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. We never know if the merger will go ahead as the two bourses have failed in their attempts twice before Jeffrey Chan, Oriental Patron Financial Group “The London Stock Exchange last year already started to study a new stock connect scheme between London and Shanghai,” he said. “Deutsche Boerse also has set up a joint venture with two Chinese exchanges to launch exchange-traded fund products. If the major bourses from Britain and Germany unite together, it may add political reasons for Beijing to grant a new cross-border scheme between the combined exchange and Shanghai and Shenzhen. “If that happens, it would reduce international investors’ interest in trading Shanghai A shares from Hong Kong. However, Hong Kong would still have the advantage as we trade in the same time zone as the mainland. Beijing would also like to support Hong Kong, which is part of China.” The stock connect between Hong Kong and Shanghai was launched in November 2014 and allows international investors to trade up to 13 billion yuan a day, or 300 billion in total, of A shares in Shanghai via Hong Kong-based stockbrokers. Likewise, mainland investors can trade up to 10.5 billion yuan a day, or 250 billion yuan in total, of Hong Kong stocks via mainland brokers. A new leg between Hong Kong and Shenzhen was original scheduled to be launched last year but has been postponed to at least the second half of this year due to market uncertainty. An HKEx spokeswoman declined to comment on the impact of the proposed merger. Jeffrey Chan Lap-tak, founding partner of Oriental Patron Financial Group, said it would have an impact on HKEx but there was no need to be too worried. “HKEx has already set up a joint venture with the stock exchanges of Shanghai and Shenzhen for some years while the stock connect with Shanghai has been up and running for more than a year,” he said. “Hong Kong has already had the first mover advantage. Most importantly, we never know if the merger will go ahead as the two bourses have failed in their attempts twice before, while many cross-border mergers also fail to get regulatory support due to political concerns. Let’s start to worry when the two exchange really merge.” It is the third time the London Stock Exchange and Deutsche Boerse have talked about a merger, following a first attempt in 2000 and a second one in 2005. The latest merger plan came to light at a sensitive political moment as Britain prepares for a referendum on June 23 on whether to remain in the European Union.