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Presentation to Hong Kong Securities Institute By Paul M Y Chow, Chief Executive, Hong Kong Exchanges and Clearing Limited 7 December 2006 HKEx STRATEGIC.

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Presentation on theme: "Presentation to Hong Kong Securities Institute By Paul M Y Chow, Chief Executive, Hong Kong Exchanges and Clearing Limited 7 December 2006 HKEx STRATEGIC."— Presentation transcript:

1 Presentation to Hong Kong Securities Institute By Paul M Y Chow, Chief Executive, Hong Kong Exchanges and Clearing Limited 7 December 2006 HKEx STRATEGIC PLAN 2007-09

2 2 AGENDAPage 1.Current HKEx Strategic Plan 2004-063 2.Recent progress 5 3.Forthcoming HKEx Strategic Plan 2007-0914 4.Conclusion20 HKEx Strategic Plan 2007-09

3 3 1.CURRENT HKEx STRATEGIC PLAN 2004-06 Home market advantage Liquidity/critical mass Key factors of HKEx strategy Quality issuers Quality intermediaries (capital, integrity) Quality products Quality infrastructure (system up-time) Quality rules and regulations Cost reduction Concentration on key projects Organisational restructuring Improving operational efficiency General business strategies Differentiation Focus Low-cost operation Difficult market conditions Operational difficulties Global / business diversification initiatives Strategic analysis 2003 HKEx strategy 2004-06 Mainland Partner Quality Market Consolidation HKEx Strategic Plan 2007-09

4 4 1.Current HKEx Strategic Plan 2004-06 Key initiatives 2004-06 ListingGEM review New sponsor regulatory regime Corporate Governance Action Plan – Listing Rule changes, Revised Corporate Governance Code, Internal Control guidelines, Mainland directors and officers training Abolition of paid announcements New listing decision-making structure Trading Trading spreads reduction (Phases I and IIa) CBBC market framework Review of derivative warrant market Trading Hall renovation Index futures and options on H shares and FTSE-Xinhua China 25 Revamp of stock options market (including raising position limits) Clearing Launch of DCASS Enhancement of CCASS services IT infrastructure Implementation of SDNet Upgrade of AMS/3, HKATS and DCASS capacity and hardware and software replacement Marketing Opening of Beijing rep. office (2003), and Shanghai, Guangzhou branches Current status In progress Completed In progress Completed

5 5 HKEx’s equity market has grown strongly Note: Total funds raised figure in 2005 excludes the HK$25.5 bn funds raised by the three REITs. 2.RECENT PROGRESS 30 Nov 2006 200520042003 No. of listed companies 1,159 1,1351,0961,037 No. of newly listed companies (YTM) 46 677073 Main Board 41 574946 GEM 5 102127 No. of delisted companies (YTM) 22 281114 Main Board 13 1596 GEM 7 1102 Transfer from GEM to Main Board 2 226 Total equity funds raised (YTM) (HK$bn) 424.8 301.3281.8213.8 Funds raised by IPO (HK$bn) 275.0 165.797.259.1 Funds raised in secondary market (HK$bn) 149.9 135.6184.6154.6 YTM avg daily turnover – total market (HK$bn) 32.8 18.316.010.4 YTM avg daily turnover – equity (HK$bn) 25.3 14.613.79.3 2002 978 117 60 57 6 4 0 2 110.5 52.0 58.5 6.7 6.1 HKEx Strategic Plan 2007-09

6 6 Mainland China enterprises have contributed substantially to the Hong Kong securities market 30 November 2006Unit Total Mainland enterprises% of total No. of listed companies Number1,159354 No. of newly listed companies (YTM) Number46 Main BoardNumber41 GEMNumber 5 Market capitalisation HK$bn12,196.85,801.3 Total equity funds raised (YTM) HK$bn424.8 310.5 Funds raised by IPOsHK$bn275.0 253.7 Funds raised in secondary marketHK$bn149.9 56.8 YTM avg daily turnover – equityHK$bn25.3 HKEx Strategic Plan 2007-09 2.Recent progress 31% 100% 48% 73% 92% 38% 59% 57% 51% 26 21 5 14.9

7 7 Source: HKEx HKEx Strategic Plan 2007-09 2.Recent progress Cash Trading (Main Board and GEM) – Aided by derivative warrants, turnover has nearly quadrupled

8 8 Derivatives Trading – Trading volume by product Source: HKEx Product 2002-2006 growth in average daily volume (%) Jan – Nov 2006 2002 average daily volume Average daily volume% total Hang Seng Index Futures161.2%51,200 30.4%19,602 Mini Hang Seng Index Futures89.5%8,569 5.1%4,522 H-shares Index Futures-19,07311.3%- Other futures**(63.3%)4890.3%1,332 Stock options355.8%69,29541.2%15,203 Hang Seng Index Options274.7%16,3729.7%4,369 H-shares Index Options-2,919 1.7%- Other options**17.4%2500.1%213 Total average daily volume *271.7%168,167100%45,241 Total volume- 38,341,774-11,029,404 HKEx Strategic Plan 2007-09 2.Recent progress *Sum of the average daily volume of each product ** Products available for trading in 2002 and 2006 may be different

9 9 HKEx derivatives market daily volume (2002 – Nov 2006) Source: HKEx HKEx Strategic Plan 2007-09 2.Recent progress

10 10 HKEx’s rankings among global exchanges Jan - Oct 20062002 % increase from 2002 Value/ volume World ranking Value/ volume World ranking Equity funds raised (US$m) 658% (10 months) 50,5393 rd 6,6658 th Market capitalisation (US$m) (Period end) 216%1,464,7508 th 463,05510 th Share trading value (US$m) 227% (10 months) 635,03914 th 194,00319 th Stock Index Options volume (mil contracts) 254% (10 months) 3.913 th 1.117 th Stock Index Futures volume (mil contracts) 166% (10 months) 1610 th 614 th Stock Options volume (mil contracts) 264% (10 months) 13.58 th 3.716 th Index futures notional value (US$bn) n.a.1,3228 th n.a. Source of overseas exchanges’ statistics: World Federation of Exchanges HKEx Strategic Plan 2007-09 2.Recent progress

11 11 HKEx ranks 3 rd in the first 10 months of 2006 among global exchanges by equity funds raised Source: World Federation of Exchanges, Oct 2006 statistics report downloaded on 21 Nov 2006 HKEx Strategic Plan 2007-09 2.Recent progress 2005 Jan – June 2006 RankExchange 1London SE 76.3 2NYSE 70.4 3Hong Kong Exchanges 4Luxembourg SE 5TSX Group 6Australian SE 7BME Spanish Exchanges 8Tokyo SE 9Euronext Equity funds raised (US$bn) (Jan-Oct 2006) Total IPOPost-IPO 42.0 23.5 34.3 46.9 50.5 35.2 33.3 2.0 17.2 33.2 34.1 26.8 19.5 17.1 16.7 7.8 12.0 26.3 14.8 8.9 n.a. 10.6 17.1 16.2 0.5 10. Sao Paulo SE 14.8 4.7 10.1 12Nasdaq 16Shanghai SE 18Deutsche Börse 22Korea Exchange 24Singapore Exchange 27Shenzhen SE 12.2 n.a. 9.0 8.2 4.9 4.5 3.7 8.5 8.2 0.5 2.7 3.7 2.2 0.8 1.02.7 31Taiwan SE Corp. 1.5 0.80.7 n.a. 1 st 3 rd 2 nd 1 st 5 th

12 12 HKEx income, operating expenses and profit Costs have been contained, leading to out-performance in the current bull market. HKEx Strategic Plan 2007-09 2.Recent progress [0.58] [0.59] [0.64] [0.61] [0.48] [0.43] [0.31] [ ] Cost-income ratio *Following the adoption of HKAS 39 and HKFRS 4 (Amendment), certain 2004 figures previously reported were restated.

13 13 HKEx share price movement (27 June 2000 – 30 November 2006) HKEx Strategic Plan 2007-09 2.Recent progress

14 14 HKEx Strategic Plan 2007-09 3.FORTHCOMING HKEx STRATEGIC PLAN 2007-09 Mission 2004-06 “ To operate a world-class marketplace for Hong Kong and Mainland China securities and derivatives products.” Mission 2007-09 “To be a leading international marketplace for securities and derivatives products focused on Hong Kong, Mainland China and the rest of Asia.”

15 15 New challenges and opportunities ahead. HKEx Strategic Plan 2007-09 3.Forthcoming HKEx Strategic Plan 2007-09  Mainland listings  Capital-raisings (ICBC was world’s largest)  Derivatives volumes  Market quality  Infrastructure reliability  Internal operations  Cost control Substantial progress made:  Resumption of Mainland IPOs  Gradual Mainland market opening  Gradual RMB liberalisation  Overseas exchange and OTC competition  Increasing influence of hedge funds New challenges: The present scale of the Hong Kong market may support more products, services and business initiatives New opportunities:

16 16 HKEx Strategic Plan 2007-09 3.Forthcoming HKEx Strategic Plan 2007-09 The new strategies continue those of the existing plan but step up a level. HKEx Strategy 2004-06 HKEx Strategy 2007-09 Mainland Partner Consolidation Building a Quality Market Mainland Positioning Business Expansion Service Improvement Differentiation Low-cost operation Focus General business strategies

17 17 HKEx Strategic Plan 2007-09 3.Forthcoming HKEx Strategic Plan 2007-09 Mainland Positioning  China’s international exchange  Complements Mainland exchanges  Partners Mainland MeaningImplications  Overseas issuers and intermediaries  Commodity and climate products  Asian focus  New Cash and Derivatives products  Service mentality  Cost-effectiveness  Focus on customers  Transparency and speed  RMB products  A:H shares  Mutual transparency (eg. share price display)  Mainland intermediaries  Mainland investors (QDII) Business Expansion Service Enterprise  Seeking new customers  Seeking more business from existing customers  Service culture  MIS – finance and customer  Internal efficiency/automation  Accountability and organisation structure  Compensation linked to service / performance Themes

18 18 Selected key initiatives 2007-09 Exchange  Improve trading rights regime  Review barriers to Cash Market trading -Short selling -Stock lending -Stamp duty -Product regulatory framework  Review barriers to Derivatives Market trading -Position limits  Introduce further Mainland-related and RMB-denominated products -RMB products  Explore new product and service areas -Commodity futures -Climate products HKEx Strategic Plan 2007-09 3.Forthcoming HKEx Strategic Plan 2007-09

19 19 HKEx Strategic Plan 2007-09 3.Forthcoming HKEx Strategic Plan 2007-09 Selected key initiatives 2007-09 (cont’d) Clearing  Review overseas-based clearing participants  Improve IP Accounts and Stock Segregated Accounts Listing  Complete GEM review  Support SFC/Government in implementing “statutory backing”  Open equity listing regime to overseas issuers Corporate  Strengthen accountability regime, compensation structure, training and succession planning  Review HKEx organisation structure and resource deployment  Work towards consolidation of HKEx offices and data centres  Review fee structure  Further develop HKEx MIS – finance and customer  Review HKEx IT systems for possible efficiency improvement

20 20 HKEx Strategic Plan 2007-09  Further strengthened its position vis-à-vis the Mainland: -more Mainland-related listings -more Mainland-related products (eg. RMB products) -more Mainland-related participants and investors  Expanded its business into new areas: -an Asian focus -new product types (eg. commodities? carbon?)  Become a more business-orientated organisation: -stronger accountability for business results -improved market mechanisms, systems and procedures  Improved its service: -service offering -better internal infrastructure supporting service delivery 4.CONCLUSION By the end of 2009, HKEx should have

21 21 Market quality is the key to market growth and sustainability Market Quality Investor Confidence Investor Confidence Order flow Market liquidity Market liquidity An orderly, informed and fair marketplace HKEx Strategic Plan 2007-09 4.Conclusion

22 22 *** THANK YOU *** HKEx Strategic Plan 2007-09 4.Conclusion

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