Hong Kong Exchanges and Clearing (HKEX): A Comprehensive Overview

The Hong Kong Exchanges and Clearing Limited (HKEx) was established in 2000, and it operates as a futures market and stock market in Hong Kong. After the merger of the Hong Kong Securities Clearing Company Limited (HKSCC), the Stock Exchange of Hong Kong (SEHK), and the Hong Kong Futures Exchange (HKFE), HKEx became the holding companyHolding CompanyA holding company is a company that doesn’t conduct any operations, ventures, or other active tasks for itself. Instead, it exists for the purpose of owning. The different entities merged to elevate China’s competitiveness in the global stock and futures markets.

As of October 2020, the HKEx’s market value is estimated at $5.6 trillion, making it the third  largest exchange operator by market capitalization in Asia. More than 2,509 companies are listed in the HKEx securities market. Due to its strategic position in the global market, HKEx is used as a platform for raising financing for issuers both in China and the rest of the world.

Summary

• The Hong Kong Exchanges and Clearing Limited (HKEx) is responsible for the securities market in Hong Kong.
• HKEx acts as a regulatory body in Hong Kong, and it regulates trading activities of companies trading on its exchange.
• Some of the securities products traded on the HKEx include stocks, bonds, ETFs, mutual funds, warrants, depository receipts, and structured products.

Understanding Hong Kong Exchanges and Clearing Limited

The Hong Kong Exchanges and Clearing Limited (HKEx) runs the stock exchange, futures exchange, and the four clearing houses in Hong Kong. HKEx also provides comprehensive market data related to their markets through the HKEx Information Services Limited.

In July 2012, HKEx became a key player in base metals trading after acquiring the London Metal Exchange. The shareholders of the London Metal Exchange accepted a $2.2 billion offer from HKEx, which was voted by over 99% in favor of the takeover offer. HKEx beat its rivals, namely the Intercontinental Exchange, NYSE Euronext, and the CME Group, to acquire the London Metal Exchange. As a subsidiary of HKEx, the London Metal Exchange continues to operate in London and is regulated by the Financial Services Authority.

History of Hong Kong Exchanges and Clearing Limited

The Hong Kong Exchanges and Clearing Limited was established on March 6, 2000, with the backing of the Hong Kong administration to improve the securities and futures markets and increase the entity’s competitiveness in the global markets.

To achieve its objectives, the Hong Kong Futures Exchange Limited and the Stock Exchange of Hong Kong Limited were changed into shareholder-owned entities and were combined with the Hong Kong Securities Clearing Company Limited to create one holding company, HKEx. HKEx became a publicly-listed company in June 2000.

Securities Market

Although HKEx was established in 2000, it was not the first formal market for stocks and futuresFutures ContractA futures contract is an agreement to buy or sell an underlying asset at a later date for a predetermined price. It’s also known as a derivative because future contracts derive their value from an underlying asset. Investors may purchase the right to buy or sell the underlying asset at a later date for a predetermined price. in Hong Kong. Its predecessor, the Association of Stockbrokers in Hong Kong, was founded in 1891. The exchange was renamed the Hong Kong Stock Exchange in 1914.

The second exchange, the Hong Kong Stockbrokers Association, came into being later in 1921, and the two exchanges merged in 1947 to create the Hong Kong Stock Exchange. In 1986, the Hong Kong Stock Exchange merged with three other exchanges – the Far East Exchange, the Kam Ngan Stock Exchange, and the Kowloon Stock Exchange, to form the Stock Exchange of Hong Kong Limited (SEHK).

Derivatives Market

The Hong Kong Commodity Exchange was established in 1976 as the primary commodities exchange in Hong Kong. The exchange was rebranded to the Hong Kong Futures Exchange (HKFE) in 1985. The exchange’s main products traded included sugar futures, gold futures, cotton futures, and soybean futures. The HKFE launched its flagship product, the Hang Seng Index (HIS) futures, in 1986, maintaining its popularity in the Hong Kong derivatives market until today.

HKFE traded the HIS futures using the open outcry system, while the HKFR Clearing Corporation provided clearing and settlement. The exchange introduced options in 1993 and adopted automated trading in 1995 to replace the open outcry system. By 1999, the exchange phased out the open outcry system and closed the trading floor.

The OTC Clearing Hong Kong Limited was incorporated in May 2012 to provide clearing, settlement, and depository to OTC derivatives in Hong Kong. The clearinghouse currently provides clearing and settlement for interest rate swapsInterest Rate SwapAn interest rate swap is a derivative contract through which two counterparties agree to exchange one stream of future interest payments for another and non-deliverable forward contracts. HKFE provides a market for trading options, contracts, and futures to more than 160 organizations.

How HKEx Works

The Hong Kong Exchanges and Clearing Limited is a top listing platform for companies that want to go public and raise capital. The exchange attracts a wide pool of companies from Hong Kong, mainland China, and international companies with operations in Asia. HKEx regulates the trading activities of companies listed in the exchange to ensure they comply with existing regulations and engage in fair-trading practices.

For a company to be listed on the exchange’s main board, it must’ve been in active trade for three consecutive years or more. Also, based on the HKEx’s profit test, the company must report a market capitalization of at least HK$500 million and a three-year aggregate profit of more than HK$50 million. Lastly, at least 25% of the securities ownership must be held by the public.

More Resources

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