HKEx links up with Shanghai and Shenzhen exchanges

The joint venture provides a platform for the three bourses to offer new products; the first will be three indices to track stocks

PUBLISHED : Wednesday, 31 October, 2012, 12:00am
UPDATED : Wednesday, 31 October, 2012, 2:30am

A joint venture of the stock exchanges of Hong Kong, Shanghai and Shenzhen will launch three indices in the next two months to track cross-border stocks.

China Exchanges Services, the HK$300 million venture equally owned by the Hong Kong Exchanges and Clearing, Shanghai Stock Exchange and Shenzhen Stock Exchange, was officially set up yesterday.

Its chief executive, Bryan Chan Ping-keung, who is also the head of market data at HKEx, unveiled the roadmap at a launch event last night.

The first products to be launched by the venture will be three indices, including one to track the biggest A shares and mainland companies listed in Hong Kong.

There will be two sub-indices - one tracking A shares and one on mainland companies listed in the city.

Chan said the three indices would be licensed to investment banks and brokers to launch various types of index-related derivatives such as exchange-traded funds next year.

HKEx itself will also consider using the indices to introduce futures or options based on them.

"The joint venture provides a platform for the three stock exchanges to co-operate and launch new products," Chan said.

"This will allow the three exchanges to work together to create products for international investors to trade."

The HKEx first announced the planned joint venture in August last year during a visit by Vice-Premier Li Keqiang. In June, the three exchanges signed an agreement to set up the joint venture. It will have nine directors, with three from each exchange.

Chan, in addition to his role at the HKEx, was appointed as chief executive of the venture last month. Jiang Jianren and Mao Zhirong were named the co-chairmen.

About 20 people will be hired to run the venture.

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

"The joint venture will not achieve anything in the near term but it has a positive outlook as it marks the beginning of co-operation of the mainland and Hong Kong bourses," said Kenny Lee Yiu-sun, the chief executive of First China Securities.

Christopher Cheung Wah-fung, who represents the financial services sector in the Legislative Council, said the joint venture would need to work carefully on the details of the planned cross-border index derivatives products.

"The priority would be investor protection. As the indices will track not just Hong Kong but mainland-listed stocks as well, it needs to make it clear whether the index-related derivatives would follow mainland or Hong Kong rules. It should be noted that the suspension policies and trading hours of mainland and Hong Kong exchanges are different," Cheung said.

"Ideally, it would be good if the cross-border index derivatives are traded in HKEx and the two mainland stock exchanges. But then, neither the Shanghai Stock Exchange nor the Shenzhen Stock Exchange has derivatives trading. As such, it appears only HKEx will have index derivatives trading."