London Stock Exchange given licence by Hong Kong market regulator SFC

The London Stock Exchange has been granted a licence by the Securities and Futures Commission allowing it to accept Hong Kong-based financial firms as exchange members, its chief executive Alexander Justham said on Monday.

"The SFC licence is an important milestone for the London Stock Exchange to further develop our business related to Hong Kong and Chinese companies," he said at a forum in the city.

"As members of London Stock Exchange, Hong Kong firms will be able to offer their customers access to the most liquid European market."

At present, there are two Hong Kong financial firms with branches in London that are members of the London Stock Exchange.

As a result of the SFC licence, Hong Kong-based brokers will be able to join as direct members of the London exchange and trade London-listed stocks and fixed-income products for Hong Kong clients.

According to the SFC, the licence it gave to the London Stock Exchange allows the bourse to only accept Hong Kong financial firms licensed by the SFC. It bars the London bourse from allowing Hong Kong investors to trade any of its products that do not have a central counterparty service.

All trades in Hong Kong are done through an electronic system called Millennium Exchange, which must report trading information to, and is subject to regulation by, the SFC.

Hong Kong Securities Association chairman Jeffrey Chan Lap-tak said investors who trade through the new SFC-licensed platform of the London Stock Exchange would get better protection.

"Hong Kong investors could always trade London-listed stocks via London brokers but they were not subject to SFC regulation. The new licence will provide an SFC-regulated platform for Hong Kong investors to trade products of London Stock Exchange and hence provide better investor protection," Chan said.

Chan also said he believes some brokers might want to join the London bourse to provide more products for investors. "However, I do not think all local brokers would do so as local investors do not have much knowledge about London stocks."

Justham said the bourse has also signed a memorandum of understanding with four mainland financial firms to get more Chinese firms to list in London. The four are Agricultural Bank of China, Bank of China, China Construction Bank and Haitong Securities. Fifty-seven mainland Chinese firms are now listed in London.

Justham said he expects the new brokers from Hong Kong and the memorandum to encourage more mainland firms to list in London. He also forecast more yuan-denominated bonds listing as London is fast developing as a yuan trading hub.

Hong Kong brokers believe the London bourse aims to capture a piece of the growth in Chinese capital markets and add competitive pressure to Hong Kong Exchanges and Clearing.

However, Justham said: "The London Stock Exchange is not a competitor to Hong Kong but we could have a relationship of cooperation."