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Press relase HK's formula for developing public confidence in exchanges Friday, June 3, 2005 The Secretary for Financial Services and the Treasury, Mr Frederick Ma, today (June 3) shared with participants of an international forum in Beijing Hong Kong's formula for successfully building public confidence in stock exchanges, which is crucial to the development of exchanges. Speaking at the World Federation of Exchanges Forum for Developing Markets, Mr Ma said the formula Hong Kong adopted was to develop and strengthen confidence in the efforts of Government, the statutory regulator and the exchange itself as well as other law enforcement agencies. Mr Ma pointed out that Hong Kong had a three-tiered structure for the regulation of the securities and futures industry - the Government, the Securities and Futures Commission (SFC) as the statutory regulator; and the Hong Kong Exchanges and Clearing Limited (HKEx) as a market operator and frontline regulator. Noting that the primary role of the Government was to provide a favourable environment under which the financial markets could develop and prosper, Mr Ma said the Government's policy was to maintain and further upgrade the quality of financial markets so as to protect investor interest and thus strengthen investor confidence. "To this end, we have made tremendous efforts to establish a world-class regulatory framework and foster strong corporate governance," Mr Ma said. The second tier, the SFC as the statutory regulator, is independent from the Government and has its own governing body and statutory powers with checks and balances provided under the law, Mr Ma pointed out. Noting that the SFC had the statutory responsibility to supervise and regulate activities carried out by the exchanges to ensure the markets were orderly, informed and fair, Mr Ma said: "Public confidence in the statutory regulator's ability in promoting an orderly market and monitoring exchanges depends not only on the strength of its 'regulatory teeth', but also the transparency and accountability of the regulator." 1 As to the third tier - the HKEx - Mr Ma said it had done an excellent job in providing orderly and fair markets for the trading of securities and futures, putting in place systems to manage risk prudently, and providing reliable infrastructure. It also had well-established systems to ensure accountability, transparency and avoidance of conflicts of interest as well as its determination to maintain high market quality in the execution of its listing functions. On top of the three-tiered regulatory structure, Mr Ma said the excellent work of other law enforcement agencies had added credibility to Hong Kong's regime. The Police and the Independent Commission Against Corruption worked closely with the SFC in taking enforcement action against corporate misconduct. With the concerted efforts of the Government, the statutory regulator, the exchange and other law enforcement agencies, Hong Kong's exchanges had gained confidence from not only local investors, but also investors from around the world, Mr Ma said. "Certainly, we can't be complacent and must keep up with our efforts in enhancing our market quality and strengthening investor confidence in our exchanges," Mr Ma said. Besides taking part in the forum, Mr Ma also met during his stay in Beijing with Mainland officials, including the Governor of the People's Bank of China, Mr Zhou Xiaochuan; Chairman of the National Social Security Fund, Mr Xiang Huaicheng; Vice Minister of Finance, Mr Lou Jiwei; and Administrator of State Administration of Foreign Exchange, Ms Hu Xiaolian. 2