the five ; in so doing i could profit from a bow at five but would be indifferent to any directional move provided it was parallel. meanwhile, our universities today probably devote more teaching time to gamma trades than to gamma rays ; i ’ m not sure whether we, as citizens of the world at large, should be elated or depressed by this. but the world of finance is moving forward not only in the realms of such highly complex or sometimes - dare one say - gimmicky instruments. continuous change and innovation are observable at the more prosaic level too. looking at hong kong alone, over the past year there has been an impressive list of innovations, actual or planned, in the financial sector. these are not necessarily all of specific interest to the corporate treasurer but are nonetheless significant in a more general context. thus, first, we have established a reciprocal link with south korea for access to each other ’ s bond settlement and custody systems ( following earlier links of this sort with australia and new zealand ). next, hong kong has launched the tracker fund as a means of disposing of part of the exchange fund ’ s hong kong dollar equity portfolio ; although this bears many characteristics of a conventional index - tracking unit trust, it also has some unique innovative features. in addition, the hong kong mortgage corporation has successfully introduced its first mortgage - backed securities programme. and notes issued by hkma and hkmc have been listed on the stock exchange for the first time. finally, we are preparing a us dollar clearing system which we hope will offer a wider range of facilities than any other offshore clearing ; i would not want today to anticipate the more detailed announcements about the planned timetable for this project, which we expect to make shortly. the foregoing is not necessarily an exhaustive list of changes which are being implemented here. and, assuming that hong kong is by no means the only place where new ideas are being developed across the financing spectrum, i am led to the conclusion that there is little prospect of any immediate let - up in the pace of global product innovation in finance. that is a conclusion reached from merely observing what is at present happening in the financial world, but it does raise questions as to where in all of this lies the scope for extra value added and profit. if one assumes that the overall levels of savings and of investment demand in the economy are little affected by micro developments in the financial sector, then it follows that innovations, in order to be profitable,

must be continually exploiting new arbitrage opportunities, new and more efficient ways of serving customers, and so on. one can understand how, over the years, the increased level of competition in finance, both within and between countries, as well as the communications revolution and the it revolution, have provided the basis for extraordinary gains in efficiency. but will this trend continue? indeed, can it? might the financial sector now be encountering sharply diminishing returns from innovation, in which case much of the new effort put into designing new products would prove to be an expensive mistake? or would it perhaps be more accurate to describe it as an expensive necessity, since, if you don ’ t do it, someone else will? in the intensely competitive environment you can ’ t afford to be left behind, but will, or can, everyone still make profits? i pose these as questions, but i ’ m afraid i don ’ t have any conclusive answers. yet i suspect that we may continue to be pleasantly surprised by the fruits which this ongoing revolution can bear. while it is certainly clear that finance is by and large a hugely competitive business, we observe that many of the participant institutions are enormously successful and profitable. at the same time, however, those of us with responsibilities for regulation, whether for purposes of consumer protection or in order to ensure systemic stability, are surely justified in imposing capital and liquidity requirements designed to make the institutions proof against the sort of setbacks which too intense competition may eventually bring to some. of course, the scare story of impending diminishing returns and so on has been told many times before. what, if anything, is new, as we set off into the new millennium? i believe there are two new ingredients, both concerning the internet. they are access and speed. they are of course related. we can all now enjoy direct access to almost anyone and anything, anywhere, without having to go through intermediaries - other than electronic ones. we are all aware that a degree of caution is required here. for example, the hkma supervises the banks that are located in hong kong, and it is unlawful for anyone to solicit for deposits in hong kong without authorisation. but if you click onto the website of someone in a far - off country and are seduced into transferring funds into a deposit with them, we may not be able to help you if things subsequently go wrong. this is a fairly simplistic example and i ’