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Hong Kong Exchange Protests Over Planned Rival Platform

by Carla Johnson, Investors

22 October 2001

Hong Kong Exchanges and Clearing (HKEx) has protested to the Securities and Futures Commission over plans for a rival platform trading new derivative products in direct competition to it.

There have been reports, although they have so far remained unconfirmed, that the Hong Kong property giant Cheung Kong has teamed up with five investment banks to introduce an online trading platform for equity linked notes (ELNs), something which the HKEx has been planning to introduce itself for some time. However, a spokesman from Cheung Kong said that he could not comment on the organisation's future plans.

ELNs are high risk, high reward derivative products, usually only available to wealthy individuals and institutional investors, which allow investors to make bets on stock price movements. The HKEx announced its own plans to trade these products in June, but has been jumping through regulatory hoops ever since.

However, because the new platform - reportedly named imarkets - intends initially to offer the service only to institutional investors, the HKEx is worried that it will not be subject to the same degree of scrutiny. 'It would be unacceptable if, while the HKEx is waiting for a lengthy regulatory approval process by the SFC, somebody down the street could suddenly come out and do something similar to us without any regulatory approval,' the Exchange's Chief Operating Officer, Frederick Grede, pointed out.

The HKEx is also worried lest, further down the line, the new bourse decide to shift its focus, and to offer the risky derivatives to wealthy individual investors as well. 'It is very important to have a level playing field in the Hong Kong market,' added Mr Grede. 'It is also important to have proper regulation of all investment products in Hong Kong, to ensure the interests of investors are being protected.'

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