Exchanges seal deal on new venture

PUBLISHED : Friday, 29 June, 2012, 12:00am
UPDATED : Friday, 29 June, 2012, 12:00am


Hong Kong's stock exchange operator is teaming up with both major mainland bourses to develop new indices in its push to diversify its business and be more competitive.

Hong Kong Exchanges and Clearing (HKEx) signed an agreement with the Shanghai and Shenzhen exchanges yesterday to set up a joint venture in Hong Kong within three months.

Before the end of this year, the new company will develop a series of benchmark stock indices covering big Chinese companies listed on the three exchanges. It will issue futures and options based on the indices on HKEx next year and in the longer term will licence the indices so financial institutions can use them as a base for exchange-traded funds and other structured products.

Each bourse will put HK$100 million into the venture, and each will appoint three board members. The mainland exchanges will each appoint one chairman and HKEx will appoint the chief executive.

'The joint venture will help promote the development of China's capital markets, enhance the competitiveness of all three markets and promote the internationalisation of the three bourses,' HKEx chief executive Charles Li Xiaojia said.

The HKEx first announced the planned joint venture in August during a visit by Vice-Premier Li Keqiang, and the exchanges have been ironing out the details since then.

Charles Li said the joint venture should not be seen as a first step towards a merger. 'Discussions among the three bourses have never touched on potential mergers,' he said.

Shanghai Stock Exchange president Zhang Yujun said the location of the joint venture in Hong Kong showed China's support for the city.

'As China continues to open up and the yuan gradually internationalises, it's inevitable we'll have to compete in international capital markets,' Zhang said.

'Our efforts to further co-operate with HKEx and develop products for the offshore market will bring about a win-win situation for Hong Kong and the mainland.'

The joint-venture deal comes as HKEx struggles with lower turnover and declining initial public offerings (IPOs). Brokers hope the joint venture will boost the exchange's competitiveness.

Earlier this month, HKEx agreed to pay HK$16.67 billion to buy the London Metal Exchange, the world's large metal bourse, to diversify its business so that it did not rely too heavily on equities. Charles Li said the LME deal would not have an immediate impact on the joint venture with the two mainland bourses.

'The two mainland exchanges are conducting securities businesses, so the LME deal, which is about commodities, won't have any conflict,' Li said.

Shenzhen Stock Exchange chief executive Song Liping said the joint venture would boost foreign investors' exposure to the mainland market via Hong Kong.

Legislator Chim Pui-chung said HKEx and the two mainland bourses would probably not merge because their structures were different.