Industry observers say the Hong Kong Futures Exchange has more of a past than a future. For a growing number of analysts, certainly, tracking the bourse is like keeping a death vigil.
Gasping on thin turnover, the HKFE as it is known shows few signs of recovery from the worldwide market rout of October 1987, despite an aggressive reform campaign orchestrated by the government and an infusion of government
funds.Attempts to overhaul the exchange, once the second most active in the world, have been repeatedly undermined by dissident member-brokers who fear a restructuring will erode their influence. Outsiders maintain that's part of the idea.
Late last month brokers figuratively if narrowly tore up a memorandum that would have introduced sweeping administrative changes.
HKFE officials are silent about when the bell will ring for the next round in the bout for reform.
"The board is reviewing its options, working out its plans and has decided it isn't going to go public with what it's going to do until we've got the whole thing mapped out," exchange Chairman Eoghan McMillan said.
One step was taken March 13 with creation of a new clearinghouse and guarantor of contractscalled Hong Kong Futures Exchange Clearing Corp. It replaces ICCH (Hong Kong) Ltd., an arm of the London-based International Commodities Clearing House.
The new entity will "develop a reserve fund and manage all resources available to assure the performance and integrity of all contracts" as well as acting as the clearer, a statement said.
ICCH will act as "managing contractor" for some functions, including trade entry, registration, order processing and margin control.
The new clearing entity started life with HK$60 million (US$7.7 million)
put up by 10 members. A further HK$40 million is expected from others by October. It also arranged a HK$50 million bank guarantee.
Meanwhile, volume continues to shrivel.
In 1988, trading in the key Hang Seng stock index contract totaled 140,155 lots, down 96 percent from the 1987 level. Daily turnover in the Hang Seng contract has slumped to about 400 so far this year, against a pre-crash daily
average of 27,000.
The campaign to revive the exchange was mounted soon after Black Monday, when a horde of speculators defaulted on highly geared long positions.
Futures officials set about early last year organizing a repayment schedule for the HK$4 billion (US$512 million) rescue package hastily hammered together by the government and exchange members to honor new and existing contracts.
Wilfred Newton, then exchange chairman, last October proposed a revamping of the package to reduce the government's exposure to the fund and require clearing house members to shoulder more risk.
That failed to restore confidence, and volume languished at record low levels.
At a subsequent sparsely attended extraordinary general meeting of the HKFE, officials failed for a second time to woo enough votes to approve the memorandum on restructuring.
The proposals fell one vote short of the 75 percent required. The departing Mr. Newton blamed a coterie of brokers crippled by Black Monday for frustrating the reforms. Under the terms of the memorandum, he said, such brokers would in time lose their right to participate in the restructuring.
It was such guerrilla warfare that greeted the arrival last month of Mr. McMillan, headhunted from overseeing Hong Kong and East Asia operations for Arthur Andersen & Co. and with no experience in financial markets.
In his debut before the press, Mr. McMillan said he believed the exchange ''has a big future" and is "developing nicely."
More recently, he noted that turnover is edging higher, though conceded it remains well below satisfactory levels.
To spur volume, officials early this year introduced a new, even-month settlement system. They said it would promote liquidity from portfolio managers by offering a more sophisticated hedging option.
Many analysts contend it will do just the opposite - siphon liquidity out of the market, not generate it.
The revised schedule effectively doubles the expiration of stock index contracts. With only even-numbered months traded, the shortest contract now takes two months to expire instead of one; the longest six months, not three. Contracts in gold, sugar and soybeans are not affected.