Stock market REGULATED SHORT SELLING Regulated short selling is the

Stock market REGULATED SHORT SELLING Regulated short selling is the sale of a designated security which the seller does not own and is consummated by the delivery of securities borrowed by or for the account of the seller. In line with reform of the securities borrowing and lending regime, the Exchange introduced a pilot scheme for regulated short selling in January 1994. Under the pilot scheme, 17 securities could be short sold and a short sale could not be made below the best current ask price (the so-called “tick rule”). The scheme was revised in March 1996 with the number of designated securities for short selling increased and the tick rule abolished. The tick rule was reinstated on 7 September 1998 upon changes in market conditions. Short selling transactions by stock options market makers for the purpose of hedging the risk of the portfolio resulting from their market making activities are exempt from the rule. Normally, the aggregate value of exempted short selling transactions of a market maker in a day shall not exceed HK$30 million. The number of designated securities for short selling are revised from time to time. From 28 February 2000, the total number of designated securities is 194 which covers all the constituent stocks of the Hang Seng Index, the Hang Seng 100 Index, the New Hang Seng MidCap 50 Index, the Hang Seng China Enterprises Index and the Hang Seng China-Affiliated Corporations Index, stocks satisfying the liquidity requirement for the issuance of single stock or basket derivative warrants, and the Tracker Fund of Hong Kong. The major Exchange requirements for members to participate in short selling are as follows: • Members who sell short are required to maintain ledgers recording the up-to-date details of all short selling activities for their own account or for the account of their clients. The ledgers must be made available for inspection by the Exchange, Hongkong Clearing and the SFC upon request; Member must designate all short sell orders as such when entering them into AMS and a short selling transaction shall only be concluded in a designated security automatically struck through the trading system; Members who sell short must have the necessary stock borrowing arrangements prior to the short selling for settlement purposes. • • SECURITIES BORROWING AND LENDING Since September 1994, a comprehensive exemption from stamp duty has been granted in respect of the borrowing and lending of Hong Kong securities. The exemption is currently subject to (1) the securities borrowing and lending agreement being filed with the tax authorities; and (2) the borrowing being for one of five “specified purposes”. These purposes cover all practical purposes for which securities borrowing and lending is undertaken and have subsequently been extended to include repurchase transactions. The Hong Kong Inland Revenue Department has also issued guidance as to the treatment of securities borrowing and lending transactions for purposes of profits tax. This guidance is supportive of genuine securities borrowing and lending transactions. The Exchange’s regulations on securities borrowing and lending require the member participant (1) to keep proper records; (2) to sign a securities borrowing and lending agreement; (3) to collect collateral of at least 100% of the value of securities loaned or 105% if the borrowing is for short selling (to give an intra-day buffer); and (4) to mark to market all borrowings and collateral at least daily. To further increase settlement efficiency and facilitate the fulfillment of settlement obligations, Hongkong Clearing introduced the Stock Borrowing and Lending (SBL) service. Phase I of the SBL service was introduced in May 1999. CCASS Intermediary Participants (brokers and custodians) may open Stock Lending Accounts to become stock lenders. In phase I, the only borrower is Hongkong Clearing which borrows stocks on the settlement day (T+2) to close out any outstanding long positions under Continuous Net Settlement at day end. Hongkong Clearing is studying the feasibility of introducing phase II and III of the service, and is currently working out the respective models. The two new phases will provide facilities to overdue short brokers to borrow stocks directly from lenders, and to all participants for normal stock borrowing and lending transactions. Fact Book 1999 1 Stock market Short selling transactions by designated stocks, 1999 Name Akai Holdings Amoy Properties Anhui Expressway - H Shares Asia Satellite Telecom Asia Standard Int'l AXA China Region Bank of East Asia Beijing Datang Power - H Shares Beijing Enterprises Beijing North Star - H Shares Beijing Yanhua - H Shares Cable & Wireless HKT Cathay Pacific Airways CCT Telecom Holdings Cheung Kong (Holdings) Cheung Kong Infrastructure China Eastern Airlines - H Shares China Everbright China Merchants Holdings China Resources Beijing Land China Resources Enterprise China Shipping Dev - H Shares China Southern Airlines - H Shares China Telecom (HK) Chinese Estates Holdings CITIC Ka Wah Bank CITIC Pacific CLP Holdings CNPC (Hong Kong) COSCO Int'l COSCO Pacific Dah Sing Financial Dao Heng Bank Egana Int'l Esprit Holdings First Pacific Founder (HK) Giordano Int'l Great Eagle Holdings Guangdong Investment Guangshen Railway - H Shares Guangzhou Investment Guangzhou Phar - H Shares Guoco Group Hang Lung Development Hang Seng Bank Harbin Power - H Shares Number of shares 1,000,000 43,406,000 5,686,000 677,000 1,170,000 1,450,000 23,994,400 4,630,000 4,626,000 30,000 86,022,000 275,247,200 56,979,000 10,000 52,018,000 7,402,000 7,314,000 4,378,000 61,432,000 2,960,000 63,196,000 1,690,000 13,608,000 436,634,000 40,000 200,000 38,549,062 18,738,500 200,000 2,000,000 25,544,000 347,200 10,031,500 21,500,000 190,000 16,392,000 20,000 528,000 4,164,000 11,770,000 53,498,000 900,000 50,000 1,661,000 4,540,000 33,905,700 800,000 Value of transactions (HK$) 375,000 299,427,955 4,717,940 12,669,000 1,303,000 7,638,700 394,205,263 10,090,900 65,332,100 30,600 126,593,960 4,739,142,700 645,271,650 47,500 3,242,974,750 108,711,500 5,536,960 28,137,700 362,137,800 4,569,400 686,927,800 2,790,260 19,172,560 9,276,585,700 52,000 760,000 730,093,891 699,105,100 219,000 2,750,000 148,466,750 11,017,360 340,336,950 4,215,752 1,599,000 87,518,550 35,600 3,054,200 43,745,000 16,267,020 49,576,440 680,000 69,500 33,381,000 37,413,000 2,620,042,800 295,000 2 Fact Book 1999 Stock market Short selling transactions by designated stocks, 1999 (continued) Name Henderson China Holdings Henderson Investment Henderson Land HKR Int'l Hong Kong Gas Hong Kong Hotels Hongkong Electric Hopewell Holdings HSBC Holdings Huaneng Power Int'l - H Shares Hutchison Whampoa Hysan Development Jiangsu Expressway - H Shares Jilin Chemical - H Shares Johnson Electric Holdings Kerry Properties Lai Sun Development Legend Holdings Li & Fung Miramar Hotel Moulin Int'l Holdings New World Development New World Infrastructure NJ Panda Electronics - H Shares Qingling Motors - H Shares Regal Hotels Int'l Shanghai Industrial Holdings Shanghai Petrochemical - H Shares Shangri-La Asia Shum Yip Investment Shun Tak Holdings Sichuan Expressway - H Shares Sino Land SmarTone Telecommunications South China Morning Post Stone Electronic Technology Sun Hung Kai Properties Swire Pacific 'A' Swire Pacific 'B' Television Broadcasts Tianjin Development Tracker Fund of Hong Kong Union Bank Varitronix Int'l VTech Holdings Wharf (Holdings) Wheelock and Co Number of shares 665,000 10,878,000 35,223,000 5,179,200 32,996,000 7,451,000 21,171,000 7,928,000 97,545,600 64,872,000 104,829,000 13,280,000 1,322,000 9,352,000 897,000 99,500 860,000 13,260,000 74,000 8,000 4,642,000 113,936,000 18,037,400 16,000 8,216,000 902,000 70,433,000 65,400,000 15,010,000 1,200,000 7,460,000 3,350,000 40,422,000 3,472,500 258,000 738,000 100,161,314 34,451,500 50,000 1,644,000 908,000 500,000 486,000 16,000 640,000 138,571,000 6,362,000 Value of transactions (HK$) 1,781,825 51,694,950 1,417,442,888 23,697,360 340,539,200 39,516,590 507,229,365 35,721,375 14,474,402,404 149,783,750 7,066,751,150 135,969,650 1,875,312 6,775,060 32,571,775 1,048,325 402,830 101,666,000 1,260,500 61,600 3,411,560 2,244,039,899 242,244,771 28,320 12,771,100 703,020 1,124,634,600 86,859,900 127,392,350 2,000,000 13,435,060 2,194,500 160,422,300 107,312,725 1,134,450 487,080 6,394,863,759 1,331,339,600 295,000 50,859,900 4,716,900 7,315,000 1,992,950 275,150 15,936,900 2,601,788,299 44,777,500 Fact Book 1999 3 Stock market Short selling transactions by designated stocks, 1999 (continued) Name Wing Lung Bank Yanzhou Coal Mining - H Shares Yizheng Chemical - H Shares Zhejiang Expressway - H Shares Zhenhai Refining - H Shares Total Number of shares 57,500 43,584,000 6,700,000 5,050,000 290,000 2,521,983,076 Value of transactions (HK$) 1,213,750 96,337,740 5,477,640 7,521,000 746,750 63,959,805,994 Monthly short selling transactions, 1999 No. of designated securities (month-end figure) 195 195 195 195 195 195 195 195 181 181 182 182 Number of shares 212,517,114 169,297,900 265,731,900 257,974,300 165,294,200 316,302,900 333,277,200 223,641,300 147,906,300 200,863,682 140,647,800 88,528,480 2,521,983,076 Value of transactions (HK$) 5,640,534,235 5,013,435,142 7,023,983,035 6,627,757,240 5,095,209,425 6,602,180,513 7,109,066,033 5,316,250,375 4,076,413,662 5,193,106,393 3,568,292,943 2,693,576,998 63,959,805,994 No. of designated securities recording short selling 51 51 54 55 50 57 69 54 57 47 49 46 Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 4 Fact Book 1999