banks, in part due to the globalization of the banking industry, banks are under pressure to limit their capital and thereby raise their profitability. when regulatory capital requirements are significantly greater than the economic capital banks would otherwise assign to a given loan, banks either have to find ways to lower those capital charges, shift the risks associated with those loans elsewhere, or get out of the business of making such high quality loans. in the absence of such adjustments, the capital standards might otherwise drive banks out of the business of making high quality loans and therefore toward increased risk - taking. regulatory capital arbitrage can therefore be a safety valve that allows banks to continue in the business of lending to high quality counterparties. but we must deal with both the problem of the degree to which the capital on the remaining credit risk at a bank associated with securitizations accurately reflects that risk. perhaps even more critical is addressing the effect of both securitizations and credit derivatives for the capital associated with the risk level of the residual loan portfolio. a one - size fits all regulatory capital charge and the cherry - picking of securitizing low risks and retaining high risks is, i believe, our biggest problem with securitizations - - real and synthetic. to address these problems we need a two - track approach. in the near term, we need to implement rules that better match capital charges with the residual risk left after securitizations. this is a very complex problem. the banking agencies issued a proposed rulemaking to address this issue in november of 1997 and received many comments from the industry. a high priority in the near term must be putting in place an improved set of rules related to securitization. over the intermediate term, we need to move more rapidly toward reform of the basle capital standards, with a particular emphasis of dealing more effectively with the credit risk in the banking portfolio. this hopefully would reduce or eliminate the incentive to move low - risk assets out of the banking book and, in any case, permit capital charges to be set more systematically in relation to the risk in a given banking book. because the markets are moving so rapidly, this has to be a high priority. because these standards require international consensus and because the problem is complex and the solutions not entirely self - evident, the process of reform moves more slowly. but the time has come for putting this effort on the fast track. financial modernization : updating the legislative framework as opposed to being on the

rmb bonds in april, which will attract around us $ 120 billion of inflows over the 20 - month inclusion process. but even upon completion, rmb bonds will only account for around 6 % of the overall index, leaving a big gap to fill considering that mainland china is the world ’ s 2 / 4 bis central bankers'speeches second largest bond market. in september, jpmorgan announced a 10 - month phased inclusion of chinese government bonds into its benchmark emerging - market indexes, starting in february 2020. market estimates suggested that the inclusion could lead to around us $ 3 billion of inflows into the onshore bond market per month. mainland china is also on the ftse watchlist for future inclusion into its flagship world government bond index, with the next review in march next year. 13. the takeaway here is that, we are just seeing the tip of an iceberg in the big wave of allocation to chinese assets by investment managers. the pace would likely continue to pick up in the next couple of years. hong kong ’ s unique position and what lies ahead 14. the vast opportunities in the mainland and the connect schemes offer a great example to remind ourselves hong kong ’ s unique value proposition. under the “ one country, two systems ” principle, we maintain a regulatory regime closely aligned with international norms and practices. at the same time, our close rapport with the onshore regulators ensures that we are the best place to experiment capital liberalisation initiatives. we are the only place in the world that practises an english and chinese bilingual common law system that inspires confidence from overseas and mainland investors alike. we have an ecosystem of topnotch financial institutions and professional services firms that are trusted by asset owners and asset managers to look after their investments. these unique advantages cannot be easily replicated anywhere else in the world. 15. of course, apart from providing a convenient conduit for overseas investors to enter the onshore equities and bond markets through the connect schemes, hong kong ’ s stock market has long been a venue for mainland companies to raise funds and for global investors to get exposure to mainland enterprises. today, over 1, 100 mainland enterprises are listed on the stock exchange of hong kong, with a total market capitalisation of nearly hkd22 trillion and an average daily trading volume of around hkd60 billion. 16. and we are not standing still. we are doubling down on our work to enhance our financial platforms, build more