Paul Chow Chief Executive HKEx hkex.hk 12 May 2006

1. How Mainland Listings Changed the Landscape of the Hong Kong Securities MarketChina and Global Capital Markets: Conference 2006 Paul Chow Chief Executive HKEx www.hkex.com.hk 12 May 2006

2. Introduction The listing of Mainland enterprises has played an important role in the evolution of the Hong Kong securities market in 4 key areas: Listing Regulatory Framework Strengthening our Position as China’s International Financial Centre Broadening the Types of Mainland Related Products HKEx Organisation

3. Agenda Listing Regulatory Framework Strengthening our Position as China’s International Financial Centre Broadening the Types of Mainland Related Products HKEx Organisation

4. A three-tier system regulates the securities market in Hong Kong Government • Policy maker and legislator • Sets overall policy direction • Initiates legislation SFC • Statutory regulator • Administers the SFO and guidelines and codes related to: • Market conduct • Disclosure of Interests • Licensing of financial intermediaries (including corporate finance advisers) • Takeover, merger and share buybacks • Regulates SEHK pursuant to the SFO and various MOUs • Regulates listed issuers through the dual filing regime HKEx • Frontline regulator • Sole operator of the exchange-based stock and futures markets, and central clearing houses • Administers the Listing Rules, Trading Rules & Clearing Rules • Regulated by the SFC pursuant to the SFO and various MOUs

5. Mainland listings prompted some key regulatory developments in the 1990s HKEx-participated initiatives The first H Share listed in HK June, 1993 1980s Nov, 1994 Listing of Red Chips in HK Mandatory Provisions《必備條款》 Listing Rules amended to require the articles of associations of PRC issuers to include the new Mandatory Provisions for Companies Listing Overseas 《到境外上市公司章程必備條款》issued by the State Council Securities Policy Committee and the State Commission for Restructuring the Economic System

6. Since 2000, major regulatory initiatives were implemented to further improve market quality HKEx-participated initiatives Acceptance of IAS and USGAPP Listing Rules amended to accept IAS and US GAPP H Share’s Trading Currency Listing Rules amended to allow H Shares to be subscribed for and traded in currencies other than HKD • Initial Listing Criteria • and Continuing Obligations • Listing Rules amended on : • Track record period (profit / market capitalisation) requirements • Public float requirements • Financial reporting obligations • Definitions and tests in connected and notifiable transactions May 2001 Apr 2001 Mar 2004 Jan 2005 Apr 2003 Enactment of SFO SFO consolidated and modernised 10 previous ordinances regulating the securities and futures market • Corporate Governance matters: • Listing Rules amended to adopt the Code of • Corporate Governance Practices • Introduced “Code vs Recommended Best Practice” system • Require issuers to include Corporate Governance Reports in annual reports HKFRS harmonised with IFRS

7. Agenda Listing Regulatory Framework Strengthening our Position as China’s International Financial Centre Broadening the Types of Mainland Related Products HKEx Organisation

8. Mainland listings make their mark All sizes of SOEs + POEs More POEs joined the market Listing of mainly large SOEs; selected by Mainland govt 1993 6 H shares listed (Total fund raised: HKD 8.142bn) 1980’s Listing of Red Chips 1994 15 H shares listed by end of 1994 2000 Mainland enterprises listed on GEM April 30, 2006 344 Mainland enterprises listed + over 250 MOEs SOEs: State-owned Enterprises POEs: Privately-owned Enterprises MOEs: Mainland-operating Enterprises

9. Mainland listings have broadened the industry composition of the listed companies in Hong Kong • Iron / Steel manufacturing • Automobile manufacturing • Ship building • More banks • More insurance companies • Coal Mining • Airport 1993 1997 2000 2005 • Production of grape wine / spirits • Supermarket operator • Gold mining • Dairy products • Ports • Oil and gas; • Water treatment plant; • Satellite telecommunication • operator • Gas pipelines constructor • Copper mining • Toll roads Source: HKEx

10. Mainland enterprises listed in Hong Kong have grown in number and significance

11. Top IPOs are all by Mainland enterprises Top 10 listed companies by market cap as at Apr 06 Source: HKEx

12. Hong Kong has become a major capital formation centre for both Mainland and non-Mainland enterprises Fund raised (HK$ bil) 9% 180 Non-Mainland 166 Enterprises 160 9% 136 140 Mainland Enterprises 120 100 65% 80 91% 69 60 76% 31 40 35% 67% 20 24% 33% - IPO Post IPO Post 1996 IPO 2005 IPO 1996 2005 Source: HKEx

13. Shares of Mainland enterprises are traded actively Daily Turnover (HK$ mn) 35,000 Daily DW Turnover of Non-ME 13% 30,000 Daily DW Turnover of ME 7% Daily equity Turnover of Non-ME 25,000 Daily equity Turnover of ME 34% 20,000 15% 15,000 5% 43% 10,000 46% 8% 5,000 0.8% 80% 37% - 11% 1996 2005 Jan-Apr 2006 Source: HKEx

14. Agenda Listing Regulatory Framework Strengthening our Position as China’s International Financial Centre Broadening the Types of Mainland Related Products HKEx Organisation

15. 1994 Stock options, futures & warrants for individual Mainland enterprises developed Mainland-related derivatives products were offered to investors 2005 FTSE/Xinhua China 25 Futures and Options launched 2003 H-share Index Futures launched 2004 • H-share Index Options launched • iShares FTSE/ Xinhua A50 China Tracker launched Source: HKEx

16. These products are actively traded Average daily no. of contracts 180,000 155,345 Options 160,000 Futures 140,000 120,000 52% 103,573 100,000 79,472 47% 80,000 59,011 39% 60,000 45,018 43,683 44% 48% 40,000 45% 44% 53% 61% 56% 20,000 55% 56% - 2001 2002 2003 2004 2005 Jan - Apr 2006 Other options include Mini Hang Seng Index options, FTSE/Xinhua China 25 Index options Other futures: FTSE/Xinhua China 25 Index futures, stock futures, 1&3-month Hibor futures and 3-year Exchange Fund Note futures Source: HKEx

17. Agenda Listing Regulatory Framework Strengthening our Position as China’s International Financial Centre Broadening the Types of Mainland Related Products HKEx Organisation

18. HKEx has enhanced its organisation to further improve its partnership with the Mainland • Established the Business Development Division (formerly the China Development and Listing Promotion Department), responsible for promoting new listings in Hong Kong through conducting conferences and meetings with prospective issuers • Set up the Beijing Representative Office in 2003 • Appointed Special Representatives to station in Guangzhou and Shanghai in 2004 • Formed the China Affairs Team in the Listing Division in January 2006 • Liaise with the Mainland authorities and exchanges • Coordinate regular training seminars and workshops for Hong Kong-listed Mainland enterprises

19. Conclusion: Hong Kong is now China’s international financial centre Hong Kong market - becomes more international as we attract more international funds with the listing of Mainland enterprises Mainland enterprises - listing in Hong Kong helps Mainland enterprises to move towards international standards An International Financial Venue HK + Mainland Listings More international funds, more trading activities HK Market In the 70’s & 80’s, the market was dominated by British hongs and local companies Market grew rapidly with the listing of Mainland enterprises In view of our market quality and to capitalize on the high growth of Mainland economy, we expect that more international investors would be attracted to invest in our market

20. Conclusion:To be successful over the long term, HKEx is committed to continuously enhancing market quality Market Quality Investor Confidence Market Liquidity an open, secure, fair, orderly, efficient and transparentmarketplace Order Flow

21. Thank You