Hong Kong’s stock exchange operator has scrapped the trading and settlement fees of fixed-income index funds traded on the exchange to spur the local bond market, two months before a higher stamp duty on equities is expected to cast a pall over Asia’s second-largest capital market. The waiver will apply to Hong Kong-listed fixed income Exchange Traded Funds (ETFs) and money market ETFs from today, according to a statement by Hong Kong Exchanges and Clearing Limited (HKEX). The move to promote fixed-income ETF shows that the exchange, the world’s largest market for initial public offerings (IPOs) in seven of the last 12 years, is pushing into a broader range of financial products beyond equities, in its competition with bourses on mainland China and around the world to be the preferred financial market place for global capital. The HKEX, which also owns the London Metal Exchange (LME), is bracing for an increase in the stamp duty on stock transactions to take effect on August 1, a move that bolsters Hong Kong’s financial coffers, but which may dampen market transactions. “The fee waivers will promote both fixed income and ETF products in Hong Kong, which is timely as Beijing is expected to introduce the southbound part of the Bond Connect to allow mainlanders to buy Hong Kong fixed income products,” said Gordon Tsui, chairman of the Hong Kong Securities Association (HKSA), an industry guild. There are 29 fixed-income and money market ETFs that are eligible for the fee waivers. Hong Kong’s ETF market is one of the largest in Asia, with HK$404 billion (US$52 billion) in market capitalisation. However, that only represents 0.8 per cent of the total size of Hong Kong’s entire financial market, valued at HK$52.69 trillion as of Friday. “The new fee waivers, which will help investors reduce the costs for fixed-income ETFs and money market ETF transactions, are HKEX’s latest initiative to enhance its ETF market structure and drive liquidity to Hong Kong-listed ETFs,” said Brian Roberts, the bourse operator’s head of exchange traded products. “We believe the fee waivers are being introduced at an opportune time as there has been a strong increase in investor demand for China fixed income products in recent years.” Hong Kong’s government raised the stamp duty on equity transactions on the HKEX in February for the first time in almost three decades to fund a widening budget deficit. Financial Secretary Paul Chan Mo-po announced the increase in stamp duty by 3 basis points, or an increase of 30 per cent from the current fee structure, the first increase in decades, in his budget speech. Higher fees on stock trading could help lift government revenue from stamp duties by HK$12.9 billion to HK$92 billion in the 2021/22 fiscal year, Chan said. The stamp duty on stock trades by both buyers and sellers will each be increased to 0.13 per cent from the current 0.1 per cent. The connect scheme, which has covered equities transactions since 2014, was expanded to allow global investors to tap Chinese fixed-income financial products in 2017. The Bond Connect scheme is poised for a southwards extension this year, which would allow Chinese capital to buy into global debt traded in Hong Kong. The latest fees waiver, proposed last year, marked the first policy to be enacted under the stewardship of Nicolas Aguzin, the former JPMorgan Chase banker who started work on May 24 as the HKEX’s new chief executive. “Hong Kong has a key role to play as China continues opening up its market,” Aguzin said in last Tuesday during the annual LME Day event, his first public speech as the new boss of the HKEX. In his first video, released by the exchange on Friday, he said HKEX had been developing its fixed income products. “The new CEO of HKEX is moving in the right direction to diversify the products and investment choices. Lower transaction costs would be welcomed by brokers and investors,” said Tsui of the HKSA.