Transcript PUBLIC EQUITY CAPITAL – CHALLENES FOR EXCHANGES IN

HKEx’s Strategic Plan 2004 – 06
Achievements in 2004 and New Initiatives in 2005
Paul Chow
Chief Executive, HKEx
Hong Kong Securities Institute, 11 November 2004
Agenda
1. HKEx Current Status
2. HKEx Strategic Plan 2004-06
3. 2004 Achievements and 2005 New Initiatives
4. Conclusions
2
Hong Kong cash and derivatives markets –
Key statistics
YTD October
2004
2003
2002
3.1
2.5
1.6
Average daily turnover (HK$bn)
15.3
10.5
6.7
Total # of derivatives contracts
traded (mn)
16.2
14.5
11.0
79,554
59,011
45,018
56
73
117
69.2
59.1
52.0
237.3
213.8
110.5
Total turnover (HK$tr)
Average daily # of derivatives
contracts traded
# of new listings – equity
Funds raised by IPOs (HK$bn)
Total funds raised (HK$bn)
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HKEx currently ranks 8th among global exchanges by
market capitalisation …
US$ billion
Sep 2004
14,000
12,000
Singapore:
21st position
11,657
10,000
8,000
HK:
position
6,000
4,000
3,127
(Market cap = US$1,258 bn)
648
637
381
345
342
334
201
149
Shanghai
Johannesburg
Korea
Singapore
Shenzhen
725
Taiwan
760
Australia
764
Switzerland
1,013
Spanish Exchanges (BME)
Sum of HK, Shanghai and
Shenzhen ranks 6th in the world
Toronto
Euronext
London
Nasdaq
Tokyo
NYSE
1,047
Italy
2,095
2,000
Hong Kong
2,505
Germany
3,124
0
Shenzhen:
24th position
Shanghai:
14th position
8th
Source: World Federation of Exchanges, includes main board and parallel markets
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… 16th by cash market turnover value …
US$ billion
Jan - Sep 2004
Singapore
28th position
8,000
8,485
Shenzhen:
20th position
7,000
5,336
6,000
Shanghai:
17th position
5,000
4,000
HK: 16th
position
3,809
3,000
2,465
2,000
1,840
Sum of HK, Shanghai and
Shenzhen ranks 8th in the world
(Turnover = US$736 bn)
441
365
361
343
316
264
156
Korea
Stockholm
Hong Kong
Shanghai
Shenzhen
Source: World Federation of Exchanges, includes main board and parallel markets
83
Singapore
471
Australia
579
Amex
609
Taiwan
Italy
Spanish Exchanges (BME)
Germany
Euronext
Tokyo
London
NYSE
0
Nasdaq
694
Toronto
1,082
Switzerland
1,151
1,000
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… 35th by # of derivatives contracts traded …
Millions
2,000
Jan - Sep 2004
1,952
1,600
HK: 35th
position
1,200
804
800
617
603
447
400
262
259
179
170
150
16
13
10
Exchange
Boston Options
Derivatives
Italian SE -
HKEx
American S E
MEXDER
BOVESPA
Brazil
Int'l S E
CBOE
CBOT
CME
Euronext
EUREX
Korea F E
0
Exclude warrant market
Source: World Federation of Exchanges, includes main board and parallel markets
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… and 2nd by equity funds raised
US$ billion
Jan - Sep 2004
90
82.9
80
Singapore:
28th position
70
Shenzhen:
20th position
60
50
HK: 2nd
position
40
Shanghai:
13th position
28.4
30
23.9
15.0
11.8
10
9.9
India
Nasdaq
Mumbai
Australian
Spanish
Euronext
TSX Group
Tokyo
London
NYSE
0
Hong Kong
6.4
5.6
5.2
2.7
1.3
Singapore
15.0
Shenzhen
15.4
Shanghai
17.5
JSE South Africa
18.7
20
Sum of HK, Shanghai and
Shenzhen ranks 2nd in the world
(Capital raised = US$36.3 bn)
Source: World Federation of Exchanges (not including exchanges for which statistics are not available).
Includes capital raised by issuers cross-listed on other exchanges, ie. double-counting involved
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Mainland China dimension of the Hong Kong market
Total HK
market
Mainland enterprises*
Listed issuers
1,084
286
26%
Market capitalisation (HK$bn)
5,998
1,760
29%
15.3
7.4
48%
58
33
57%
69.2
49.9
72%
237.3
82.9
35%
Avg daily turnover (HK$bn)
# of new listings – equity
Funds raised by IPOs (HK$bn)
Total funds raised (HK$bn)
* Includes H shares, red chips and private enterprises
As at 31 Oct 2004 or Jan-Oct 2004
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The 10 largest IPOs in HK since 1993 were all by
Mainland enterprises
Largest IPO in
the world in 2003
Ranking
Company
Capital Raised
(HK$ bn)
Date of Listing
1
China Unicom
43.6
2000
2
China Mobile
32.7
1997
3
China Life
26.7
2003
4
Sinopec
26.7
2000
5
PetroChina
22.3
2000
6
BOC (Hong Kong)
20.5
2002
7
Ping An Insurance
14.3
2004
8
SMIC
13.9
2004
9
China Telecom
11.8
2002
10
CNOOC
11.0
2001
11
MTRC
10.8
2001
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Agenda
1. HKEx Current Status
2. HKEx Strategic Plan 2004-06
3. 2004 Achievements and 2005 New Initiatives
4. Conclusions
10
Global situation analysis: Fundamentals of a securities
market
Key Drivers
Participants
Supporting mechanisms
Regulation
Market
quality
Issuers
Listed companies
Enhance
investor
confidence
Intermediaries
Attract order
flow
Increase
liquidity
Sponsors & IFAs
Exchange/Clearing
participants
Professionals
Investors
Retail
Institutional
Market
Infrastructure
Companies
Ordinance
(Companies
Registry)
Statutory Rules
(SFC)
Listing Rules
Corporate
Governance
Business culture
& environment
Director quality
Management
expertise
Self regulation
Product & service
Licensing
regime (SFC)
Operational
efficiency
Exchange &
Clearing Rules
System reliability
& efficiency
Risk management
Investor
protection
Disclosure &
transparency
Investor education
Information
dissemination
Transaction costs
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Local situation analysis: Unique opportunities and
competitive advantage of Hong Kong & HKEx
Opportunity
Competitive advantage of HK/HKEx
One of the most open financial markets in the world:
Tremendous growth of
Mainland economy
requires capital
-
No foreign exchange controls & withholding tax
-
No capital gain tax
-
No controls on foreign investment and investors
-
No restriction on foreign securities firms (110 foreign-owned
EPs)
-
Freely convertible currency
Active retail & institutional participation
Regional proximity to Mainland; securities trading
within the same time-zone
Demand for management
and professional
expertise
A platform allowing Mainland companies to
subject to market discipline to further enhance
standards in:
-
Corporate Governance
-
Accounting
-
Management practices
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HKEx strategic vision
Goal
Operate a quality market through enhancing
regulation and market infrastructure
Focus on Hong Kong and Mainland China
Geographical focus
Business focus
Focus on core market operations:
- Listing
- Trading
- Clearing
- Information Services
- Market systems
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HKEx will base its 2004 – 2006 strategy plan on three
building blocks
Becoming a
Mainland partner
Building a quality
market
Consolidation
Expand Mainland China offerings
Strengthen co-operation with Mainland
entities
Strengthen regulatory regime
Foster Corporate Governance culture
Improve market infrastructure
Increase market liquidity
Raise customer satisfaction & investors’ confidence
Improve investor education & information
dissemination
Cost rationalisation
Prioritise projects & streamline internal processes
Upgrade obsolete systems
Improve operational efficiency
Strengthen staff team
Strengthen risk management
Time
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Agenda
1. HKEx Current Status
2. HKEx Strategic Plan 2004-06
3. 2004 Achievements and 2005 New Initiatives
4. Conclusions
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2004 achievements and 2005 new initiatives – 6 areas
1. Listing
4. Clearing
2. Business Development &
Investor Services
5. Information Services
3. Trading
6. Market systems
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1. Listing
Consolidation
2004
achievements
2005 new
initiatives
• Streamline IPO vetting
process*
• Refine compliance &
monitoring practices*
• Streamline enforcement
process*
• Implement case
database for Listing Div*
• Enable e-Submission of
IPO forms*
Building a quality
market
Becoming a
Mainland Partner
• Implement Code of CG • N/A
Practices & CG Report
• Issue rule amendments to
CG issues & initial listing
criteria
• Consultation conclusions
on listing regulation (FSTB)
• Publish Listing Committee
Annual Report
• Enhance regulation of
Sponsors & IFAs
• Review role & structure of • Support enshrining key • Facilitate
Listing Committee
listing rules in statute
simultaneous listing
of A & H-shares
• Introduce a more effective • Support enhancing the
mechanism for delisting
regulation of
accounting profession
• Further enhance CG
culture
* On-going initiative continues in 2005
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2. Business Development & Investor Services
Consolidation
2004
achievements
Building a quality
market
• Establish new Business
Development & Investor
Services Division
• Launch SIMart to
enhance investor
education
• Strengthen Beijing
Office; station
representatives in
Shanghai and
Guangzhou
• Organise training
seminars for investors
and Exchange
Participants*
• N/A
• Organise large-scale
local investor
conferences
2005 new
initiatives
* On-going initiative continues in 2005
Becoming a
Mainland Partner
• Conduct training
seminars for listed
issuers/potential issuers
in the Mainland*
• Organise listing
promotional
conferences in the
Mainland*
• Working Group with
SZSE*
• Promote listing of
foreign-controlled
companies with
Mainland operations
(e.g. Japan, Taiwan)
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3. Trading – Cash
Consolidation
2004
achievements
• Review usage of
Trading Hall upon
expiry of lease*
• Launch relinquishment
programme for onfloor terminals
2005 new
initiatives
• Align disciplinary
framework of the cash
& derivatives markets
* On-going initiative continues in 2005
Building a quality
market
Becoming a
Mainland Partner
• Review narrowing of
Trading Spreads*
• Launch iShares
FTSE/Xinhua A50
China Tracker (with
tick rule exemption)
• Review market
making for ETFs*
• Launch Hang Seng
Index ETF (with tick
rule exemption)
• Explore feasibility of
Callable Bull/Bear
Contracts (CBBCs)
• N/A
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3. Trading – Derivatives
Consolidation
2004
achievements
2005 new
initiatives
• Terminate trading of
low-volume product
Building a quality
market
Becoming a
Mainland Partner
• Revamp stock option
market*
• Launch HSCEI
Futures & Options
• Launch 4 stock
options on H-shares
• Rationalise trading
right of HKFE products
and stock options
• Review position limit
• Align disciplinary
framework of the cash
& derivatives markets
• Recruit Option
Trading EPs
• Further enhance
derivatives
surveillance system
* On-going initiative continues in 2005
• Review market
making obligations
• Promote HKEx
derivatives products
• Explore feasibility
of FTSE/Xinhua
China 25 Index
Futures & Options
• Launch additional
stock
options/futures on
listed Mainland
enterprises
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4. Clearing
Consolidation
2004
achievements
2005 new
initiatives
Building a quality
market
Becoming a
Mainland Partner
• Upgrade of IVRS & call
centre system
• Conclude way forward
for scripless market
• Conduct a
comprehensive review
of Guarantee/Reserve
Funds*
• Launch IP Quick-wins
• Implement a general
collateral policy
• Implement scripless
• N/A
market
• Strengthen nominee
services
• Consider the possibility
of T+2 finality
• Facilitate agency
arrangement and
overseas access to
CCASS
• Review feasibility of
Third Party Clearing
* On-going initiative continues in 2005
• Implement
enhancements to eIPO
• MOU with China
Securities Depository
and Clearing
Corporation Limited*
• Implement SI matching
process in CCASS
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5. Information Services
Consolidation
2004
achievements
2005 new
initiatives
Building a quality
market
Becoming a
Mainland Partner
• Revamp HKEx Website
• Streamline internal
process to handle
substantial workload
increase due to new DI
regime*
• Disseminate odd lot
• Expand Mainland
market data
Discount Programme
• Launch Issuer
for dissemination of HK
Information Services
market data (e.g.
• Recruit new information
Shanghai Quanlong,
vendors (e.g. TVB)*
Xinhua News Agency)*
• Expand HK Market Data • Develop market data
coverage in Japan
agency business with
through Quick
SZSE*
• Review information
vendors’ reporting and
compliance regime
• Expand information
dissemination in
selected regional
markets
* On-going initiative continues in 2005
• N/A
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6. Market Systems
Consolidation
2003 - 2004
achievements
• Develop & implement IT
Strategic Plan*
Building a quality
market
• Launch HKATS
Becoming a
Mainland Partner
• N/A
• Launch DCASS
• Maintain 100% system
uptime*
• Gold Award Winner in
2004 IT Excellence
Award
2005 new
initiatives
• Implement network
consolidation
• Review consolidation
opportunities for satellite
applications
• Replace obsolete
technology for AMS/3
• Upgrade host capacity
and network due to
sales of throttles
• N/A
• Conduct feasibility
study for OMex 19.x
upgrade
• Consider outsourcing of
one-off peripheral projects
* On-going initiative continues in 2005
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HKEx would continue to strengthen its organisation to
meet the challenges ahead
Consolidation
2004
achievements
• Implement HKEx Strategic Plan 2004 – 06*
• Continue to recruit high-calibre senior executives*
• Enhance internal communications*
• Streamline internal decision-making process*
• Implement initiatives in career development & training*
• Strengthen performance culture*
• Review internal process in dealing with complaints and enquiries
2005 new
initiatives
• Further enhance customer-focussed culture
• Implement succession plan for management team
• Strengthen risk management function
* On-going initiative continues in 2005
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Conclusions
Situation Analysis

Enhancing investor confidence, attracting order flow and increasing
liquidity are the key drivers of a successful securities market

Hong Kong and HKEx are positioned uniquely to capture the opportunities
presented by the Mainland market
Implications to HKEx

HKEx’s strategy focuses on 3 main areas:

Consolidation

Building a quality market

Becoming a Mainland partner
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Thank you
Copy of this presentation is available @ www.hkex.com.hk
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