Derivatives Market of Hong Kong Exchanges and Clearing Limited Calvin Tai Senior Vice President Derivatives Market – Exchange Division Hong Kong Exchanges & Clearing Limited 12 August 2005 Nothing herein is to be construed as a recommendation to purchase or sell futures/option contracts or to provide investment advice © HKEx 2005

2 HKEx’s profile Owns and operates Hong Kong’s only stock and future exchanges and related clearing houses Established on 6 March 2000 following the demutualisation and merger of stock exchange, futures exchange and stock clearing company Listed on its own Main Board on 27 June 2000

© HKEx HKEx’s profile Stock Code 388 HKEx Highlights (2004) –Revenues: US$307 million –Profit after tax: US$135 million –Shareholders’ funds: US$519 million –Number of staff : 783 Current Financial Statistics (as at 29 July 2005) –Market cap.:US$3.3 billion –P/E ratio:24.4 times –Dividend yield:3.69%

© HKEx HKEx is one of the largest listed exchanges

© HKEx HKEx’s China Dimension Background Since the 1980s, Hong Kong has been playing a key role as a bridge between China and the global financial market.  HK- or foreign- incorporated China enterprises listed in HK as Red Chips 1980s  H-shares first listed  Some H- shares and red chips dual listed on HK and overseas markets  H-shares index futures launched 2000/01  Mainland private enterprises listed  Petrochina and other very large Mainland listings  1st stock option on H- shares 2004  H share index options launched  China Shenhua Energy Co., Ltd made the world largest IPO so far US3.27Bil  Xinhua/FTSE China 25 Futures & Options launched 2005 Key events 1995  1 st stock option on Red Chips

© HKEx The 10 largest IPOs in Hong Kong since 1993 were all China-related enterprises RankingCompanyListing dateCapital raised (HK$) 1China Unicom - R22/06/ bn 2China Mobile - R23/10/ bn 3China Life - H18/12/ bn 4Sinopec - H19/10/ bn 5Shenhua Energy - H15/06/ bn 6PetroChina - H07/04/ bn 7BOC (Hong Kong) - R25/07/ bn 8 Bank of Comm - H23/06/ bn 9Ping An Insurance - H24/06/ bn 10SMIC18/03/ bn HKEx’s China Dimension World Largest IPO in 2003 World Largest IPO so far in 2005 Stock Options available

© HKEx Securities Market 2004 Market total Mainland Enterprises TotalAs % of total market Listed companies (As at end of Dec 2004) 1, % Number of New Listings704463% Market capitalization (As at end of Dec 2004) HK$6,965 billionHK$2,021 billion30.2% Funds raised by IPOsHK$97.5 billionHK$76.4 billion78.9% Average daily turnover in cash marketsHK$13.7 billionHK$6.7 billion49% HKEx’s China Dimension Derivatives Market 2005 Market total Mainland Enterprises TotalAs % of total market Stock Options (classes) % Stock Futures (classes) % Index Futures & Options8450%

© HKEx Futures Hang Seng Index Futures Mini-Hang Seng Index Futures H-share Index Futures FTSE/Xinhua China 25 Index Futures Stock Futures HIBOR Futures Exchange Fund Notes Futures Options Hang Seng Index Options Mini-Hang Seng Index Options H-share Index Options FTSE/Xinhua China 25 Index Options Stock Options HKEx’s Derivatives Market

© HKEx HKEx’s Derivatives Market Change Mid H-shares Index Futures & Options Key New Products Developed: 21 New Option Classes

© HKEx Turnover : Derivatives market turnover grows 24 folds since 1986 Derivatives Products Volume and Open Interest ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Contract Volume Open Interest Turnover (in millions) Open Interest (in thousands) HKEx’s Derivatives Market Change

© HKEx Hang Seng China Enterprises Index: HKEx ’s China Dimension Derivatives 37 Largest Market Capitalization H-shares H-shares Index H-shares Index Options & Futures

© HKEx New China Derivatives Product Launched on May 23, 2005 FTSE/Xinhua China 25 Index Futures / Options Underlying stocks comprises the top 25 H-shares and Red-chips in terms of market capitalization Investable market capitalization approximately equally split between H-shares and Red-chips Weighting of individual constituent capped at 10% HKEx ’s China Dimension Derivatives

© HKEx Increasing number of stock options with China-related stocks as underlying securities HKEx ’s China Dimension Derivatives

© HKEx Distribution of Derivatives Trading By Investor Type

© HKEx Conclusions Hong Kong as a preferred capital formation centre for Mainland China enterprises –Rule of law, openness, free market philosophy, low / no taxation –Large-scale capital-raising, international standards, global and local investor base Foster development of derivatives on Mainland China related equities to capture long term potential with growth of China and region

© HKEx Thank you !