HKEX and Guangzhou Futures Exchange to explore possibility of developing products to support China’s climate goal

HKEX and GFEX will collaborate on the feasibility of developing products that can be traded both on onshore and offshore markets
It is the first collaboration between the two bourses to promote green finance and to tighten cooperation between Hong Kong and the mainland’s capital market

HKEX

Enoch Yiu

Published: 8:30pm, 27 Aug, 2021

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Bourse operator Hong Kong Exchanges and Clearing (HKEX) on Friday signed an initial agreement with Guangzhou Futures Exchange (GFEX) to explore the feasibility of developing products that support China’s aim of achieving its carbon neutrality goal.

Under the memorandum of understanding, the two bourses will collaborate on products that can be traded both on onshore as well as offshore markets in Hong Kong by international investors, HKEX said.

The MOU marked the first collaboration between the two bourses to promote green finance and to tighten cooperation between Hong Kong and the mainland’s capital market to further develop the Greater Bay Area.

While HKEX gave no details about these products that would help support President Xi Jinping’s goal of reaching peak carbon emissions by 2030 and carbon neutrality by 2060, brokers speculated that they would most likely be related to emissions-related derivatives.

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“Reflecting our China anchored strategy, HKEX will work with GFEX to actively explore new opportunities to drive the development of a green and low-carbon market in the region, and progress innovations to further the opening-up of China’s futures market,” said Nicolas Aguzin, chief executive of HKEX.

The two exchanges will also work together in areas such as clearing, technology and collaborate on marketing and investor educational efforts, the HKEX said.

The need for the derivative products development comes after China last month launched the Shanghai Environment and Energy Exchange, the world’s largest carbon emission market.

The derivatives developed by the two exchanges could provide a hedging tool for traders, brokers said.

“The cooperation between HKEX and GFEX may pave the way for cross border derivatives trading between the mainland and Hong Kong in the future,” said Gordon Tsui, chairman of Hong Kong Securities Association, the industry guild. “This will enhance liquidity of both markets while further opening up the mainland capital market to international investors via Hong Kong.”

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The GFEX officially opened in April this year in Guangzhou, one of the nine mainland cities that form part of the Greater Bay Area. It is the fifth futures exchange in mainland China.

The HKEX in February spent 210 million yuan (US$32.41 million) to acquire a 7 per cent stake in the newly created GFEX, the first time Beijing allowed a direct investment by an offshore investor in a mainland Chinese derivatives exchange.

The MOU marked another milestone in the development of cross-border derivative products between Hong Kong and China.

A futures product based on 50 yuan-denominated A shares on the Shanghai and Shenzhen exchanges will kick off on October 18, HKEX said last Friday, providing a hedging tool for international investors to trade mainland shares.

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