Download Strategic Challenges Facing HKEx

Strategic Challenges Facing HKEx
Paul Chow
Chief Executive, Hong Kong Exchanges and Clearing Limited
Conference on the Securities and Futures Ordinance
27 August 2003
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Agenda

Strategic Challenges

Roles and Stakeholders

Key Initiatives
 China Business
 International Business
 Derivatives Business
 Market Operations
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Strategic challenges

With further opening up of China, how will the role of Hong
Kong change in global financial service industry?
International

Should HKEx pursue strategic alliances with overseas
exchanges?
Business

Should HKEx extend along its transaction chain?

How to address their different demands?
Role
Stakeholders




Brokers
Regulator and government
Customers
Shareholders
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Agenda

Strategic Challenges

Roles and Stakeholders

Key Initiatives
 China Business
 International Business
 Derivatives Business
 Market Operations
4
Roles of HKEx
HKEx will balance its roles in seeking business growth
Regulator
role
Business
role
Public
role
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Stakeholders
Relationship between HKEx and stakeholders
Administration
 Set high-level policy direction for HKEx
SFC
 Exercise oversight on HKEx, step in if it
crosses the line and offer necessary support
Brokers
 Distribute HKEx products to investors
Administration
Legislators
Investors
Brokers
SFC
Data
vendors
I-banks &
listed
companies
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Stakeholders
Relationship between HKEx and stakeholders
Data vendors
Investment
banks & listed
companies
Investors
 Add value to HKEx’s basic information and offer a
variety of data products to the market
 Bring new issuers and products
Administration
 HKEx’s ultimate customer
Legislators
Investors
Brokers
SFC
Data
vendors
I-banks &
listed
companies
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Agenda

Strategic Challenges

Roles and Stakeholders

Key Initiatives
 China Business
 International Business
 Derivatives Business
 Market Operations
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China business

The highest priority of HKEx business

Nonetheless, questions remain…


What long-term role does HKEx have in servicing Mainland in the long
run?
Will the Mainland exchanges eclipse us?
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China business



Opening of China leads
to even greater demand
for HK products and
services
HKEx must …
 Regulate our market to a
high standard
Potential of Mainland
investors who need to
diversify their
investment portfolio for
better returns
 Demonstrate ability to
effectively regulate issuers
Hong Kong is well
positioned to meet
China’s needs
 Strengthen our marketing,
promotion and services in
the Mainland
 Service Mainland
customers better via
Beijing Representative
Office
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International business


Liquidity tends to reside in one’s home jurisdiction
Apart from a few giant exchanges, most exchanges only
succeed with their domestic products
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International business
International flavour has been and will continue to be our
strongest competitive edge…

International investors contributed significantly to HKEx
stock and derivatives markets’ turnover

Active participation of international brokers in HKEx
markets

Adoption of international best standards and practices in
HKEx services, market structure and regulation
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Derivatives business
Current
Status

Global rankings



Limitations
Future
Focus


Ranked 10th in stock market capitalisation
Ranked 35th in derivatives turnover
Minimum presence of government bonds
No production or consumption of commodities on a major scale
Build liquidity for the products meeting the needs of our
brokers and their clients
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Market operations
TRADING

AMS/3
HKATS

Introduced in late 2000
Functionality and performance meet the needs of
market participants

No need to introduce major change in next two years

Focus on system reliability and stability

Introduced in April 1999


A major software upgrade underway which will be
completed by end of 2003
Offer better protection, support central order size limit
and be compatible with DCASS
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Market operations
CLEARING/SETTLEMENT

Scripless


Trading in HKEx and broker-broker settlement within
CCASS already fully electronic
Papers still in use outside CCASS
Elimination of physical certificates can…




Enhanced
IP service



improve operational efficiency
reduce costs
avoid risks of fake or loss certificates
Current usage of IP services is low and inactive
Trading process via IP not very convenient
IPs are not direct registered members of the companies
they invest
Need a safer, more user-friendly and convenient IP service
which will attract large scale participation of investors
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Market operations
CLEARING/SETTLEMENT


DCASS



Clearinghouse
consolidation



Replace the two existing derivatives clearing systems
Handle all HKEx derivatives products via an integrated
system
More efficient and flexible
To be launched by Q1 2004
A possible next step for clearing infrastructure
development
Merge the three separate clearing houses into a joint
clearing house
A single guarantee fund for all HKEx participants
Practical problems, especially in the design of a risk
management system
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The way forward



A challenging future is awaiting HKEx and the local
market
A time to co-operate and work as a team
Build a strong, quality marketplace which will attract
business and talents all over the world
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THANK YOU !
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