LSE and Deutsche Boerse merger plan a challenge for HKEx

The Hong Kong stock exchange’s China-related business will face more competitive pressure if a proposed merger between Deutsche Boerse and the London Stock Exchange goes ahead.

Brokers say that if the third attempt at a merger of the two bourses succeeds, it will create a giant exchange to compete for listings by mainland Chinese companies and might develop new stock connect schemes with Shanghai and Shenzhen, which could steal business away from Hong Kong Exchanges and Clearing.

The London Stock Exchange and Deutsche Boerse said on Tuesday they were holding discussions on an all-share merger which would leave the Frankfurt-based bourse with a 54.4 per cent in the combined exchange. Deutsche Boerse will need to make an offer before March 22 under British takeover rules unless it can get an extension from the British regulator.

Hong Kong Securities Association chairman Benny Mau said a merger of the two bourses would create a giant exchange which would find it easier to bargain for China business.

“A combined exchange would have more resources to create new platforms or to do promotion to attract mainland companies to list,” he said. “This will add to competition pressure on HKEx, which now has more than half of its listed companies from the mainland.”

HKEx is the only stock exchange to have a cross-border trading link with the Shanghai Stock Exchange, but Mau said a newly merged Frankfurt-London bourse might also compete with Hong Kong in that regard.