Door is open for cooperation, joint efforts

Hong Kong Exchanges and Clearing Limited (HKEx), operator of Asia's third-largest exchange, said Monday that it has no plans to merge with other exchanges in order to strengthen its position.

The statement follows the announcement that the Singapore Exchange Ltd (SGX) has agreed to buy ASX Ltd, Australia's main stock-exchange operator, for $8.3 billion in cash and shares in a bid to compete with Hong Kong and Tokyo.

"Although HKEx has not identified any significant synergistic opportunities, it is open to possible cooperation, joint efforts, etc," a HKEx spokesman said. "Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China. HKEx will consider selected opportunities in areas where it can enhance its capability and strengths in technology, business and services. HKEx will not pursue alliances, partnerships or other relationships purely for investment gains."

Responding to media enquiries concerning the SGX-ASX merger, Secretary for Financial Services and the Treasury C.K. Chan stressed that "every exchange company has its own business development strategy and it will not be difficult for HKEx to find business cooperation partners in the future."

SGX offered a combination of A$22 in cash plus 3.473 of its own shares, valuing ASX shares at A$48.00 each - a 37 percent premium to ASX's last trade on October 22.

The merger of SGX and the ASX would be the first major consolidation of Asia-Pacific exchanges and is aimed at taking advantage of deeper access to capital markets and alternative trading systems such as dark-pool trading. SGX and Chi-X Global signed a deal earlier this month to start the first exchange-backed dark pool in Asia. The move is also designed to line up new avenues for growth and cut costs. The merger is still subject to approval by Singaporean and Australian regulatory bodies. It is expected that the deal will be finalized by the second quarter of 2011.

A financial analyst and an academic that China Daily spoke to dismissed any notion that the SGX-ASX merger would be a threat to HKEx, particularly its position as the global leader in attracting funds through initial public offerings. With so much focus on business potential on the mainland, Hong Kong is relatively safe.

However, they both agreed that HKEx should consider possible business alliances and develop more financial products.

"HKEx can pursue partnerships with the Shanghai bourse to develop mutual listings of exchanged-traded funds that can enhance market turnover for both bourses," said Billy Mak, an associate professor of finance at the Hong Kong Baptist University.

"HKEx is relatively deficient in commodity futures trading so the local bourse should catch up with this," said Patrick Shum, president of the BMI Fund Management. "HKEx should also pay more attention to reduce average transaction times and lower transaction costs due to the rise of dark pool trading."

The share price of HKEx surged 4.9 percent to HK$181.90 Monday. Turnover of the stock jumped to HK$2.65 billion.

Bloomberg contributed to this story.

China Daily

(HK Edition 10/26/2010 page2)