Key Information

inSight
Speeches
Speeches by Speaker
Norman T.L. Chan
Peter Pang
Eddie Yue
Arthur Yuen
Raymond Li
Edmond Lau
Esmond Lee
Meena Datwani
Vincent W.S. Lee
James Lau
Joseph Yam
Y K Choi
William Ryback
David Carse
Tony Latter
Andrew Sheng
Hans Genberg
Simon Topping
Michael Taylor
The Honourable Donald Tsang
Chen Yuan
Dai Xianglong
Don Brash
Jaime Caruana
Andrew Crockett
Mario Draghi
David Eldon
Stanley Fischer
Timothy F. Geithner
Stephen Grenville
Kenneth G. Lay
William McDonough
Ernest Patrikis
Glenn Stevens
Jean-Claude Trichet
Tarisa Watanagase
Zeti Akhtar Aziz
Press Releases
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Press Releases by Category
Bogus Voice Message Phone Calls
Banking in Hong Kong
Fraudulent Websites, E-mails and Telephone System, and other fraud cases
Granting of Banking Licences
Exchange Fund
Table of Multiples of Notes and Payments for Allotted Amount under non-competitive tender
Table of Multiples of Notes and Payments of Application Amount under non-competitive tender
Tender of Exchange Fund Bills and Notes
Tender Results of Exchange Fund Bills and Notes
Tentative Issuance Schedule for Exchange Fund Bills and Notes
Appointments and Departures
HKMA Pay Review
HKMA Publications
Speeches
The Hong Kong Mortgage Corporation
Hong Kong Note Printing Limited
Hong Kong Institute for Monetary Research
Exchange Fund Investment Limited
Others
Hong Kong Financial Infrastructure
International Relations
Investment Products Related to Lehman Brothers
Monetary Policy
Notes and Coins
Renminbi business
Credit Card Lending Survey
Monetary Statistics
Residential Mortgage Survey
Year 2000
Others
Guidelines and Circulars
Guidelines
Circulars
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
421.9001

insight

10th Anniversary of Listing of TraHK

Today is the 10th anniversary of the listing of the Tracker Fund of Hong Kong (TraHK). I thought readers would be interested in knowing something about the background of the listing of TraHK.

We are now facing a global financial crisis, with governments around the world introducing a whole raft of intervention measures, some of which are on an unprecedented scale. Now the focus is on how to "exit" from these measures and, looking back after ten years, I think all those involved in designing and implementing TraHK can take some pride in having been part of this innovative and successful exit strategy carried out by the Hong Kong SAR Government. The mission, of course, was to dispose of the stocks acquired by the Government in the stock market operations of the summer of 1998 with minimal disruption to the market. This was by no means a small task - but together with the project team we rose to the challenge with an exit strategy that saw the launch of the first Exchange-Traded Fund (ETF) in Asia outside of Japan, in an IPO which turned out to be the largest in the region (again excluding Japan) at the time of launch, raising $33.3 billion from over 180,000 retail investors and institutions.

We created the Tracker Fund in a little under 6 months, from the time the Board of Exchange Fund Investment Limited (EFIL) recommended on 21 June 1999 that this was the way to launch the disposal programme. We did this at a time when market sentiment in Asia was just beginning to become less negative. If this were not enough of a challenge, we also had the shadow of Y2K hanging over us! Due to the sheer hard work, long hours and perseverance of those involved, we overcame countless operational, IT, legal and regulatory challenges thrown at us.

Just to add to the degree of difficulty, we had to work in the full glare of the public eye, knowing that any mistakes in implementing the project or miscommunication, however slight, could have a severely negative effect not only on our stock market but also on the international perception of Hong Kong.

The decision to use an ETF as the disposal strategy was not an easy one. The strategy was then unorthodox and unproven in Asia, as was the investment appetite for such a product. The investment banking community was perplexed that we should launch an ETF when a block trade or a convertible bond option was much more "familiar" or "safer". Our legal advisers were perplexed that we should launch a fund through an IPO. Our global co-ordinators were amazed by our determination to create an innovative "Tap Facility" to allow the continued block creation of more Tracker units from the remaining portfolio of shares. We also insisted on not giving any discount to the public at the launch of the IPO and instead offered an innovative back-end loaded incentive scheme in the form of one-year and two-year loyalty bonuses.

From the Government perspective, we had by April 2001 recouped more than the $118 billion used by the Exchange Fund in the stock market operation. In total, we sold $140 billion worth of shares into Tracker, received $24 billion from dividends on our shareholdings and still retained $50 billion in the Exchange Fund's long term equity portfolio when the "tap" into Tracker was terminated.

We could not have achieved this without the dedication and support of a team of highly professional advisers: TraHK's manager and custodian; the three global coordinators; the lawyers; the marketing & PR firms; colleagues at the Securities and Futures Commission, Hong Kong Exchange and Clearing Limited and Central Clearing and Settlement System; and of course the Chairman, Mr TL Yang, and all the directors and fellow staff of EFIL.

If one were to mark TraHK as an exit strategy, many would agree that it deserves a fine report card. We did dispose of the shares with minimal disruption to the market. The Fund did encourage longer-term investment in unit trusts and kick-started the ETF market on the Hong Kong Exchange and elsewhere in Asia, where we now have a variety of ETFs covering a wide range of asset classes. The result has been the provision of more choice to investors, both retail and institutional, at lower cost than traditional unit trusts.

Ten years on, it will be interesting to see how the exit strategies currently on drawing boards around the world unfold and how successful they will be.

This is the first of a series of articles, under the title "inSight" (匯思), written by me or staff members of the HKMA. I am committed to enhancing the HKMA's communication with the public, and we will use this as well as other channels to keep the community informed of our work and the developments in the financial markets.

 

Norman T. L. Chan
Chief Executive
Hong Kong Monetary Authority

12 November 2009

Last revision date: 1 August 2011
ABOUT THE HKMA
The HKMA
Tender Invitations
Careers@HKMA
Legislative Council Issues
Links
The HKMA Information Centre
KEY FUNCTIONS
Monetary Stability
Banking Stability
International Financial Centre
Exchange Fund
PUBLICATIONS & RESEARCH
Annual Report
Half-Yearly Monetary & Financial Stability Report
Quarterly Bulletin
HKMA Background Briefs
Reference Materials
Research
MARKET DATA & STATISTICS
CMU Bond Price Bulletin
Economic & Financial Data for Hong Kong
Monthly Statistical Bulletin
Monetary Statistics
KEY INFORMATION
Press Releases
Speeches
Guidelines & Circulars
Forthcoming Events
inSight
OTHER INFORMATION
Account Opening
Consumer Corner
Consumer Education Programme
Complaints about Banks
Complaints about SVF Licensees
Internet Banking
Fraudulent Bank Websites, Phishing E-mails and Similar Scams
Be Careful of Bogus Phone Calls and SMS Messages
Authenticate the Callers and Bank Hotline Numbers
Register of AIs & LROs
Register of Securities Staff of AIs
Register of SVF Licensees
Investment Products Related to Lehman Brothers
Photo Gallery