Action launched: Commissioner of Insurance Clement Cheung and Financial Secretary John Tsang brief reporters on measures to ensure Hong Kong's market stability.

A co-ordination mechanism has been launched by the Government in response to the impact of Lehman Brothers' bankruptcy filing and AIG's capital problems on Hong Kong's markets.

Financial Secretary John Tsang met with the heads of regulatory agencies today for updates on the latest situation and the contingency measures required to ensure the stability of the Hong Kong's monetary and financial systems.

All regulatory agencies have been asked to report market movements and related issues to ensure transactions are smooth and orderly. The Financial Services & the Treasury Bureau will liaise with key monitoring agencies and watch developments.

Market transactions smooth

Noting the Hang Seng Index dropped 1, 052 points today, Mr Tsang said the percentage drop was similar to other Asia-Pacific markets, adding Hong Kong's transactions were conducted in an orderly and smooth manner.

"It is estimated there will still be turbulence in the markets in the days ahead, so market participants must be prepared to deal with their own risk management," he said.

Hong Kong's exchange rate remained stable and operations in the exchange market were normal, he said, adding the interbank interest rate is stable. There are no signs of any capital flight from Hong Kong so far. If necessary, the Monetary Authority will provide liquidity to ensure the orderly operation of the market.

He said the Securities & Futures Commission has approved the issue of restriction notices on four Lehman Brothers entities in Hong Kong, to preserve the assets of the companies and their clients, and to protect the interests of these clients and the investing public. For more details click here.

Insurance system healthy

On problems caused to AIA (Hong Kong) due to the issues faced by AIG in the US, Mr Tsang said the insurance authority has contacted senior management of the organisations which have connections with the US parent as well as AIA (Bermuda) and AIA (Hong Kong) to assess the impact of the crisis on these companies and their ability to make debt repayments.

"The insurance authority has a wide range of statutory powers to protect the interest of policyholders and will keep a close watch on the development. Hong Kong has a healthy insurance system and should be able to handle the current situation." Mr Tsang added.

Commissioner of Insurance Clement Cheung said the insurance operation of AIA (Hong Kong) is financially sound. Based on current accounting statements and related information, AIA has sufficient assets to handle the insurance liability of its portfolio in Hong Kong.

The authority will keep in close contact with US regulators to monitor developments and will exercise the necessary powers to ensure policyholders in Hong Kong are protected.