Risk management: Financial Secretary John Tsang urges investors to exercise extra caution amid recent market volatility.

The Securities & Futures Commission has enhanced stress tests on brokers and learned from them the latest information on their financial position in view of global financial market instability and local market volatility, Financial Secretary John Tsang says.

Meeting the media today Mr Tsang said the commission will ensure the brokers comply fully with the capital requirements under the Financial Resources Rules.

Despite today's market movements the local stock and derivatives markets continued to operate in a normal manner with orderly trading, clearing and settlement. The Hong Kong dollar exchange and money markets are also operating smoothly, he said.

Liquidity injection

"Short-dated Hong Kong dollar interest rates increased today, reflecting in part heightened concerns about global credit and liquidity condition as a result of recent developments in the global financial markets," Mr Tsang said.

Taking into account market conditions, the Monetary Authority bought US dollars against HK dollars. The aggregate balance is projected, as a result, to rise by $1.556 billion to $6.4 billion on September 22. The authority will continue to monitor the market closely and if necessary inject liquidity into the market.

Hong Kong Exchanges & Clearing is also closely monitoring the markets and will continue risk management measures. Mr Tsang reiterated investors should take great care in managing their own risks.

Insurance confidence

On insurance, he said AIG's two local subsidiaries, AIA (Bermuda) and AIA Co. Ltd, clarified today they are separate legal entities independent of other units in the same group and are financially sound, and will honour commitments to policyholders.

Mr Tsang said the Insurance Authority will maintain close vigilance on new developments regarding the AIG restructuring plan while monitoring closely the financial positions of AIA (Bermuda), AIA Co. Ltd and other AIG insurance entities in Hong Kong to ensure their daily operations are smooth and effective.

Commissioner of Insurance Clement Cheung said besides cash flow, his office will also ensure insurance firms maintain good customer service amid a recent rise in their workload. So far no drop in service quality has been reported.

In view of the impact on people's confidence in taking out insurance Mr Cheung has asked the Federation of Insurers to ask agents to strictly abide by their code of practice and give more information to the community on insurance products.

Also cautioning investors, Chief Executive Donald Tsang said Hong Kong's regulatory authorities will enhance monitoring to ensure market transactions are conducted in a smooth and orderly fashion, and the interests of insurance policyholders are safeguarded.

The Financial Secretary will brief the Legislative Council on the latest developments tomorrow.