in asia. given these core values, there are no barriers to entry and no obstacles to mobility for financial and human capital from local and overseas financial institutions planning to engage in islamic or conventional finance in hong kong. the second aspect is the unique role hong kong plays in the economic development of china. in the past three decades when the mainland was achieving economic liberalisation, hong kong has capitalised on its strong cultural and geographic links to become the gateway connecting the mainland market to the world. our close and increasing economic cooperation with the mainland undoubtedly makes hong kong the natural choice for anyone wishing to tap into china ’ s high savings rate and huge growth potential. hong kong is the premier capital formation centre for the mainland and hence a global investment platform for enterprises from around the world wishing to gain exposure to china ’ s growth. this is demonstrated by the fact that we have the largest, deepest, and most open chinese capital markets outside of the mainland : half of our stock market capitalisation comprises mainland related companies. at the end of august, our stock market was the sixth largest in the world and the second largest in asia in terms of market capitalisation. it ranked first in the world in securitised derivatives turnover, and first in asia for stock options turnover and exchange - traded funds turnover. it also ranked fifth in the world in total equity raised through ipos. 4 in the other direction, many mainland companies have set up regional headquarters or offices in hong kong as part of their strategies to step up their international presence. continuously high growth in recent years has resulted in a vast accumulation of wealth on the mainland and the authorities there are progressively liberalising the requirements for mainland financial institutions to invest overseas. as a result, hong kong has benefited from the outward investment flows given our geographic, cultural and linguistic affinities with the mainland and our ability to provide a broad access to numerous asia - pacific and global markets. the potential demand for wealth management thus presents capital - market intermediaries in hong kong with huge opportunities. we are also the first jurisdiction outside of the mainland with the ability to conduct renminbi banking business and deal in renminbi - denominated financial products. the establishment of a renminbi bond market in hong kong last year marked a key milestone in the development of renminbi business here. it has helped entrench hong kong as a testing ground and pilot market for china ’ s continuing financial reform and liberalisation. there is clearly immense scope for us to leverage on

therefore spent quite some time in ensuring that the mortgage pricing of banks is sustainable in the medium to long term. 8. cultural issues : the paper points out that the introduction of the 70 % ltv guideline in 1991 was a joint - initiative by the public and private sectors where both saw the need for a more prudent ltv standard to ensure the sustainability of banks ’ mortgage business. the market has moved on since then. with banks increasingly focus on short - term profit maximization, we have seen many instances where banks attempted to circumvent our macroprudential policies. 9. some banks used their group entities outside hong kong to extend mortgage facilities exceeding the hkma ’ s limits to buyers of hong kong properties. the banks thought that they could bypass the hkma ’ s macroprudential measures through these “ creative ” cross - border arrangements. they were wrong. in all these cases, we made it clear to the banks that their activities are tantamount to regulatory arbitrage, which is unacceptable and which reveals a more fundamental problem about their corporate culture. if the senior management themselves do not comply with the regulatory requirements applicable to their institution, how can they expect their staff to observe the requirements of the bank? the hkma shared our concerns with the relevant home supervisors and obtained their assistance to follow up the issue at the group level. the banks were asked to put in place effective controls to prevent recurrence. 10. combating leakage : the paper has highlighted the challenge of policy leakage in the 1990s such as top - up loans in the form of a personal loan to finance the down - payment of property acquisitions. on this front, again, the market has moved on. these days a major avenue of policy leakage is mortgage loans exceeding the hkma ’ s limits provided by non - bank institutions, such as finance companies and property developers. both of them fall outside the hkma ’ s supervisory remit. 11. to address this, we require banks to terminate credit relationship with finance companies offering mortgages that do not comply with our requirements. as for developers, we set higher risk weights for credit exposure to those property developers offering high ltv mortgages. we recognise that these measures can not completely stem out the leakage. this brings up the question of whether there is a need to extend the regulatory perimeter to cover mortgage lending by non - bank institutions. we understand that in some jurisdictions, residential mortgage loans provided by banks and non -