15 November 2018
Hong Kong and Shenzhen will kick off a new cross-border stock trading program once they sort out some IT-related issues, says HKEx's Charles Li. Photo: HKEJ
Hong Kong and Shenzhen will kick off a new cross-border stock trading program once they sort out some IT-related issues, says HKEx's Charles Li. Photo: HKEJ

HK, China moving to ‘mutual market’ era: Charles Li

Hong Kong and mainland China will see further linkages between their stock exchanges and move toward an era of “mutual market”, said Charles Li, the chief executive of Hong Kong Exchanges and Clearing Ltd. (HKEx, 00338.HK).

“The Shenzhen-Hong Kong Stock Connect is only a matter of time,” Li said, referring to an upcoming link between Hong Kong and Shenzhen stock exchanges.

It is mostly some IT-related issues that need to be sorted out before the new cross-border stock trading program can be rolled out, he said.

The Shenzhen bourse linkage initiative comes after authorities launched the Shanghai-Hong Kong Stock Connect program last November, allowing investors on both sides to access each other’s markets.

After the link with Shenzhen is established, Hong Kong bourse can later connect with the China Financial Futures Exchanges (CFFEX), Dalian Commodity Exchange (DCE), Shanghai Futures Exchange (SHFE) and Zhengzhou Commodity Exchange (ZCE), Li said, without specifying a timetable.

With the cross-border linkages, a “chemical change” will take place in the Hong Kong market with its mostly institutional investors and China’s A-share market with mostly individual investors, he said.

Both markets will also become more regulated and disciplined, the HKEx chief said.

He also said that the stock connect model is replicable across multiple asset classes. Mutual market access on equity derivatives and commodities may be launched in the second half of the year. Other possible asset classes include international equities, fixed income and currency.

Chinese Premier Li Keqiang said on Thursday during the opening of the National People’s Congress session that the Shenzhen-Hong Kong Stock Connect will be launched at a suitable time.

China Securities Regulatory Commission chairman Xiao Gang said the scheme could be approved in the first half of 2015.

HKEx reported Thursday a 13 percent rise in 2014 net profit to HK$5.16 billion, in line with market expectations. Earnings before interest, tax, depreciation and amortization (EBITDA) climbed 16 percent to HK$6.89 billion.

Profit was especially strong in the fourth quarter after the launch of LME Clear, a clearing service at the London Metals Exchange, in September 2014 and the Shanghai-Hong Kong Stock Connect in November.

Revenue from clearing and settlement fees rose 23 percent to nearly HK$2 billion for the period, with HK$187 million being contributed by LME Clear.

Revenue from the Shanghai-Hong Kong Stock Connect totaled HK$68 million as of end-2014, with average daily trading volume of 5.58 billion yuan and HK$929 million respectively for northbound and southbound investments.

Of the revenue, HK$48 million was accounted for by one-time equipment fee collected from security firms for the mutual market access program. The rest was collected from clearing fees shared with the Shanghai Stock Exchange, Li said.

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EJ Insight reporter

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