Corporate Plan 1996/97 - 1998/99 SECURITIES AND FUTURES COMMISSION 5 February 1996

The Commission has decided to publish its Coporate Plan for the next three years for three reasons. Firstly , it notes that the Basic Law not only ensures the continuation of our legal and regulatory system but at the same time places a duty on the Special Administrative Region of Hong Kong to provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre. Secondly , the Commission wishes to give the industry and the community at large a benchmark to better follow its performance in future years and thereby enable the Commission to be more accountable for its performance. Thirdly , the Commission hopes that the industry would be able to get an overview of the way securities and futures regulation is likely to progress in the next three years.

From even a cursory perusal of this Coporate Plan, it will be apparent that the Commission has not set out in this Plan its day to day work in licensing, investigations and corporate finance transactions. This work forms the mainstay of our regulatory function but since they are driven by events in the market which are beyond our control, we can only improve our performance by improving our skills level qualitatively and quantitatively. This, of course, very much forms a part of our work plan.

Finally, the constantly innovating financial world will not allow us to stand still. Consequently, changes in the financial environment as well as the results of the studies set out in this Plan may well require new initiatives on our part. Then, we shall have to set new targets, or revise old ones.

Securities & Futures Commission

SECURITIES AND FUTURES COMMISSION
Corporate Plan
1996/97- 1998/99

1. The Securities and Futures Commission ( " the Commission " ) was established on 1 May 1989. Since its establishment, directions for the discharge of its functions have been set in two successive work plans to enable the Commission to focus and prioritise its performance.

2. Under the work plan for the first three years, the Commission devoted its energies towards implementing the Securities Review Committee ( " SRC " ) blueprint to remedy the structural and systemic weaknesses identified in the Committee ' s Report. In the second work plan, the Commission shifted its attention to issues critical to the development of the Hong Kong market to enable the market, particularly its product base, to be expanded. At the same time, additional resources were devoted to its enforcement programme to enhance investor confidence in the local market.

3. The implementation of the SRC Report has been the joint effort of the exchanges, their clearing houses, the Commission and the industry in general. A list of the major events of the market during the past six years is at Appendix I. These have together reformed the regulatory regime and market infrastructure and helped to restore investor confidence in the Hong Kong market. These have been no mean achievements. Particularly, they stand as monuments to the leadership and hard work of all the successive Chairmen and Chief Executives of the two Exchanges and the Hong Kong Securities Clearing Corporation.

4. This document contains the Commission ' s work programme for the next three years. The primary aim of the programme is to ensure that Hong Kong keeps pace with the rapidly developing markets to maintain its competitive edge as a leading regional financial market as Hong Kong becomes a Special Administrative Region ( " SAR " ) of the People ' s Republic of China.

II. The Changing Environment

5. Although the Hong Kong market, both in terms of systems and structures, is now comparable in many ways to the major markets in the world, the Commission foresees important changes to the operating environment which will require adjustments to the regulatory framework in response. These include: the transition of Hong Kong into an SAR of China in 1997, the rapid expansion and opening up of markets in the region, technological advancement, growing sophistication and higher investor expectations, an expanding OTC derivative market and greater availability and use of screen-based trading systems offering overseas products direct to investors.

6. Moreover, as the competition for the PRC business, particularly the H-share market, is growing intensely with major overseas markets all vying for it, it is clear that Hong Kong must make every effort to remain attractive as a place for listing to such enterprises and to facilitate such listings.

7. Another important local development which will have major implications for the Hong Kong market is the impending introduction of the Mandatory Provident Fund Scheme. This will offer exciting growth opportunities to the local fund management industry and will help to retain the current critical mass of good quality fund managers in Hong Kong. However, as a significant portion of the accumulated funds, estimated to reach US$100 billion by the year 2010, can be expected on prudential grounds alone to be invested in local instruments, implementation of the Scheme will make substantial demands on the range of local investment vehicles.

8. In the search for additional investment vehicles, the Stock Exchange of Hong Kong ( " SEHK " ) is currently re-visiting earlier plans to develop a second board, trading-only listings for international and regional issues, and the development of a depository receipts market. These studies when properly targeted to identifiable segments for the market will open up a range of alternative products to satisfy its growing needs and enable it to compete effectively with the other emerging financial centres in the Region.

9. While the Commission fully supports this initiative, developing such markets is likely to result in different market tiers since the expected thresholds for entry into such markets can be expected to be different. It may, therefore, be necessary to contemplate a more disclosure-based, " caveat emptor " (buyer beware) regulatory philosophy, entailing adjustments to the regulatory framework. These adjustments will have to be carefully considered.

10. At the same time, the Hong Kong Futures Exchange ( " HKFE " ) is looking to broaden its product range, potentially to include soft commodities, and to extend its linkages with overseas exchanges in its bid to consolidate its regional role and to complement the developments in China. These too will make new demands on the existing regulatory framework.

11. Finally, as the local market continues to expand and develop, it is imperative to continue to learn from the lessons of the 1987 market crash and ensure that the systems and structures of the market keep pace with continuing and particularly fast paced innovation. In short, Hong Kong must have a regulatory system which encourages innovations but at the same time ensure systemic stability.

III. The Challenges Ahead

12. The expected changes to the environment pose a number of challenges for the Hong Kong market. These can broadly be summarised as follows:

(a) Faced with increasing competition from the other regional markets, how should Hong Kong maintain its competitive edge in order to retain its position as a leading regional financial market?

(b) Faced with intensifying competition from other financial centres for China business, how can Hong Kong position itself as the " external " capital market of choice for China?

(c) In view of the rapidly changing market conditions, how should Hong Kong guarantee market integrity so as to increase the level of confidence, and hence use of our markets?

13. As every market in Asia continues to upgrade their market infrastructures and regulatory systems, Hong Kong now faces unprecedented competition. Hong Kong ' s current lead over the other regional markets will be closed quickly unless it continues to improve the efficiency and effectiveness of its markets. Hong Kong ' s ability to do so must come from a thorough understanding of its weaknesses and strengths, and the future direction of the market.

Migration of trading

14. Although Hong Kong is maintaining its efficiency and effectiveness as a financial market, there is a worrying trend of migration of trading of Hong Kong listed securities to London and New York. Statistics show that in 1991/92, as much as 12% of the trading of the highest turnover counters in Hong Kong were conducted in these two markets. While up-to-date statistics are not available, anecdotal evidence from the market is that the size of overseas trading has grown. In addition, it is understood that the most liquid stock borrowing/lending market for SEHK listed securities appears to be in London and New York. It is, however, unclear whether this migration of trading is caused by competitive, regulatory or convenience issues. It will be necessary to determine the underlying reasons in order for the market to come up with measures to prevent a further drift of trading off-shore.

Electronic Trading Systems

15. Competition from electronic trading systems with functions similar to established exchanges, such as Globex, Instinet, and trading terminals of overseas exchanges, is also increasing. While the competitive issue is essentially one for the Exchanges, a drift of trading to international electronic trading systems will also have the potential to cause fragmentation of our market. As well, such a development is likely to affect the degree of protection for investors since such systems have thus far tended not to be supported by any regulatory/enforcement resources and have little or no surveillance capabilities to detect manipulative activities. For investor protection and market integrity reasons, there is thus an urgent need to ensure that such systems are properly regulated.

Excessive volatility

16. Concerns have been expressed over the openness of the Hong Kong markets. It has been argued that the flow of international funds in and out of the local market has resulted in exceptional volatility. While excessive volatility is undesirable and the Commission would support efforts to mitigate such fluctuations, it must be recognised that a degree of volatility is inevitable in any market. It is the essence of any healthy market that there is efficient information and sufficient depth of participation so that the different views of business prospects and risks are effectively reflected.

17. The solution to concerns about excessive volatility thus lies in :

(a) increasing the range of risk transfer tools to help the market to dampen and to hedge against volatility;

(b) increasing market depth by attracting international investors with different backgrounds who may therefore take different views of the market;

(c) facilitating the development of a local fund management industry while at the same time encouraging international fund managers to manage local funds in order to further tap the local investor base as local investors may be less affected by changes in market sentiment overseas and tend to take a longer-term view of Hong Kong; and

(d) facilitating and encouraging greater participation by local retail investors in the market for the same reason as (c) above.

Critical mass of international intermediaries and fund managers

18. A current key strength of the local market is the critical mass of international intermediaries (particularly fund managers) operating out of Hong Kong. This adds depth and liquidity to the market and ensures the presence of a full range of supporting expertise including banking, legal, accounting and information services. The quality and quantum of these services will inevitably decline if the international nature of our market is reduced. It is thus vital to retain and reinforce our international orientation.

Demand for wider product range

19. The introduction of additional risk transfer tools, attracting a wider range of international investors to Hong Kong and encouraging the further development of the fund management industry all suggest the need for further product development. As the local market is currently predominantly equity-based, the search for new products would have to go beyond equities to debt products. The development of a viable and liquid debt market in Hong Kong will also contribute significantly towards furthering Hong Kong ' s aims to service the capital needs of China.

20. However, since a deep and liquid debt market has not yet developed despite the rapid expansion of the financial services sector in recent years and the considerable efforts put in by the authorities to stimulate the development of such a market, a structured development strategy which identifies the steps to be taken and the issues to be addressed, including any potential development impediments, appears to be necessary. Other issues, including important policy and structural questions such as trading and clearing systems, secondary market liquidity and tax treatment of interest income, will also have to be examined.

The potential retail investor base

21. The retail investor base offers tremendous potential to be explored. Recent surveys undertaken by the SEHK showed that approximately 46% of market turnover was accounted for by local investors but only 9% of local adults invested in the stock market in the past year, compared with an average of about 22% in other developed markets. A recent investor survey undertaken on behalf of the Commission indicated that nearly 19% of the adult population had invested in the local market during the past three years. A successful effort to win them back could thus see the level of local investor participation jump from the current 9% to 19%, or a two-fold increase. This will enhance market depth substantially.

22. As shown by the SEHK surveys, any coordinated strategy to further tap the local retail investor base will have to include the following two major initiatives:

(a) a comprehensive investor education campaign, since a main reason for the local adult population not entering the market is a lack of knowledge; and

(b) further improvement of the level of market integrity since the other main reason is a lack of confidence in the fairness of market intermediaries.

23. While the Commission will do its part in undertaking these initiatives, the actual effort to tap the local retail investor base rests with the industry. As small local brokers, with their local knowledge, client network and personalised style of business, appear to be best placed to undertake this task, the strengthening of their viability as operators in the market must therefore be a vital part of the overall competitive strategy. The Commission has stepped up liaison with the two main industry bodies, namely the Hong Kong Stockbrokers Association and the Hong Kong Securities Professionals Alumni Association Ltd. to establish the needs and concerns of the local broking community and to ensure their continued viability.

The China Dimension

24. Another current key strength of the Hong Kong market is its China dimension. This offers opportunities on several fronts. Firstly, China ' s funding needs to meet its expected infrastructural bill, estimated at US$774 billion over the next decade, will generate a strong demand for capital market instruments. Hong Kong, with its well developed systems and structures and its China expertise, is well placed to serve such needs. Secondly, as the China market matures, its huge pool of investors and private savings will represent a tremendous potential market for Hong Kong products. As local intermediaries and those in China develop closer links, the skills and expertise available in Hong Kong and the client connections of mainland intermediaries can work together to enable Hong Kong to exploit the China market potential fully. Thirdly, Renminbi-based products will represent a major development potential for Hong Kong, particularly when the currency becomes fully convertible.

25. In this regard, the development of the Shanghai and Shenzhen securities markets will not in the medium term threaten Hong Kong ' s position as an important capital market for China. As China opens and expands, its capital needs will be such that all the three markets will have their hands full for the foreseeable future. Hong Kong must, however, develop a thorough understanding of the opportunities offered by the China market and take appropriate steps to ensure its continued competitiveness as a capital market for China in the longer term, including the development of appropriate linkages with the mainland securities and futures exchanges.

Market Integrity

26. As the local market continues to develop and expand, it is necessary to ensure that the market systems and structures, particularly risk management systems, remain sufficiently robust to meet the stresses that rapid expansion, in both volume and product range, will exert on the market. The OTC derivatives market and screen-based trading systems which fundamentally change the way in which markets work, will also impose new requirements on the level of expertise and the risk management techniques of intermediaries. These will have to be addressed from both a systems and a human resources point of view.

27. In terms of systems, the regulatory framework, particularly the capital requirements for intermediaries, will have to take into account the impact of a higher level of trading in derivative instruments. It will also have to ensure that such risk exposures are properly captured, reported and effectively monitored. On human resources, there will be a need to ensure that the quality of market practitioners and the training available are adequate to deal with the continuing demands of the market.

IV. The Work Programme

28. In anticipation of the challenges and the range of possible responses from the market outlined above, the Commission will accordingly focus its activities under three broad strategic headings :

(a) Competition;
(b) The China Dimension; and
(c) Market Integrity.

Appendix II sets out the Commission ' s one-year and three-year targets as well as the objectives of each of our principal areas of work. It must be borne in mind that there is a constant flow of what might be termed routine regulatory work in the licensing, corporate finance and enforcement area. This is the mainstay of any regulatory agency. We do not expect the volume to decrease in the next three years, though resources have to be constantly reviewed to ensure that we are able to provide this necessary service to the markets in a timely and effective manner. In addition, under each of the three broad strategic headings, we have set out certain new initiatives.

29. As pointed out in the previous section, an essential strategy to enable the Hong Kong market to retain its status as a leading regional market is to maintain its competitive edge. In this respect, the Commission will be pursuing the following new initiatives:

(a) Inter-Market Competitive Study - In order to determine the reasons for the drift of trading of SEHK listed securities to London and New York, the Commission will conduct a study to determine the quantum, rationale and participants of such activities. The results will enable the Commission to review the current regulatory systems and market structures to deal with any competitive threat. The study can only be done in New York and London. Moreover, it would require the cooperation of the intermediaries active in such trading for commercially sensitive information. For this reason, the Commission has approached the Pacific-Basin Capital Markets Research Centre (PACAP) of the University of Rhode Island, which has conducted a number of international studies on securities, futures and debt markets for the IMF, the OECD and the ADB, for assistance. The support of the SEHK is crucial to this study.

(b) Tiered Market Study - To ensure timely actions on the outcome of the SEHK study on the feasibility of a second board, trading-only listings for international or regional issues and a depository receipts market, the Commission will undertake a concurrent study to review the regulatory issues involved. This will examine the appropriateness of moving towards a more disclosure-based system, the standards of disclosure required and what sanctions are required to ensure their integrity, and the level and type of cooperation required of the " home " regulators of foreign issuers to safeguard the integrity of our market. The findings of the two studies will enable a total strategy to be devised for the development of such markets in Hong Kong.

(c) International Profile of Hong Kong Markets - To attract investors with different backgrounds, a programme to promote Hong Kong ' s market and regulatory links internationally has been established in the Commission work programme.

In terms of Hong Kong ' s international market links a programme of promotion had begun with a joint promotion last September to October. Experience in the past year shows that the most important messages relate to the transition of Hong Kong to an SAR. This will be dealt with under the heading " The China Dimension " . In addition, under the work plan for the new unit within the Commission dedicated to Corporate Communications, there will be a programme of communications with international stakeholders and other potential stakeholders of our markets as well as one of participation in international seminars and conferences aimed to promote Hong Kong ' s market and regulatory structures.

At the international regulatory front, the Commission will continue its already extensive involvement in the work of IOSCO, in particular its involvement at regional seminars and meetings. It will also extend its regulatory cooperation with other jurisdictions. In addition to the comfort that our international links afford to international investors, it is because of these regulatory links that our Hang Seng Index futures and options may be marketed to US investors and our links with the Philadelphia Forex Options market may become reality. Our international regulatory links therefore provide the vital bridge for the future strategic alliances of the market.

To ensure that these efforts are undertaken in a relevant and resource-efficient manner, the Commission will establish a dedicated unit to coordinate its international regulatory work. This unit will also be responsible for discharging the obligations under various information sharing/ cooperation agreements with other overseas regulators.

(d) Investor Survey - The Commission has commissioned an independent consultant firm to conduct a survey of local investors ' attitude and understanding of the local market and to identify ways and means of enhancing their confidence in the markets and the regulatory regime. The findings will enable the respective Hong Kong market organizations to develop a targeted strategy to tap the retail investor base effectively.

(e) Investor Education - To educate investors regarding the market, its operations and its risks in order to enhance confidence in the local markets, the Commission will be drawing up an Investor Education Plan on a market-wide approach to enable the different sectors of the market to benefit from the expansion of the retail investor base. The support and participation of the relevant market bodies will obviously be required to implement the Plan. Market experts will also be consulted on how best to undertake such a programme in order to achieve the optimum promotional and educational impact.

(f) Investment Resources Centre - To complement the above efforts to tap the retail investor base, the Commission proposes to set up an Investment Resources Centre to provide investors with easy access to a range of basic information relating to the markets, including historical trading/price data, market reports and research materials on local products and information regarding intermediaries. In time, the Commission intends to involve market practitioners to augment the facility with simple advisory services on the different investment tools, on risk/rewards analysis and on ways and means to enter the market.

The Commission has already had initial discussions with the two Exchanges and the Hong Kong Investment Funds Association on the feasibility of setting up the Centre. Action is also in hand to secure the support of the Urban Council in providing the necessary premises for the Centre.

(g) Market Study : Beyond 2000 : To ensure that the different development initiatives are relevant and capable of pulling together to the overall benefit of the Hong Kong market, the Commission has started a comprehensive market strategy, entitled the " Market Study - Beyond 2000 " , to facilitate coordination and prioritization of the various development initiatives. The project is intended to provide an overview of the strengths and weaknesses of the markets, to analyse the anticipated changes in investment environment in the next few years and to form an overall framework for specific researches, such as the debt market and the China market. It is expected to be finished in the first half of 1996. The aim is to consult the market on an overall strategy to set the scene for the market to review the outcomes of the other Studies.

The China Dimension

In view of the importance of the China market to the future of the Hong Kong market, an integral part of the Commission ' s work programme is a comprehensive China strategy. In this respect, the following new initiatives have been identified:

(a) China Market Benchmark Study - A study of the China capital markets would be undertaken to enable the Commission to establish an authoritative informational benchmark against which it can review continuing changes to the market infrastructures and regulatory system in the mainland. This will enable the Commission to make appropriate adjustments to its regulatory systems to retain Hong Kong ' s competitive edge for H-share listings, to explore other opportunities offered by the China market and to facilitate Hong Kong ' s role as a channel for international funds into China. This study will be undertaken by a new Research and Policy Unit to be established under the direction of the Executive Director (Supervision of Markets).

(b) Debt Market Study - To develop the necessary game plan to stimulate and facilitate the growth of a deep and liquid debt market in Hong Kong, a debt market study will be undertaken. A Working Party, involving representatives from the Commission, the HKMA and the SEHK, working together with the PRC Ministry of Finance has already been established to undertake this task. The Working Party is expected to report over the next twelve months. Thereafter, resources will have to be dedicated to implementing the agreed recommendations.

(c) HKFE China Products Development - The HKFE is undertaking a series of studies to identify what range of products it could usefully develop to consolidate its regional role and to complement the activities currently handled by the PRC Futures Exchanges. The types of products under consideration include RMB futures, RMB index futures, H-share index futures and other soft commodities contracts. Apart from the work that would be required to determine the contract specifications and the clearing and risk management systems for any such contracts, the actual choice of contracts to be developed will require considerable discussions with the business community both locally and in China. The Commission will work closely with the HKFE in this process.

(d) Promotion Programme - To properly perform our role as facilitator of market development, we would need to ensure that the post-1997 guarantees regarding Hong Kong ' s status as an SAR of China are properly understood. The Commission intends to develop an international promotion programme jointly with the respective institutions, targeted at major potential issuers and international investors, to spread the message regarding the intrinsic strengths of the local markets both now and beyond 1997.

Market Integrity

31. The foregoing initiatives focus primarily on the growth aspects of the markets in the coming years. It is necessary to make sure that the regulatory and surveillance systems are equipped to cope with the expected expansion of the market and adapted to the latest market development to ensure that market integrity is maintained. In this respect, the following tasks have been identified:

(a) OTC Derivatives Study - The Commission will be undertaking a follow-up study on the local OTC derivatives market to develop a regulatory regime for the market. The aim is to devise a regulatory framework which does not impose unnecessary regulatory burden/costs on intermediaries not involved in such activities while ensuring that those who are, are adequately qualified to undertake such trading, both in terms of capital and expertise, have good risk management systems in place, and are backed up by good information flows on a timely basis to enable the risks in the market to be monitored and dealt with.

(b) Regulation of International Screen-based Trading Systems - The Commission will be seeking to improve the legislative framework to obtain the necessary regulatory authority over electronic " markets " in the process of the Rationalisation of Securities and Futures Legislation exercise because the present legislative framework does not give the Commission any power to regulate such systems. It is suggested that amendments will be introduced in the relevant legislation to require Commission approval for international screen-based trading systems to be operated in Hong Kong, and to develop an appropriate set of ancillary rules for systems offering cross-border products to local investors. In the process, the Commission will draw from the experience of other jurisdictions, such as the cooperation agreement between the CME and the Matif on Globex, the regulations governing the operations of Instinet in the various jurisdictions and the London experience with the recent launch of Trade Point. The Commission is also discussing with the SEHK to ensure that their current " monopoly " as an Exchange remains undisturbed by these developments.

(c) Market Surveillance - The Commission will be improving its surveillance capabilities to enable investigations to be targeted and initiated in a timely manner to deal with market malpractices more efficiently and effectively. Improved information technology will be put in place. Discussions have also been held with the SEHK to improve coordination and to ensure that there is no duplication of effort. In the course of the next twelve months, further discussions will be held with the two Exchanges to develop a coordinated inter-market surveillance system to combat cross-market manipulative activities and to ensure that there is a clear understanding of the coverage and capabilities of the respective surveillance systems so that the division of labour is delineated to avoid duplication of effort.

(d) Guidelines for Internal Control - The Commission will be publishing during the first quarter of 1996 to consult the market draft guidelines on a set of internal control measures to facilitate intermediaries to monitor compliance with the respective Codes of Conduct on a continuing basis. As with the Code of Conduct, these will be promulgated primarily in the form of minimum standards to allow a degree of flexibility. As part of the consultation exercise, a series of seminars will be organised to explain the proposals and to canvass direct discussions with market practitioners to ensure that the proposals are practicable as well as effective.

(e) Industry Training Programme - The Commission will be carrying out an " Industry Education Review " in conjunction with organizations currently offering such training programmes to examine the prevailing training opportunities and the future needs for expertise and skills in our market to ensure that the Hong Kong market is utilizing its training resources in the most effective manner. The issue of accreditation policy will also be addressed in the Review. The outcome will enable the Commission to draw up a comprehensive package of training programmes for the industry to ensure that human resources necessary for the further development and expansion of the local markets can be serviced by appropriately qualified intermediaries.

(f) Review of Risk Management Systems - With the continued increase in market complexity and turnover as well as the expansion of the range of products available, the Commission intends to undertake a series of reviews to ensure that the risk management systems currently in place at the two Exchanges can cope with the growth of the market. The Commission will initiate discussions with the two Exchanges and their Clearing Houses shortly to seek their views on how to undertake the reviews, who should do them and the appropriate timing.

V. Implications for Organisation

32. The Commission must have a structure which enables it to function in a changing and highly competitive environment. The structure must therefore ensure:

(a) maximum ability to set and review strategic objectives in response to changing conditions;
(b) effective implementation;
(c) effective and quick mobilisation of resources to respond to unusual situations; and
(d) maximum accountability at all levels.

Such a Functional Structure is set out in Appendix III.

33. This new Functional Structure will allow the Chairman as Chief Executive of the Commission to focus on the overall development and direction of the Commission ' s work by designating the Deputy Chairman as Chief Operating Officer. This will enable the Chairman to have more time to co-ordinate the policy of and give strategic direction to the Commission, to concentrate on important issues, and to act as the Commission ' s principal representative domestically and internationally.

34. Each Executive Director, as a member of the Commission, will be answerable to the Board, through the Chairman, for the respective areas of responsibility set out in the Functional Structure. In addition to participating with the Chairman and the Board in setting and reviewing the strategic objectives of the Commission, each Executive Director will be responsible for the formulation of work targets and their implementation within their areas of responsibility. Each Executive Director will be leading a group of senior staff who will in turn be accountable for their allotted work targets. New dedicated units will be formed to deal with Corporate Communications, International Relations, Investor Education, and Research and Policy.

35. As explained earlier, some additional staff resources will be required to carry out the work programme. A phased implementation of the various measures to meet the targets over the next three years will be adopted to keep the additional staffing requirements to the minimum. The detailed staffing implications for the first year are reflected in the Commission ' s budget proposals for the coming year. While the totality of the staffing requirements over the three-year period cannot be worked out at this stage, the additional requirements for the first year represent the major part of the extra staff required under the work programme. Those for the subsequent years are likely to be more modest.

36. As an agency responsible by its constitutive statute for the regulation and development of an international market, the Commission has always adopted a human resources policy of ensuring that there is a multi-jurisdictional and multi-disciplinary skills mix comprising as far as possible of market practitioners . This remains the policy of the Commission.

37. A number of items under the work programme will however require our staff to acquire skills and expertise not currently widely available within the Commission. They include, for example, detailed knowledge about the China market and skills in relation to derivative trading and bond markets. The approach of 1997 also means a need to prepare the Commission for the transition, including the creation of an adequate pool of staff with good Chinese language skills, particularly in Chinese writing and Putonghua if Hong Kong is to remain competitive as an international financial centre, and ready to fully exploit its China dimension. The Commission is convinced that additional investment in training and staff development is necessary. The work plan therefore includes such a programme. This will pay dividends not only in improved quality of regulation but also in establishing the Commission as an employer of choice.

38. While what is set out here is the Commission ' s Corporate Plan for the next three years, it is also in part aspirational and in part tentative. To the extent that it is aspirational, we hope that we shall have the support of the Exchanges, the Hong Kong Securities Clearing Corporation and the market at large. We shall certainly work hard to garner this support. To the extent that our plan is tentative, we recognise that we live in a rapidly changing world and shall therefore regularly review this plan. Next year, we hope to provide the market with an update.