Revamp for HK stock exchange

PUBLISHED : Friday, 20 January, 2012, 12:00am
UPDATED : Friday, 20 January, 2012, 12:00am


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Hong Kong's stock exchange - the largest bourse in Asia - plans to spend HK$2 billion to upgrade its system and introduce yuan-denominated commodities and derivatives trading.

Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing, said it was the right time for the exchange to move beyond its traditional focus on stocks and initial public offerings.

'HKEx is in a unique position to introduce yuan-denominated commodities products which allow investors to trade and hedge their risks in both yuan and commodities,' Li said.

He hoped the first yuan-denominated derivative product would be launched this year, paving the way for the bourse to later look at commodities such as steel.

'China is the biggest spender on many commodities but has no say in determining the prices. If the HKEx can create a market in it, the growth opportunities are huge.'

He admitted that developing such a market would be an uphill battle as many overseas commodities markets were well established. But since most of them traded in US dollars, the plan to launch yuan-denominated commodities would give the HKEx a competitive edge.

Li said as the bourse lacked experience in commodities, it may have to resort to a partnership to develop the yuan-denominated market.

The yuan is not yet convertible but Beijing since 2009 has gradually relaxed its rules to allow the currency to be used to settle trade and for investment purposes. The HKEx so far has managed to host only one yuan IPO - a real estate investment trust that was listed in April last year. Li said the exchange was ready to introduce yuan shares but needed improved market sentiment.

The HKEx's move means it will compete with the Hong Kong Mercantile Exchange (HKMEx) - a separate commodities bourse set up in recent years which trades in gold and silver.

In a statement, the HKMEx played down competitive concerns and said it had 'made significant headway' in the commodities market. It also said 'an additional market player in the commodities trading space will no doubt lead to more rapid development, to the benefit of all parties involved. We welcome fair competition on a level playing field'.

Li's contract with the HKEx will end in October but he appears to have no desire to quit. He said he would update the media about the yuan commodities market in an annual briefing next January. 'I will consider staying on if the board would like me to do so,' he said.

For the third year in a row, the HKEx was last year the world's largest IPO market, with 88 new listings raising a total of HK$257.97 billion, beating the New York Stock Exchange. However, this is 43 per cent lower than 2010, amid poor market sentiment.

Fifty-two per cent of IPO funds raised were by international firms. Mainland enterprises dropped to 36 per cent of funds raised, while the rest were by Hong Kong firms.