HKEx’s Strategic Plan 2004 – 06 Achievements in 2004 and New Initiatives in 2005 Paul Chow Chief Executive, HKEx Hong Kong Securities Institute, 11 November 2004

2 1.HKEx Current Status 2.HKEx Strategic Plan Achievements and 2005 New Initiatives 4.Conclusions Agenda

3 Total turnover (HK$tr) Total # of derivatives contracts traded (mn) # of new listings – equity Average daily turnover (HK$bn) Average daily # of derivatives contracts traded Total funds raised (HK$bn) , , YTD October , Hong Kong cash and derivatives markets – Key statistics Funds raised by IPOs (HK$bn)

4 Source: World Federation of Exchanges, includes main board and parallel markets HKEx currently ranks 8 th among global exchanges by market capitalisation … 11,657 3,127 3,124 2,505 2,095 1,047 1, ,000 4,000 6,000 8,000 10,000 12,000 14,000 NYSE Tokyo Nasdaq London Euronext Toronto Germany Hong Kong Spanish Exchanges (BME) Switzerland Italy Australia Taiwan Shanghai Korea Johannesburg Shenzhen US$ billion HK: 8 th position Shanghai: 14 th position Shenzhen: 24 th position Sum of HK, Shanghai and Shenzhen ranks 6 th in the world (Market cap = US$1,258 bn) Sum of HK, Shanghai and Shenzhen ranks 6 th in the world (Market cap = US$1,258 bn) 201 Singapore Singapore: 21 st position Sep 2004

5 … 16 th by cash market turnover value … Sum of HK, Shanghai and Shenzhen ranks 8 th in the world (Turnover = US$736 bn) Sum of HK, Shanghai and Shenzhen ranks 8 th in the world (Turnover = US$736 bn) Source: World Federation of Exchanges, includes main board and parallel markets 8,485 5,336 3,809 2,465 1,840 1,151 1, ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 NYSE Nasdaq London Tokyo Euronext Germany Spanish Exchanges (BME) Italy Switzerland Taiwan Toronto Amex Australia Korea Stockholm Hong Kong Shanghai Shenzhen HK: 16 th position Shanghai: 17 th position Shenzhen: 20 th position 83 Singapore 28 th position US$ billionJan - Sep 2004

6 … 35 th by # of derivatives contracts traded … MillionsJan - Sep 2004 HK: 35 th position Exclude warrant market Source: World Federation of Exchanges, includes main board and parallel markets , ,200 1,600 2,000 Korea F E EUREX Euronext CME CBOT CBOE Int'l S E Brazil BOVESPA MEXDER American S E HKEx Italian SE -Derivatives Boston Options Exchange

7 Source: World Federation of Exchanges (not including exchanges for which statistics are not available). Includes capital raised by issuers cross-listed on other exchanges, ie. double-counting involved … and 2 nd by equity funds raised NYSE Hong Kong London Tokyo TSX Group Euronext Spanish Australian Mumbai Nasdaq India JSE South Africa Shanghai Shenzhen HK: 2nd position Shanghai: 13 th position Shenzhen: 20 th position Sum of HK, Shanghai and Shenzhen ranks 2 nd in the world (Capital raised = US$36.3 bn) Sum of HK, Shanghai and Shenzhen ranks 2 nd in the world (Capital raised = US$36.3 bn) Singapore Singapore: 28 th position 1.3 US$ billionJan - Sep 2004

8 Mainland China dimension of the Hong Kong market * Includes H shares, red chips and private enterprises As at 31 Oct 2004 or Jan-Oct 2004 Listed issuers Funds raised by IPOs (HK$bn) Avg daily turnover (HK$bn) Total HK market Mainland enterprises* Market capitalisation (HK$bn) 1,084 5, , % 29% 48% 57% 72% 35% Total funds raised (HK$bn) # of new listings – equity

9 The 10 largest IPOs in HK since 1993 were all by Mainland enterprises RankingCompany 1China Unicom China Mobile China Life Sinopec PetroChina BOC (Hong Kong) Ping An Insurance SMIC China Telecom CNOOC Largest IPO in the world in 2003 Capital Raised (HK$ bn) Date of Listing 11MTRC

10 1.HKEx Current Status 2.HKEx Strategic Plan Achievements and 2005 New Initiatives 4.Conclusions Agenda

11 Global situation analysis: Fundamentals of a securities market Participants Issuers Intermediaries Investors Listed companies Sponsors & IFAs Exchange/Clearing participants Professionals Retail Institutional Self regulation Licensing regime (SFC) Exchange & Clearing Rules Product & service Operational efficiency System reliability & efficiency Risk management Investor protection Disclosure & transparency Investor education Information dissemination Transaction costs Companies Ordinance (Companies Registry) Statutory Rules (SFC) Listing Rules Corporate Governance Business culture & environment Director quality Management expertise Supporting mechanisms Regulation Enhance investor confidence Attract order flow Increase liquidity Market quality Key Drivers Market Infrastructure

12 Local situation analysis: Unique opportunities and competitive advantage of Hong Kong & HKEx Demand for management and professional expertise Tremendous growth of Mainland economy requires capital OpportunityCompetitive advantage of HK/HKEx One of the most open financial markets in the world: ­ No foreign exchange controls & withholding tax ­ No capital gain tax ­ No controls on foreign investment and investors ­ No restriction on foreign securities firms (110 foreign-owned EPs) ­ Freely convertible currency Active retail & institutional participation Regional proximity to Mainland; securities trading within the same time-zone A platform allowing Mainland companies to subject to market discipline to further enhance standards in: ­ Corporate Governance ­ Accounting ­ Management practices

13 Business focus Geographical focus Focus on core market operations: ­ Listing ­ Trading ­ Clearing ­ Information Services ­ Market systems Focus on Hong Kong and Mainland China HKEx strategic vision Goal Operate a quality market through enhancing regulation and market infrastructure

14 Building a quality market Becoming a Mainland partner Consolidation Cost rationalisation Prioritise projects & streamline internal processes Upgrade obsolete systems Improve operational efficiency Strengthen staff team Strengthen risk management Strengthen regulatory regime Foster Corporate Governance culture Improve market infrastructure Increase market liquidity Raise customer satisfaction & investors’ confidence Improve investor education & information dissemination Expand Mainland China offerings Strengthen co-operation with Mainland entities HKEx will base its 2004 – 2006 strategy plan on three building blocks Time

15 1.HKEx Current Status 2.HKEx Strategic Plan Achievements and 2005 New Initiatives 4.Conclusions Agenda

achievements and 2005 new initiatives – 6 areas 1. Listing4.Clearing 2.Business Development & Investor Services 5. Information Services 3.Trading6.Market systems

17 1. Listing Streamline IPO vetting process* Refine compliance & monitoring practices* Streamline enforcement process* Implement case database for Listing Div* Enable e-Submission of IPO forms* Implement Code of CG Practices & CG Report Issue rule amendments to CG issues & initial listing criteria Consultation conclusions on listing regulation (FSTB) Publish Listing Committee Annual Report Enhance regulation of Sponsors & IFAs N/A Review role & structure of Listing Committee Introduce a more effective mechanism for delisting Support enshrining key listing rules in statute Support enhancing the regulation of accounting profession Further enhance CG culture Facilitate simultaneous listing of A & H-shares 2004 achievements 2005 new initiatives 2005 new initiatives Consolidation Building a quality market Becoming a Mainland Partner * On-going initiative continues in 2005

18 2. Business Development & Investor Services 2004 achievements 2005 new initiatives 2005 new initiatives Establish new Business Development & Investor Services Division Strengthen Beijing Office; station representatives in Shanghai and Guangzhou Consolidation Building a quality market Becoming a Mainland Partner Launch SIMart to enhance investor education Organise training seminars for investors and Exchange Participants* Conduct training seminars for listed issuers/potential issuers in the Mainland* Organise listing promotional conferences in the Mainland* Working Group with SZSE* N/AOrganise large-scale local investor conferences Promote listing of foreign-controlled companies with Mainland operations (e.g. Japan, Taiwan) * On-going initiative continues in 2005

19 3. Trading – Cash Review usage of Trading Hall upon expiry of lease* Launch relinquishment programme for on- floor terminals Review narrowing of Trading Spreads* Review market making for ETFs* Launch Hang Seng Index ETF (with tick rule exemption) Align disciplinary framework of the cash & derivatives markets Explore feasibility of Callable Bull/Bear Contracts (CBBCs) N/A 2004 achievements 2005 new initiatives 2005 new initiatives Consolidation Building a quality market Becoming a Mainland Partner Launch iShares FTSE/Xinhua A50 China Tracker (with tick rule exemption) * On-going initiative continues in 2005

20 3. Trading – Derivatives Terminate trading of low-volume product Revamp stock option market* Rationalise trading right of HKFE products and stock options Align disciplinary framework of the cash & derivatives markets Further enhance derivatives surveillance system Review position limit Review market making obligations Recruit Option Trading EPs Promote HKEx derivatives products Explore feasibility of FTSE/Xinhua China 25 Index Futures & Options Launch additional stock options/futures on listed Mainland enterprises 2004 achievements 2005 new initiatives 2005 new initiatives Consolidation Building a quality market Becoming a Mainland Partner Launch HSCEI Futures & Options Launch 4 stock options on H-shares * On-going initiative continues in 2005

21 4. Clearing Upgrade of IVRS & call centre system Conduct a comprehensive review of Guarantee/Reserve Funds* Conclude way forward for scripless market Launch IP Quick-wins Implement enhancements to eIPO Implement SI matching process in CCASS MOU with China Securities Depository and Clearing Corporation Limited* Implement a general collateral policy Implement scripless market Strengthen nominee services Consider the possibility of T+2 finality Facilitate agency arrangement and overseas access to CCASS Review feasibility of Third Party Clearing N/A 2004 achievements 2005 new initiatives 2005 new initiatives Consolidation Building a quality market Becoming a Mainland Partner * On-going initiative continues in 2005

22 5. Information Services Revamp HKEx Website Streamline internal process to handle substantial workload increase due to new DI regime* Disseminate odd lot market data Launch Issuer Information Services Recruit new information vendors (e.g. TVB)* Expand HK Market Data coverage in Japan through Quick Expand Mainland Discount Programme for dissemination of HK market data (e.g. Shanghai Quanlong, Xinhua News Agency)* Develop market data agency business with SZSE* Review information vendors’ reporting and compliance regime Expand information dissemination in selected regional markets N/A 2004 achievements 2005 new initiatives 2005 new initiatives Consolidation Building a quality market Becoming a Mainland Partner * On-going initiative continues in 2005

23 6. Market Systems Launch HKATS Launch DCASS Maintain 100% system uptime* Gold Award Winner in 2004 IT Excellence Award N/A Implement network consolidation Review consolidation opportunities for satellite applications Replace obsolete technology for AMS/3 Consider outsourcing of one-off peripheral projects Upgrade host capacity and network due to sales of throttles Conduct feasibility study for OMex 19.x upgrade N/A achievements 2005 new initiatives 2005 new initiatives Consolidation Building a quality market Becoming a Mainland Partner Develop & implement IT Strategic Plan* * On-going initiative continues in 2005

24 HKEx would continue to strengthen its organisation to meet the challenges ahead Implement HKEx Strategic Plan 2004 – 06* Continue to recruit high-calibre senior executives* Enhance internal communications* Streamline internal decision-making process* Implement initiatives in career development & training* Strengthen performance culture* Review internal process in dealing with complaints and enquiries Further enhance customer-focussed culture Implement succession plan for management team Strengthen risk management function 2004 achievements 2005 new initiatives 2005 new initiatives Consolidation * On-going initiative continues in 2005

25 Situation Analysis  Enhancing investor confidence, attracting order flow and increasing liquidity are the key drivers of a successful securities market  Hong Kong and HKEx are positioned uniquely to capture the opportunities presented by the Mainland market Implications to HKEx  HKEx’s strategy focuses on 3 main areas:  Consolidation  Building a quality market  Becoming a Mainland partner Conclusions

26 Thank you Copy of this presentation is