1

Hong Kong – A Regional Hub

for ETFs

Christina Christina ChoiChoi

Director of Investment Products DivisionDirector of Investment Products Division

Securities and Futures CommissionSecurities and Futures Commission

28 November 200728 November 2007

2

Growth of ETFs Worldwide

1 1 2 5 8 1840

74

105

142

212

310

412

574

604

666

336

461

732

847

916

3

282

280

202

92

3331212143

0

100

200

300

400

500

600

700

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Q1 May-07

0

100

200

300

400

500

600

700

800

900

1000

Assets USD billionsAssets USD billionsAssets USD billionsAssets USD billions No. of ETFsNo. of ETFsNo. of ETFsNo. of ETFs

AUM (US Bil)

No. of ETFs

Source: Morgan Stanley Investment Strategies, Bloomberg

3

Growth of ETF Market in

Asia Pacific*

$0

$10

$20

$30

$40

$50

$60

12/01 12/02 12/03 12/04 12/05 12/06

0

10

20

30

40

50

60

70

80

Assets #of Funds

* Includes Australia, New Zealand and Japan

Asse

ts in

US

Bil

Num

ber o

f Fund

s

ETF Growth in Assets by Region Assets as of Dec 31, 2006

Source: Morgan Stanley Investment Strategies, Bloomberg

4

208.941.616India

Source: WFE website, Morgan Stanley Investment Strategies

35.650.172Malaysia

49.470.586New Zealand

584.400.94Australia

309.341.1616Singapore

2,498.231.606Taiwan

6,916.251.6520Korea

12,202.814.424China

12,573.3811.5417Hong Kong

30,989.6035.1113Japan

(US$ bn)

Total Turnover YTD

(US$ mn)

Market

Capitalization

Number

August 2007

Location

Number, AUM and Turnover of ETFs in Asia Pacific

5

ETFs in Hong Kong

� 17 authorized ETFs in HK with market capitalization of

about HK$120 billion as of October 2007

� International and diversified ETF platform with exposures

to different underlyings:

� Single Markets: Hong Kong, China, India, Russia

� Regional Markets: Asia Pacific, World

� Fixed Income: Asian Bond

� Commodities futures

6

Regulatory Challenges

� Index acceptability

� Investor education

� Retail investors awareness

7

Our Regulatory Approach

� Principles-based

� Open architecture

� Market facilitation vs. investor protection

8

Market Facilitation

� Published the ETF Guidelines in 2003:

� Streamlined requirements on investment restrictions and risk disclosure requirements

� Suitable disclosure of trading information for ETFs; and

� Streamlined recognition of overseas ETFs

� Stamp duty relief for ETFs with non-Hong Kong stocks as underlying

� Market making mechanism� Exemptions for transaction levy

9

Product Developments

� Principles-based approach on assessment of index acceptability

� index must have a “clearly defined” objective / market / sector

� index must be “broadly based”

� index must be “investible” and “transparent”

� sufficient safeguards to handle conflicts

10

Investor Education

� Investor awareness

� Investor education

� Trading price may be different from the NAV

per unit of an ETF

� Specific risk relating to specialised ETF

(e.g. Commodities ETF)

11

Outlook

� Mainland Opportunities

� QDII funds will flow through both equity

investments and a variety of fund products

� Hong Kong serves as a platform for Mainland

investors targeting overseas markets

12

Concluding Remarks

� We will continue to adopt an open architecture to

broaden our international and diversified ETF

platform and strengthen Hong Kong’s position as

the regional hub

� We will continue to work closely with the

industry to foster market growth and development