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Fact Sheet 4
HONG KONG MONETARY AUTHORITY #i4MSrtff Jt/4
Promotion of a deep
and liquid domestic
bond market
Following the HKMA's Note Issuance Programme on behalf of the MTRC in 1995 and the Airport
Authority in 1997, the HKMA arranged a similar programme for the HKMC in January 1998 and for the
KCRC in March 1999. Under this Programme, the HKMA acts as the arranger, custodian, agent and
operator for the debt issues. The securities are covered by the existing market making arrangements for
Exchange Fund Bills and Notes, which should help improve their secondary market liquidity. The first issue
under the HKMC Note Issuance Programme was successfully launched in May 1998.
New initiatives have recently been launched to further develop the local debt market. With effect from 1
April 1999, new Exchange Fund paper is being issued in line with interest payments on existing Exchange
Fund paper. This will allow the size of Exchange Fund paper to grow gradually, and will be conducive to the
development of the local debt market.
Another initiative is to allow use of Exchange Fund paper as margin collateral for trading in stock options
and futures. This can enhance liquidity management by participants in the stock options and futures
exchange. It can also promote market-wide use of Exchange Fund paper, increase the liquidity of fixedincome
market, and help reduce systemic risk.
With a view to enhancing the liquidity of the secondary market for Exchange Fund Notes and facilitating
access by retail investors to the Exchange Fund Notes market, the HKMA has listed the Notes on the Stock
Exchange of Hong Kong. Trading in these Notes on the Stock Exchange began on 16 August 1999. The
listing and trading of Exchange Fund Notes also paves the way for the listing and trading of Hong Kong
dollar bonds issued by government-owned corporations, such as the HKMC, MTRC, AA and KCRC, and
eventually corporate bonds.
Payment system
To help Hong Kong maintain its competitiveness as an international financial centre, the HKMA has been
working closely with the banking industry to enhance the efficiency and robustness of the interbank
payment system.
The successful launch in 1996 of the new Real Time Gross Settlement (RTGS) system, one of the most
advanced in Asia was an important milestone in the development of Hong Kong's interbank payment
system. With the implementation of the RTGS system, real time DvP capability has been achieved for all
debt securities transactions cleared and settled through the CMU.
The Hong Kong
Mortgage Corporation
The Hong Kong Mortgage Corporation (HKMC), which was incorporated in March 1997, plays an
important role in promoting banking stability, monetary stability and home ownership. The HKMC also
helps stimulate the development of the local debt market through the supply of high quality paper to meet
the rising demand from institutional investors, such as pension and insurance funds.
The HKMC is now a major supplier of high quality Hong Kong dollar debt securities. It was one of the
most active corporate issuers in 1998. If market conditions permit, the HKMC will also consider the
feasibility of launching its Mortgage-backed Securities Programme in 1999. More information on the
HKMC can be found in Fact Sheet 6.