Hong Kong Exchanges and Clearing (HKEx), the operator of the local stock and futures markets, has overseen strong growth in the past few years but has lost its shine amid a slump in turnover and listings.
HKEx chief executive Charles Li Xiaojia's efforts to reform the business such as extending trading hours, yuan shares trading and the £1.39 billion (HK$17.3 billion) deal to buy the London Metal Exchange has failed to ignite growth.
The exchange on Wednesday reported third-quarter profit of HK$1 billion, down 19 per cent, from a year earlier.
For the first nine months, profit dropped 16 per cent year on year to HK$322 million.
This was mainly due to the euro-zone crisis and the slow down in mainland economic growth which has cut third quarter average daily turnover by 36 per cent annually to HK$46.4 billion. Trading fees and other market-related income represents 70 per cent of HKEx's income.
The bourse enjoyed a golden run from 2006 when many big lenders listed in Hong Kong.
That was followed by a bull run in 2007 which pushed the Hang Seng Index to a peak of 31,638.22 points in October that year and turnover to more than HK$200 billion a day - five times last quarter's daily average.
Listing fees, which represent about 15 per cent of its income, have also come off the boil.
The bourse has, for the past three years, ranked top of the world in terms of IPO funds raised. But this year, new listings have dropped more than 70 per cent and the bourse looks likely to drop out of the top 10 rankings.
Trading and IPOs are the bread and butter for the HKEx, said an investment banker.
"This year Charles has done a lot (to increase trading hours) to help boost trading volume and Beijing apparently is trying to help him and the HKEx with more IPOs coming from the mainland," said the banker who works for an American firm in Hong Kong and who has long and close ties with the HKEx.
Earlier this month the Beijing-based China Securities Regulatory Commission (CSRC), the mainland's securities watchdog, said it would soon relax some regulatory requirements for mainland companies, in particular small and medium-sized enterprises, which want to list in Hong Kong.
Despite Beijing's latest support, however, many investment banks such as Credit Suisse believe the high growth era for the HKEx is over.
"While there is no doubt the long-term growth profile of HKEx is very strong, the nearer-term fortunes of the stock are more market volume-related," said Credit Suisse in a report issued on Wednesday after the HKEx results announcement.
HKEx's costs are likely to expand in the near term at greater than 15 per cent a year over the next few years given the level of investment in new initiatives.
The recent LME acquisition adds further pressure to this cost base and makes HKEx's profit more vulnerable, should market activity remain weak.
Kenny Lee Yiu-sun, the chief executive of First China Securities, said HKEx's many reforms in the past two years have failed to boost profit.
"The new trading hours from this March and cutting the lunch break to one hour from 90 minutes have not boosted turnover and we have seen trading getting lower," Lee said.
The HKEx's decision to team up with the Shanghai Stock Exchange and Shenzhen stock exchange to set up a joint venture to launch cross-border index-related products was also unlikely to increase profit, Lee added.
Louis Tse Ming-kwong, a director of VC Brokerage, said Li's reforms came at a bad time.
"Charles Li wants to show his capability by carrying out many reforms to enhance HKEx's profitability but market sentiment is not on his side. Other overseas exchanges also have suffered," Tse said.
Christopher Cheung Wah-fung, the newly elected legislator for the financial services sector, said Li should get back to basics.
"The LME deal may bring profit growth to the HKEx for the long term but not in the near future. For the HKEx shareholders' benefit, Li should get back to basics to bring in more new listings to boost profit," Cheung said.
Indeed, after a difficult year, investment bankers are already looking ahead to a brighter 2013 when a number of mainland banks, including China Everbright Bank and Bank of Shanghai, are expected to launch their multibillion-US dollar public offerings in Hong Kong.
But Li's critics said the HKEx should not rely too heavily on mainland IPOs, which could create a potential downside for the bourse in the long run.
"Charles (Li) manages the HKEx like an investment bank, thanks to his background," said a former colleague.
"He is a dealmaker and dealmaking is in his DNA. For any dealmaker, perhaps the bigger the deal, the better," he said.
"The only problem here is you rely too much on mainland deals (IPOs). Once the mainland economy is in trouble, the HKEx will be in trouble too."
Li was the China boss for JP Morgan before he agreed to take the No 1 job at the HKEx.