Hong Kong's continued success as an international financial centre depends on our ability to diversify and expand the financial products available. We are working hard to introduce new financial products and explore different areas for developing this sector.

Our overall strategy continues to focus on openness, efficiency and transparency for investors, issuers and intermediaries. At the same time, we need to expand into innovative ventures to meet market demand.

In my Budget in February, I highlighted the importance of deepening and broadening our financial market to enhance our status as a truly global financial centre. Although we are making good progress in a variety of areas, I want to highlight two issues of particular interest, namely commodities markets and Islamic finance.

Firstly, commodities markets. This is an area of good potential for Hong Kong. Although the Mainland has three commodity futures exchanges - Shanghai Futures Exchange, the Dalian Commodity Exchange and the Zhengzhou Commodity Exchange - they are not open to participation from foreign investors. This represents a huge opportunity for Hong Kong to develop a commodities futures market that can cater to the Mainland.

Hong Kong is already a leading trading centre in Asia for gold. In January, the Hong Kong Exchanges and Clearing Ltd (HKEx), announced that it would facilitate the listing of gold-related structured products and Exchange Traded Funds as well as relevant derivative products.

More recently, the HKEx announced its plan to launch cash-settled gold futures contracts within the second half of this year. The Securities & Futures Commission (SFC) will continue to work with the HKEx on ways to develop Hong Kong's commodities futures market.

The Mainland is among the world's largest consumers and suppliers of commodities such as precious metals and other raw materials. It would be in the strategic interests of the Mainland to have more influence on the price discovery process of the world's commodities markets and related derivatives markets.

Given Hong Kong's open and robust financial system and internationally recognised regulatory standards, we are well placed to capitalise on these opportunities. Our active spot gold market and large demand for gold from our local investment and jewellery business makes Hong Kong a natural platform for a gold futures market. Last year, we lifted trade declaration charges on the import and export of gold bars to increase our competitiveness as a gold trading centre.

The gold depository in the Hong Kong International Airport will begin operation within this year. This will be a key piece of infrastructure, which will help encourage more gold traders and investors to use Hong Kong as a centre for gold trading, settlement, storage and transportation. It will also aid the development of gold futures products with physical delivery features in Hong Kong.

The Mainland is also one of the world's three largest oil consumers and importers. However, the absence of a crude oil benchmark puts China and other Asian economies at a disadvantage in bargaining with suppliers in the Middle East.

Asian oil importers have to purchase crude oil from the Middle East at prices fixed in Dubai that do not reflect supply and demand conditions in Asia. In contrast, oil importers in Europe and the US can purchase the same oil at prices fixed in London and New York respectively. This system has led to Asian importers paying more for oil than their counterparts in Europe and the US.

It is increasingly important for China to develop a full-fledged oil market, a crucial part of which would be an internationalised oil derivatives market that would allow Asian oil importers to hedge their oil price risks in a fair and transparent manner in the Asian time zone.

Hong Kong can help the Mainland bridge this gap as we can readily house an oil derivatives market under our existing robust legal and regulatory systems. The establishment of an oil futures platform to meet the growing needs of Mainland and multinational oil users and traders would be a significant step forward in the development of Hong Kong's commodities market.

Turning to Islamic Finance, we are making good progress in Hong Kong on developing a market for Islamic finance, a sector estimated to be worth up to US$1 trillion and expected to grow by 15% annually.

Our advantages are clear. We have a trusted and transparent regulatory regime, deep pool of world-class financial professionals, liquid market and sound financial infrastructure. We also enjoy a wide range of freedoms in Hong Kong including freedom of religion, which helps to lay a solid foundation for the development of Shariah-compliant products.

The response from the market has been encouraging. The first Islamic retail fund was launched last November, attracting a great deal of interest, mostly from local investors. In the first week it raised more than US$20 million, and a few weeks later �V at end-2007 �V the fund had grown to US$62 million. You certainly don't have to be based in the Islamic world to explore the potential benefits of Islamic finance.

Carrying on from this positive start, an exchangeable sukuk, or Islamic bond, launched by an overseas issuer, was listed in Hong Kong in March, and just last month a new Islamic index on Hong Kong red chips and H-shares was launched.

Following the Chief Executive's visit to the Middle East in January, the SFC and the Hong Kong Monetary Authority have signed agreements with the Dubai financial authorities to enhance co-operation between the two sides in developing products and infrastructure.

Of course, these are still early days and there will be hurdles to overcome but none of them appear to be insurmountable. We are studying the tax issues involved in the issuance of sukuks in Hong Kong. Technical modifications to our taxation regime will be needed to provide a level playing field for the issuance of sukuks as compared with other conventional bonds. We are working on a proper mechanism to deal with the tax issues relating to Islamic bonds as soon as possible.

Tapping new financial markets is vital to Hong Kong's long-term economic prosperity. It will also help us meet the goals set out in the Action Agenda on China's 11^th Five-Year Plan. The Action Agenda identifies five priority areas to strengthen our status as both an international financial centre and China's most important city for global finance.

I am confident that developing Islamic finance and commodities markets in Hong Kong will complement our efforts to achieve this goal.