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Retail Exchange Fund Notes Programme Eddie Yue Executive Director Monetary Management and Infrastructure Department Hong Kong Monetary Authority 3 May 2005 Outline I. What are Exchange Fund Notes (EFNs) II. Benefits of investing in EFNs III. Terms of Upcoming issue IV. Timetable I. What are Exchange Fund Notes? • Fixed-income debt securities issued by the HKSAR Government for the account of the Exchange Fund • Bear fixed rate of interest (coupon rate), calculated on an actual/365 day basis and payable semi-annually • Tenor: 2, 3, 5, 7, 10 years • Minimum Denomination : $50,000 • First issued in 1993, it has been actively traded among financial institutions EFN is a major segment in HK dollar debt market 700 HK$ bn 50% Exchange Fund Bills & Notes (LHS) Other HK$ debt (LHS) All Outstanding HK$ debt/GDP (RHS) 600 40% 500 30% 400 300 20% 200 10% 100 0 0% 91 Source: HKMA 92 93 94 95 96 97 98 99 00 01 02 03 04 II. Benefits of investing in EFNs 1. High credit quality – Issued by HKSAR Government Exchange Fund 2. Highly liquid secondary market – Retail EFN Distributors are committed to make quotes to buy back the EFNs from their customers 3. Steady stream of income – The coupon on EFN is higher than HK dollar savings and time deposits Background of Retail Exchange Fund Notes Programme • HKMA first launched a 1-year pilot scheme in August 2003, with HK$ 330 million sold to retail investors • New features to improve the attractiveness of EFN to retail investors: 1. favourable allotment price (lowest accepted price instead of average accepted price) 2. more distributor banks (increased to 7 from 3; with more than 700 branches) 3. flexible selection of issues (consult distributors, re-opened issues not used) III. Details of Upcoming issue • • • • • Issue number : 2705 Tenor: 2 years Tender date: 13 May 2005 Issue date: 17 May 2005 Issue amount: HK$ 300 million for non-competitive tenders (Total issue size HK$ 1,200 million) • Coupon rate: 2.6% • Denomination: HK$ 50,000, or higher amount in integral multiples thereof IV. Timetable • 4 May • 11 May • 12 May • 13 May • 17 May Application commences at 9:00 a.m. Application closes at 2:00 p.m. Banks to submit applications to HKMA Tender date. Allotment price announced Issue date. Banks to notify subscription result to customers