Business, Legal & Accounting Glossary
Hong Kong Exchanges and Clearing Limited, or HKEx, operates a securities market and a derivatives market in Hong Kong and the clearing houses for those markets. HKEx was listed in Hong Kong in 2000 and is now one of the world’s largest exchange owners based on the market capitalisation of its shares.
HKEx is the holding company of The Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchange Limited and Hong Kong Securities Clearing Company Limited. It brings together the market organisations which have transformed Hong Kong’s financial services industry from a domestically focused market to become a central market place in Asia attracting investment funds from all over the world.
HKEx was listed in June 2000 following the integration of Hong Kong’s securities and derivatives markets. As a market-driven organisation, answerable to its shareholders, HKEx competes vigorously for opportunities in the region and around the world.
HKEx’s operations are organised into focused units, directly supervised and controlled by management and the board of directors. The board, the highest decision-making body, determines HKEx’s objectives, missions, strategies, policies and business plan and monitors their implementation by management.
In its role as the operator and frontline regulator of the central securities and derivatives marketplace in Hong Kong, HKEx regulates listed issuers; administers listing, trading and clearing rules; and provides services, primarily at the wholesale level, to customers of the exchanges and clearinghouses, including issuers and intermediaries – investment banks or sponsors, securities and derivatives brokers, custodian banks and information vendors – who service the investor directly. These services comprise trading, clearing and settlement, depository and nominee services, and information services.
HKEx is committed to performing its public duty to ensure orderly and fair markets and that risks are managed prudently, consistent with the public interest and in particular, the interests of the investing public. It is also committed to working closely with the principal regulator of Hong Kong’s securities and derivatives markets, the Securities and Futures Commission, an independent statutory body responsible for administering the laws governing the markets, and facilitating and encouraging the development of the markets.
As a commercial entity with public duties, responsible for the operation of the central marketplace, HKEx must carefully consider the broader interests of the market. In addition, its initiatives should reinforce Hong Kong’s standing as an international financial centre and support the country’s further development.
HKEx’s mission statement for 2010-2012: To create and operate active international public financial markets in Hong Kong.
HKEx is the operator and frontline regulator of the central securities and derivatives marketplace in Hong Kong. In this role, HKEx works closely with the Securities and Futures Commission (SFC) to regulate listed issuers; administers listing, trading and clearing rules; and provides services at the wholesale level to customers of the exchanges and clearinghouses, including issuers and intermediaries – namely investment banks or sponsors, securities and derivatives brokers, custodian banks and information vendors – who service the investor directly. The only exception to HKEx’s wholesale role is the Investor Participant Account Service, which is mainly a custody service provided to retail investors as well as institutions.
As an infrastructure provider, HKEx is essentially an IT-based enterprise. HKEx provides services along the core part of the securities and derivatives transaction chains. These services comprise trading, clearing and settlement, depository and nominee services, and information services.
In his 1999 Budget Speech, Hong Kong’s Financial Secretary announced comprehensive market reform of the stock and futures markets. The reforms were designed to increase competitiveness and meet the challenges of an increasingly globalised market.
Under the reform, The Stock Exchange of Hong Kong Limited (SEHK), Hong Kong Futures Exchange Limited (HKFE) demutualised and together with Hong Kong Securities Clearing Company Limited (HKSCC), merged under a single holding company, HKEx.
This was achieved by the approval of the Schemes of Arrangements of SEHK and HKFE at their respective general meetings on 27 September 1999, and which were then approved by the Court on 11 October 1999. The merger of the three institutions took operational effect on 6 March 2000, and HKEx listed itself on SEHK by introduction on 27 June 2000.
At the time of the Exchange merger and listing of HKEx, the authorised share capital is $2 billion divided into 2 billion shares of $1.00 each; and 1,040,664,864 shares were issued.
At the completion of the merger, SEHK shareholder received 747,845,000 HKEx shares in aggregate. On the basis of the 929 SEHK shares issued, each SEHK shareholder received 805,000 HKEx shares. HKFE shareholder received 320,505,000 HKEx shares in aggregate. On the basis of the 230 HKFE shares issued, each HKFE shareholder received 1,393,500 HKEx shares. HKEx has not issued new shares during the listing process.
Reports of securities trading in Hong Kong date back to the mid-19th century. However, the first formal market, the Association of Stockbrokers in Hong Kong, was not established until 1891. The Association was re-named the Hong Kong Stock Exchange in 1914.
A second exchange, the Hong Kong Stockbrokers’ Association was incorporated in 1921. The two exchanges merged to form the Hong Kong Stock Exchange in 1947 and re-establish the stock market after the Second World War.
Rapid growth of the Hong Kong economy led to the establishment of three other exchanges – the Far East Exchange in 1969; the Kam Ngan Stock Exchange in 1971; and the Kowloon Stock Exchange in 1972.
Pressure to strengthen market regulation and to unify the four exchanges led to the incorporation of SEHK, the Stock Exchange of Hong Kong Limited in 1980. The four exchanges ceased business on 27 March 1986 and the new exchange commenced trading through a computer-assisted system on 2 April 1986. Prior to the completion of the merger with HKFE in March 2000, the unified stock exchange had 570 participant organisations.
Established in 1976, the Hong Kong Commodity Exchange (the predecessor of Hong Kong Futures Exchange Limited) is a derivatives leader in the Asia-Pacific region. The main products traded on the commodity exchange were cotton futures, sugar futures, soybean futures and gold futures. The Hong Kong Commodity Exchange was renamed the Hong Kong Futures Exchange (HKFE) on 7 May 1985.
HKFE launched on 6 May 1986 its flagship product, the HSI Futures, which is still its most popular futures product in HKEx’s derivatives markets today. HKFE provides efficient and diversified markets for trading futures and options contracts by its more than 160 participant organisations, including many that are affiliated to international financial institutions. The derivatives market under HKEx trades a broad range of products, including equity index, stock and interest rate.
HKEx and its subsidiary companies, HKFE Clearing Corporation Limited and SEHK Options Clearing House Limited, operate rigorous risk management system which enables participants and their clients to meet their investment and hedging needs in a liquid and well-regulated market place.
Hong Kong Securities Clearing Company Limited was incorporated in 1989. It created CCASS, the central clearing and settlement system, which started operating in 1992 and became the central counterparty for all CCASS participants.
The clearing operation is based on the immobilisation of share certificates in a central depository. Share settlement is on a continuous net settlement basis by electronic book entry to participants’ stock accounts in CCASS. Transactions between CCASS participants are settled on T+2, the second trading day following the transaction.
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This glossary post was last updated: 14th April, 2020 | 4 Views.