Note Issuance Programmes of the Airport Authority, the Hong Kong Mortgage Corporation Limited, Kowloon-Canton Railway Corporation and MTR Corporation Limited

The Hong Kong Monetary Authority (HKMA), the Airport Authority (AA), the Hong Kong Mortgage Corporation Limited (HKMC), Kowloon-Canton Railway Corporation (KCRC) and MTR Corporation Limited (MTRC), announced today (Monday) that the HKMA will from 1 September 2001 cease to be the Arranger for the respective Note Issuance Programmes (NIPs) of the four Corporations.

Under the NIPs, the debt securities issued by the Corporations (collectively known as Specified Instruments (SIs)) are made fungible with the Exchange Fund Bills and Notes (EFBN) issued by the HKMA, i.e. a short position of a market-maker in EFBN can be covered by a long position in SIs, or vice versa. There exists therefore a situation whereby holders of SIs could create additional EFBN for discounting at the Discount Window. Such additional EFBN do not have specific backing like other components of the Monetary Base but are backed by the cushion in the existing Backing Portfolio of the Exchange Fund.

In view of the rapid growth in the total SIs outstanding, the Financial Secretary, on the advice of the Exchange Fund Advisory Committee (EFAC), and following the recommendation of the EFAC Sub-Committee on Currency Board Operations, has decided that the issuance of fungible SIs should be discontinued to ensure strict adherence to the Currency Board discipline. The outstanding SIs issued before 1 September 2001 will remain fungible with EFBN and this pool of fungible SIs will diminish over time as they mature.

Hong Kong Monetary Authority,
Airport Authority,
The Hong Kong Mortgage Corporation Limited,
Kowloon-Canton Railway Corporation, and
MTR Corporation Limited

4 June 2001