Annual Review :

Achievements and New Initiatives

Paul ChowChief Executive, Hong Kong Exchanges and Clearing Limited

13 January 2006

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Agenda

New Records Set In 2005

2005 Major Achievements

2006 Major Initiatives

Conclusion

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New Records Set in 2005New Records in the Securities Market

Market Capitalisation #

HK$

$8,260.3 bil

$4,520.4 bil

$953.3 bil

$856.6 bil

$165.7 bil

$137.4 bil$71.6 bil

1,682

2005(up to year-end) Pre-2005 Record

Total Market Turnover

Securities Achieved Highest Turnover Record

Trading Turnover of H shares

Trading Turnover of Derivative Warrants

New Funds Raised Records by Initial Public Offers

IPO equity capital raised ^

- IPO equity capital raised by H shares

- Largest single IPO by a listed company

$6,695.9 bil

$3,974.1 bil

$941.1 bil$524.5 bil

$132.1 bil

$52.4 bil

$43.6 bil

1,259

(31 Dec 2004)

(Year 2004)

(Year 2004)

(Year 2004)

(Year 2000)

(Year 2000)

(Year 2000)

(Year 2004)Number of Newly Listed Derivative Warrants

*

# The figures represent the total market capitalisation of all equity securities listed on the Main Board and Growth Enterprise Market (GEM) and exclude other listed securities such as REITs and government bonds. Trading only stocks under pilot programmes are also excluded.

^ IPO equity capital raised exceeded post-IPO capital raised for the first time.

* The figure excludes funds raised by REITs, which are classified as Unit Trusts. Total IPO funds raised by the Link REIT (0823), Prosperity REIT (0808) and GZI REIT (0405) was $25.8 billion.

HK$ Previous Record 2005

(up to year-end)

(21 Dec 2005)

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New Records in the Derivatives Market

Total Futures and Options

Previous All-time-high(Contracts)

Number of Contracts in 2005(Up to year-end)

Volume

Total Futures

Total Options

Stock Options

Hang Seng Index Futures

25,523,007

13,433,386

12,089,621

9,910,565

8,722,393

19,629,692

11,884,152

7,745,540

8,601,559

5,611,832

(Year 2004)

(Year 2004)

(Year 2004)

(Year 2004)

(Year 2004)

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HKEx strategic plan for 2004 – 2006

ConsolidationBuilding a

quality marketBecoming a

Mainland partner

• 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

Time

Building a Quality Market

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2005 Achievements – Building a Quality Market

Listing Regulation

Enhanced regulation of sponsors & IFAs (Jan)

Revised Corporate Governance Best Practices (Jan)

Solicited public views on new structure for Listing decision-making (Feb-May)

Support establishment of statutory listing requirements (submission made in Mar)

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2005 Achievements – Building a Quality Market

Listing Regulation

Published second Listing Committee Annual Report (Jun)

Set out future model for dissemination of regulatory information by Main Board issuers (Nov)

First phase of Listing Committee structure rule amendments approved by the Exchange (Dec)

Prepared for a major review of GEM (H2 2005)

Implemented case database for Listing Division

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2005 Achievements – Building a Quality Market

Trading

Commenced Trading Hall renovation (Jul)

Reduced minimum trading spreads for shares above $30 – phase 1, and changed AMS/3 parameters to complement spread reductions (Jul)

Exempted placing or fund-raising activities by Exchange Participants from current prohibition of dealings in suspended securities under trading rules (Sep)

Increased maximum number of outstanding orders per price queue from 2,000 to 4,000 orders in AMS/3 (Nov)

Increased Exchange Participants’ Open Gateway trading capacity via sale of total 271 standard throttles

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2005 Achievements – Building a Quality Market

Product and Market Development

Enhanced measures for stock options (Feb)

Introduced new products, including FTSE/Xinhua China 25 Index Futures and Options, and six additional classes for stock options & futures (May, Jul, Nov & Dec)

Obtained SFC’s agreement to increase position limits for stock options

Reviewed derivative warrant market (HKEx’s views published in Oct)

Enhanced market-making arrangement for Exchange Traded Funds (ETFs)

Introduced Real Estate Investment Trusts and more ETFs

Explored the introduction of Callable Bull/Bear Contracts

Provided continuous education and training for 7,200 employees of Exchange Participants

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2005 Achievements – Building a Quality Market

Clearing

Upgraded Clearing Service Call Centre and Interactive Voice Recording System (Jan)

Waived monthly stock custody fee for delisted securities and securities in prolonged suspension (Feb)

Abolished DCASS standard instruction input/processing fee for performing external trade transfer (Mar)

Improved CCASS Nominee Services by extending CCASS deadline for Participants to submit voting instructions and corporate action instructions (Apr and Aug)

Implemented Derivatives Market Clearing Houses fee changes on interest retention rate and accommodation charge (Jun)

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2005 Achievements – Building a Quality Market

Clearing

Introduced further fee concessions for Investor Participants Account Services in CCASS (Jul)

Enhanced CCASS money settlement (Aug)

Harmonised capital requirements of different categories of clearing participants of the three clearing houses (Oct)

Announced elimination of scrip fee on deemed book close dates (Nov)

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2005 Achievements – Building a Quality Market

Market & Related Systems

Upgraded the operating systems of the HKATS, DCASS and CCASS/3 (Jun)

Commenced consolidation of four existing market system networks into SDNet; phase 1 migration of the HKATS/DCASS/PRS network completed (Oct)

Upgraded HKEx website capacity and substantially enhanced disaster recovery arrangements (Sep - Nov)

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2005 Achievements – Building a Quality Market

Market & Related Systems

Migrated AMS/3 Order Routing System to an integrated technology platform (Nov)

Upgraded system capacity of AMS/3 (Dec)

Replaced all (over 400) AMS/3 off-floor terminals installed since 1998 and upgraded the corresponding security solution (Oct - Dec)

Consolidated AMS/3 satellite systems (Dec)     

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2005 Achievements – Building a Quality Market

Information Services

Introduced new service for redistribution of historical data products and signed the first vendor in September

Extended special offer for Mainland users of real-time market data (Nov)

Business Development

Continued to organise conferences to promote the Hong Kong market

Provided training programmes

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1. Financial Reporting

– Hong Kong Management Association: Bronze prize for Best Annual Reports Awards 2005

2. Corporate Governance

– Hong Kong Institute of Certified Public Accountants: Best Corporate Governance Disclosure Awards in 2003, 2004 and 2005; and Significant Improvement Award in 2004 (Non-Hang Seng Index Constituent category)

– The Hong Kong Institute of Directors: Director of the Year Awards 2005 (Listed Companies: Main Board – Constituents of Hang Seng Indices group)

– CLSA and Asian Corporate Governance Association: CG Star in 2005

3. Investor Relations– A member of the FTSE4Good Index Series since September 2005

2005 Achievements – Business & Corporate Citizenship Recognition

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4. Cash Market Infrastructure Systems

– Hong Kong Computer Society’s IT Excellence Award : Won the Gold Award in the Applications Category for securities trading system (AMS/3) in 2004 and for securities clearing and settlement system (CCASS/3) in 2005

5. Charity Donation

– Total donations of about $40 million in 2005 and over $130 million since 2000 to The Community Chest via Stock Code Balloting for Charity Scheme

2005 Achievements – Business & Corporate Citizenship Recognition

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2006 Major Initiatives

Listing Regulation

Implement abolition of paid announcements and enhance issuer information content on HKEx website

Continue work towards the establishment of statutory listing requirements

Revamp listing decision-making structure: 2nd phase

Study on introducing a comprehensive Listing case management and information system

Further refinement of IPO vetting process

Continue review of GEM

Further enhance corporate governance

Support establishment of Financial Reporting Council

Establish China Affairs Team

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2006 Major Initiatives

Trading

Complete Trading Hall renovation (Trading Hall and media booth open on 16 Jan; Public Gallery opens in Apr)

Consider reducing minimum trading spreads of shares traded below $30 (phase 2)

Launch and develop Callable Bull/Bear Contracts market

Strengthen derivative warrant market, including web-based resource centre

Establish more favourable position limit regime for derivatives trading

Review market-maker model for derivatives market

Review possible introduction of tailor-made Combo orders in derivatives market

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2006 Major initiatives

Clearing

Further enhance CCASS nominee services

Harmonise collateral policies of the three clearing houses

Study expanding admission of Investor Participants to CCASS

Explore Third Party Clearing

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2006 Major initiatives

Market Systems

Upgrade the capacity of HKATS, DCASS and PRS (Jan – Feb)

Upgrade software of HKATS Network Gateways (Q2-Q3)

Implement phase 2 of network consolidation with migration of CCASS network to SDNet (Q2)

Replace hardware and software of AMS/3 Open Gateway and Multi-Work Station (Q2/2006 – Q1/2007)

Feasibility study and prepare for migration of AMS/3 for a higher version of server technology (Q3 – Q4)

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2006 Major Initiatives

Business Development

Continue to organise listing promotion events to attract potential issuers from

the Mainland, including the Mainland operations of companies from Taiwan

and Japan

Continue to provide training programmes for issuers

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Thank you