norman t l chan : remarks for trahk 10th anniversary remarks by mr norman t l chan, sbs, jp, chief executive of the hong kong monetary authority, at the trahk 10th anniversary gathering celebration / reception, hong kong, 12 november 2009. * * * good afternoon ladies and gentlemen. i am delighted to be here today on the 10th anniversary of the listing of the tracker fund of hong kong and to see so many familiar faces from the original project team. thank you state street for organizing this timely get - together. a decade has come and gone since we created tracker. we ’ ve seen another crisis and a whole raft of intervention measures by governments, some of which are of unprecedented scale. now the focus is turning to " exit strategies " and, looking back ten years'on, i think we can all take some collective pride in having been part of one of the most innovative, and dare i say elegant, exit strategies. the strategy, 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 we rose to the challenge with an exit strategy that saw us launch the first etf in asia ex - japan, in a public offering which turned out to be the largest in asia ex - japan at the time of launch, raising hk $ 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 efil board recommended on 21st 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! by some miracle or rather due to the sheer hard work, long hours and perseverance on the part of the project team, 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 miscommunication ( however slight ) could have a severely negative effect not only on our stock market but also on the international perception of hong kong. i have to tell you that making the decision to use an etf as the disposal strategy was not an easy one. the strategy was then unorthod

, fx, credit, hedging, interest rates transactions. however, the hkma outreaching team soon realised that they had run into a major problem. the problem had to do with the tax asymmetry that treated ctcs ’ overseas interest expenses and income differently. simply put, a ctc could not claim tax deduction for interest paid to fund providers within the group as expenses, but all its interest income was subject to profits tax. this tax asymmetry greatly diminished the attractiveness of hong kong as a ctc hub, especially as our main competitors in the region and elsewhere do not seem to have this problem. 4. when faced with this possible deal breaker in our effort to promote hong kong as the ctc hub, what did we do? rule number two in marketing : you cannot do good marketing if the product is not a good one. you can only fool some people some of the time but not for long. so one has to make good a product if it is found defective or inferior. thanks to the help from the tma, we formed a working group to study the problem and make recommendations to remove the obstacles undermining hong kong ’ s development as a ctc hub. we made a report to the financial secretary and obtained his support to change this tax anomaly. with the support of the financial services and the treasury bureau ( fstb ) and the inland revenue department ( ird ), and in consultation with the industry, we managed to pass the legislative amendments to remove the tax asymmetry in may 2016. in addition, the government has gone one step further by providing additional tax incentive by halving the profits tax rate payable on specified ctc activities in hong kong from 16. 5 % to 8. 25 %. ladies and gentlemen, as an illustration of the keen 1 / 4 bis central bankers'speeches competition between financial centres in the region, two months before our tax proposals were approved by the legislative council in hong kong, singapore, you know what, announced the lowering of its concessionary tax rate for eligible treasury activities from 10 % to 8 %. 5. our story did not end there. as a member of the oecd ’ s inclusive framework on base erosion and profit shifting, commonly known as beps, hong kong is committed to implementing the beps standards. the relevant oecd forum on tax practices has recently studied over 100 tax regimes worldwide and taken a view that our newly enacted ctc tax regime has a