stock market crash in the Asian markets last week. If another financial turmoil or tsunami would strike us again, the proliferation of derivatives products would make us all the more vulnerable. This is absolutely a major risk in our system which warrants more attention from us.

Regarding the third point mentioned by Mr NG in his original motion, which proposes “to open up financial business co-operation with relevant regions”, the industry do have a lot of expectations. Regrettably, co-operation is not opened up on an equal basis. It is very easy for Mainland securities firms to start a business in Hong Kong but Hong Kong brokerages face great difficulties when developing in the Mainland. In this connection, I think Qianhai in Shenzhen should be used as a testing ground to allow Hong Kong securities firms to officially set up business in the Mainland. Instead of just allowing them to act as investment consultants in partnerships, they should be allowed to directly run business in the trading of securities in Hong Kong. Moreover, the SFC should cease to unreasonably deter local brokerages from acting as account opening witnesses for clients in the Mainland for various reasons.

Certainly, the views that I have just put forward only aim to achieve one objective, which is to strive for a package of fair financial policies. We call on the Government to accord equal treatment to all, and its policies must be conducive to achieving a balanced development for large, medium and small enterprises alike. Otherwise, when small and medium enterprises vanished in the market, small investors would only be subject to exploitation with no escape, which is not a good thing at all.

Lastly, on the question of whether the SFC is biased in favour of the Hong Kong Mercantile Exchange Limited, I reiterate that the industry is very concerned about this issue, just that we do not wish to see the matter being overly politicized, and we agree that the SFC should be given more time to further explain or prove to the public that they have not acted unfairly. I will decide the next step of work after the SFC has replied to my further questions.

I so submit. Thank you, Deputy President.


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