Mr Yam’s statement on the listing of Exchange Fund Notes on the Hong Kong Stock Exchange Speech by the Chief Executive of the Hong Kong Monetary Authority, Mr Joseph Yam, JP, at the listing of Exchange Fund Notes on the Hong Kong Stock Exchange on 19 July 1999. Mr Lee, Mr Chan, Distinguished Guests, Ladies and Gentlemen, Today’s signing ceremony paves the way for the listing of Exchange Fund Notes on the Hong Kong Stock Exchange next month. In addition to offering retail investors an attractive and reliable investment opportunity, this listing will mark an important milestone in the development of Hong Kong’s debt market. Hong Kong, and indeed Asia as a whole, lacks an active debt market. What should in theory serve as an important pipeline of financial intermediation, through which the savings of the community flow into productive investment, has, in this region, always been constricted. At times, it has been quite clogged up. By the standards of developed market economies, our reliance on the banking and equity markets, the two other channels of financial intermediation, has been, and still is, disproportionately heavy. As a result, we cannot really say that financial intermediation in Hong Kong is entirely efficient. One consequence is that, in the event of a failure in one of those channels of systemic proportions, the pressure built up in the other channels could become unbearably great, and even explosive.
A further consequence is disruption to the flow of money from savings to investment and disruption to the economic activities that are so important to the well being of our community. By contrast, we saw in the case of LTCM how, in well developed financial markets, financial flows can be effectively redirected to the banking and equity sectors in response to the failure of the debt market. Indeed, the banks themselves were called upon to rescue LTCM and ensure that, even with dislocation in the debt market caused by excessive leveraging, the financial system could continue to function. No matter whether we are responsible for the plumbing of the financial system or for making money work for the community, we in the financial community all have an interest in ensuring that money flows through these three channels freely, safely and efficiently. One important task for all of us has always been to develop a liquid debt market for Hong Kong. As you are aware, the Exchange Fund debt programme, which started in March 1990, is part of that effort, although the development of the debt market was not the only objective of the programme. Since then, we have brought to the market a total supply of paper amounting to about $ billion, with maturities ranging from three months to ten years. We have also developed a robust infrastructure for the debt market that is fully integrated with the real time payment system to achieve real time “Delivery versus payment” in the trading of Exchange Fund paper.