Diversifying Hong Kong's Financial Markets

[hkskyline]

'Mini through-train' sets off
The Standard
Thursday, August 18, 2011

Local and mainland investors will soon be able to invest in each other's stock markets. That is the spirit of two key "presents" in the central government gift package borne by the vice premier.

"We aim to consolidate and upgrade Hong Kong's standing as an international financial center," Li Keqiang told an economic forum.

And under this scheme, exchange- traded funds linked to local indexes will become available in the Shanghai and Shenzhen bourses. But the cap of the "mini through-train" to local equities is yet to be determined, and mainland investors will not be allowed to pick up individual Hong Kong-traded stocks.

The through-train will be launched within this year, as technical issues have all been resolved, an SAR government spokesman said.

On the other hand, local investors can dabble in the mainland A-share market by investing in products offered by fund houses and brokerages under the Renminbi Qualified Foreign Institutional Investors scheme, which has an initial size of 20 billion yuan (HK$24.4 billion).

The quota for the long-awaited mini- QFII is separate from the existing QFII cap in the territory, a government spokesman said. Mainland-based local brokerages will also have priority to apply for the mini-QFII.

People's Bank of China governor Zhou Xiaochuan, who also addressed the forum, said the move comes at the right time as the local financial sector seeks new development horizons. Issues for the mini-QFII, including clearing and settlement, have been settled, Zhou said.

However, ANZ Bank was not impressed. "The initial quota of 20 billion yuan [for mini-QFII] is considered small relative to the current 554 billion yuan of deposits in Hong Kong," it said.

Local investors seemed to take a similar dim view, as the announcements failed to boost stocks - unlike when it was first unveiled four years ago.

The "through-train" program was first revealed in 2007 and helped push the Hang Seng Index to a record high of over 31,000 in October that year.

The benchmark yesterday closed only 0.4 percent higher at 20,289.03, with turnover shrinking to HK$67.9 billion. The HSI did surge nearly 300 to 20,504.38 points after Li's comments, but it rolled back in the afternoon.

Only mainland-based brokerage houses were able to record strong gains on Li's announcements. Among them, Shenyin Wanguo (0218) surged more than 21 percent to HK$2.91, while First Shanghai Investments (0227) rose 22 percent to 88 HK cents. Hong Kong Exchanges and Clearing (0388) closed just 1.06 percent higher at HK$142.50.

The "through-train" scheme is becoming reality four years too late, analysts said. "Many H shares are now more expensive than their A-share counterparts," Saxo Capital Markets manager Kenny Wong Chi-ching said.

Some mainland investors have also shown little interest in the ETFs, saying there are various other ways to invest in Hong Kong equities. Moreover, index ETFs would be less volatile than individual stocks, ruling out huge profits.

[hkskyline]

Local bourse looks to strengthen BRICS links
The Standard
Thursday, October 13, 2011

Hong Kong Exchanges and Clearing (3888) is joining hands with seven bourses of emerging economies to crosslist benchmark equity index derivatives.

HKEx announced the alliance with the bourses of Brazil, Russia, India, China and South Africa at a meeting of the World Federation of Exchanges in Johannesburg last night.

Earlier in the day, Chief Executive Donald Tsang announced that Hong Kong will strengthen links with stock markets in BRICS countries.

Ronald Arculli, chairman of the local bourse and the WFE, said the alliance "points to the growing relevance of the BRICS economies and financial markets in the coming decade."

Bourses of BRICS countries will list financial products by June next year. This would, for example, allow an investor in India to trade Hang Seng Index derivatives listed on the country's national bourse denominated in the rupee.

The exchanges signing up to the deal include BM&FBOVESPA (which represents the Sao Paulo Stock Exchange and the Brazilian Mercantile & Futures Exchange), Russia's MICEX and RTS, HKEx, South Africa's JSE, as well as India's National Stock Exchange and BSE.

The seven exchanges represent a combined listed market cap of US$9.02 trillion (HK$70.3 trillion) as of end August, HKEx said.

They represent equity market trading value of US$422 billion each month, and 9,481 listed companies.

The benchmark indexes from BRICS countries also form the basis of other tradeable products including exchange- traded funds.

In the policy address, Tsang said Hong Kong will diversify its listing platform by attracting more enterprises from Europe, the US and emerging markets, through regulatory reforms.

Meanwhile, to help local SMEs tap the mainland market the government will earmark HK$1 billion.

"[The move will] encourage them to move up the value chain and build brands by leveraging Hong Kong's strengths in design," Tsang said.

The SAR will introduce necessary measures to tide local small and medium-sized enterprises over difficulties amid a weak global economy.

"The recent sharp downturn in the external economy is more worrying than inflation," Tsang said.

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Consultation begins on proposed regulatory regime for OTC derivatives market
Monday, October 17, 2011
Government Press Release

The following is issued on behalf of the Hong Kong Monetary Authority:

The Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC) have issued a joint consultation paper on the proposed regulatory regime for Hong Kong's over-the-counter (OTC) derivatives market.

The HKMA and SFC have been working on developing a regulatory regime for the OTC derivatives market locally, in accordance with commitments the G20 Leaders made in September 2009 to carry out reform in that area (Note 1).

"In line with the objectives of the G20 commitments, the proposed regime aims to improve overall transparency in the OTC derivatives market, reduce interconnectedness of participants, and generally reduce systemic risk in the financial system," the Deputy Chief Executive of the HKMA, Mr Eddie Yue said.

The HKMA and SFC are mindful that the local OTC derivatives market is relatively small compared with other major markets and the OTC derivatives market is global in nature. Hence, the focus has been on developing a regime that is on a par with international standards but takes into account local market conditions and characteristics.

"Given the cross-border nature of the OTC derivatives market, global effort is required to establish international standards. Hong Kong cannot drive the reform initiatives, but we will continue to co-ordinate with overseas jurisdictions to address some of the key aspects of the reform," the Chief Executive Officer of the SFC, Mr Ashley Alder, said.

As key aspects of the OTC regulatory reform are still under discussion in the global arena, the proposed regime for Hong Kong may be subject to further change. The joint consultation paper however sets out the HKMA's and SFC's current thinking on how the regime might be cast given the present status of the global reform efforts.

In brief, the main proposals in the consultation paper are as follows:

* The proposed regime will be set out in the Securities and Futures Ordinance (SFO), and will be jointly overseen and regulated by the HKMA and SFC. Essentially, the HKMA will oversee and regulate the OTC derivatives activities of authorised institutions (AIs), while the SFC will oversee and regulate such activities of persons other than AIs (Note 2).

* OTC derivatives transactions will have to be reported to the trade repository, which is being set up by the HKMA (Note 3). This reporting obligation will initially apply only to certain interest rate swaps (IRS) and non-deliverable forwards (NDF), but will subsequently be extended to other product classes (such as equity derivatives and other types of interest rate derivatives) after further market consultation.

* Standardised OTC derivatives transactions will have to be centrally cleared through a designated central counterparty (CCP) (Note 4). This mandatory clearing obligation will also initially be limited to only certain IRS and NDF, and subsequently extended to other product classes after further market consultation.

* Initially, OTC derivatives transactions will not be required to be traded on an exchange or electronic trading platform. Further study is needed to assess how best to implement such a requirement in Hong Kong.

* AIs' OTC derivatives activities are already subject to the HKMA's regulatory oversight in respect of capital, liquidity and other relevant requirements and should remain so under the proposed regime. In order to bridge the regulatory gap that would otherwise exist, there is a need to require non-AI entities that engage in OTC derivatives activities (other than as end users) to be licensed for a new Type 11 regulated activity under the SFO.

* Large players who are not regulated by the HKMA or the SFC may be subject to certain obligations and requirements, such as producing information regarding their OTC derivatives activities, and reducing their OTC derivatives positions, if so requested by the SFC in extreme situations.

The HKMA and SFC are working towards meeting the G20 implementation deadline of end-2012. However, much depends on external factors, including the progress of reform initiatives in other major markets, due completion of the legislative process, and the readiness of relevant market infrastructure and participants.

The consultation period will end on November 30, 2011. The joint consultation paper can be downloaded from the HKMA website (http://www.hkma.gov.hk/media/eng/doc...111017e3a1.pdf) or the SFC website (http://www.sfc.hk/sfcConsultation/EN...et?name=OTCReg). Interested parties are invited to submit their comments to the HKMA or the SFC on or before the deadline.

Notes:

1. The G20 Leader's September 2009 Communique called for all standardised OTC derivatives contracts to be traded on exchanges or electronic trading platforms where appropriate and cleared through central counterparties by end-2012 at the latest; for all OTC derivatives contracts to be reported to trade repositories, and for non-centrally cleared contracts to be subject to higher capital requirements.

2. AIs refers to institutions that are licensed under the Banking Ordinance and regulated by the HKMA (i.e. banks, restricted licence banks, and deposit-taking companies).

3. The HKMA is in the process of establishing a trade repository for the collection of data relating to OTC derivatives transactions.

4. The HKMA and SFC propose that only clearing houses recognised under the SFO and providers of automated trading services authorised under Part III of the SFO will be eligible to be designated as CCPs under the new regime. The Hong Kong Exchanges and Clearing Limited announced on December 10, 2010 that it had decided to establish a clearing house in Hong Kong for the clearing of OTC derivatives transactions.

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Public offering opens today for PCCW spinoff
The Standard
Wednesday, November 16, 2011

Attractive yields offered to unit holders, modest capital expenditure, stable cash flow, a stable fixed-line operation and a growing broadband business are among factors that would attract investors to the HKT Trust, the telecom business being hived off from PCCW (0008), the incoming chief executive of the business trust said yesterday.

PCCW Group managing director Alex Arena, who will take the helm at HKT Trust following the listing, acknowledged that equity markets remain volatile, but described the business trust - which aims to raise between HK$9.3 billion and HK$11 billion - as a "defensive play."

PCCW said HK$7.8 billion of the proceeds would be used to pay off debt. The trust offers a yield of between 7.5 and 8.9 percent for 2012, with the first distribution set for December 30.

But the trust also cautions in its prospectus that "it may not be able to make distributions at all," and that the "level of distributions may fall."

The Hong Kong public offering opens today, with trading in the business trust units starting on November 29.

If priced at the high end at HK$5.38 per unit, a board lot would cost HK$5,434.23.

Pamela Chung Kong-hung, managing director of Computershare Hong Kong Investor Services, said 207.78 million units will be reserved for some 24,000 existing PCCW shareholders.

Arena said many investors prefer a "mature business" and others value growth, as he explained the deal to take the telecom business to the market.

Recalling that PCCW has been a household name for decades, Arena said many are eager to see the return of Hong Kong Telecom to the equity market.

[hkskyline]

HK's financial services industry grows
Updated: 2011-12-01 10:05
Xinhua

HONG KONG - Performance of various sectors of Hong Kong's financial services industry in recent years demonstrates the industry's strengths, and the number of total employees in the industry is growing, the city's financial chief said on Wednesday.

Secretary for Financial Services & the Treasury, K C Chan, told lawmakers that the financial services industry is one of Hong Kong's four pillar industries, which employed 208,900 people in 2010, or 6 percent of the city's entire workforce. The figures rose to 224,800 or 6.2 percent in the second quarter this year.

In separate, initial public offerings on the Hong Kong Stock Exchange in 2009 and 2010 raised HK$248.2 billion ($32 billion) and HK$449.5 billion, the highest in the world in both years. In the first 10 months of this year, initial public offerings on the Hong Kong Stock Exchange still managed to raise a respectable HK$208.9 billion despite the volatility in financial markets during recent months.

In the asset-management sector, Hong Kong's combined fund- management business hit the HK$10-trillion mark in 2010, an increase of 18.6 percent over 2009. The average annual growth rate of the combined fund-management business during the past decade has been over 18 percent, he said.

Hong Kong's fund-management business is not only highly internationalized, but also boasts the highest assets under management in Asia (excluding Oceania), ahead of both Japan and Singapore.

The burgeoning Renminbi business is another bright spot in Hong Kong's financial services-industry. In the first nine months this year, Hong Kong banks handled a total of 1.329 trillion yuan ($209. 4 billion) in Renminbi trade settlement, accounting for 86 percent of the Mainland's Renminbi trade settlement during that period.

Renminbi deposits swelled to 622.2 billion yuan in September, almost doubling that at the end of last year. Hong Kong is also the largest offshore Renminbi bond market. As at the end of October, there had been 100 Renminbi-bond issuances with a total issuance size exceeding 166.3 billion.

In terms of contribution to the city's economic growth, Hong Kong's financial-services industry registered a remarkable increase of 132.6 percent in real terms from 2002 to 2010, whereas the corresponding figure for Singapore was 119.1 percent.

This suggests the overall growth in financial services in Hong Kong has been broadly comparable to that of Singapore, Chan said.

He also said Hong Kong boasts a large pool of financial talent capable of supporting the sustainable development of its financial services industry.

There were more than 4,000 Chartered Financial Analysts in Hong Kong at the end of June, making the Hong Kong Society of Financial Analysts the largest of its kind in Asia and the fourth largest globally, after New York, Toronto and the UK.

There were 4,270 Certified Financial Planners in Hong Kong in mid-2011 -- six for every 10,000 citizens, the highest ratio in the world. The Hong Kong Institute of Certified Public Accountants has more than 32,000 members, of which 3,800 are certified to sign statutory audit reports, he added.

[Titan49]

Hong Kong needs to be a more attractive market for the international community and mainland as well, or else it will not be able to defend it's position.

[hala]

source: http://www.bbc.co.uk/news/business-16172457

Hong Kong 'most developed' financial market, says WEF

Hong Kong is the world's most developed financial market, according to a World Economic Forum report, overtaking the US and the UK for the first time.


Hong Kong's rise to the top spot is because of non-banking services such as IPOs and insurance

The US slipped to second place, as financial stability remains a concern there, said the report.

"Hong Kong's ascent to the top of our index marks a major milestone," said Kevin Steinberg, of the World Economic Forum.

The WEF's Financial Stability Index ranks 60 countries' financial systems.

Mr Steinberg added that it was the first time in the report's history that the United Kingdom or the US were not in first place.

Leadership challenge

Hong Kong's rise was attributed to non-banking services such as IPOs or initial public offerings and insurance, the report said.

Launched in 2008, the ranking is based on efficiency and size of banking and other financial services, the business environment and financial stability amongst other things.

"While Western financial centres are understandably focused on short-term challenges, this report should serve as a wake-up call that their long-term leadership may be in jeopardy," Mr Steinberg said.

Hong Kong, which jumped to first from fourth place, benefited from the crackdown on the financial sectors in the US and the UK.

Singapore came in fourth, with Australia, Canada, the Netherlands, Japan, Switzerland and Norway completing the top 10.

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Analysts warn of low yields for new iBonds
The Standard
Thursday, February 02, 2012

People looking to invest in the second batch of iBonds - inflation-linked debt paper issued by the government - should brace for a lower yield than that of the inaugural offer, analysts said.

The first batch of iBonds was issued in July and since then living costs have fallen, they said.

John Tsang yesterday proposed to sell up to HK$10 billion worth of iBonds as "another option for coping with inflation."

The bonds, available to subscription by Hong Kong residents only, carry a three-year maturity and offer a biannual payout in line with inflation in the previous half- year period.

Investors in the first batch have benefited from strong returns, although the issue drew a lukewarm response at the beginning.

In the event, the HK$10 billion iBond initial public offering in July was just 30 percent subscribed.

But the notes, backed by an AAA-rated government, surged to HK$106.50 per unit on their debut and even hit HK$108.40 last month.

That translates to a paper gain of HK$840 for every HK$10,000 invested - more than compensating for inflation.

"People had underestimated iBond's performance, and the new batch should cater to [rising] investor demand," said Hang Seng Bank (0011) executive director Andrew Fung Hau-chung.

The bond's first semi-annual yield was 6.08 percent, or HK$304, as Hong Kong's composite consumer price index jumped to a two-year high in the middle of last year.

However, KPMG tax partner Jennifer Wong Wan How-yee said she is disappointed by the relatively small scale of the planned issuance. "They may not help tackle inflation issues," she said.

Daniel Chan Po-ming, chief economist and wealth management strategist of BWC Capital Markets, said investors should be reminded that the yield of the forthcoming iBond issue is likely to be softer than that of the inaugural offer.

This is because local inflation has eased due largely to the mainland's success in taming core food and non-food prices.

The SAR government is forecasting headline inflation of 3.5 percent in the coming fiscal year.

Tsang conceded the notes are just a short-term measure. In the long run, "we need to leave room for developing other kinds of bonds, including conventional fixed-rate bonds, for the development of a more mature market in Hong Kong," he said.

Meanwhile, Tsang said the government would also table a draft in the Legislative Council on the issuance and trading of Islamic bonds.

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Hong Kong Offers Asia’s First Volatility Index Futures as Swap Alternative

Feb. 20 (Bloomberg) Hong Kong’s stock market today started selling the first futures tracking volatility in Asia, the fastest-growing region for derivatives.

Futures (VHSH2) on the HSI Volatility Index (VHSI), which tracks expected equity-market volatility over the next 30 days, are the first of their kind based on an Asian market, according to Calvin Tai, head of trading at the Hong Kong Exchanges & Clearing Ltd. The Osaka Securities Exchange Co. will begin offering futures on Japan’s Nikkei Stock Average Volatility Index (VNKY) on Feb. 27, according to the bourse.

Volatility index futures have been trading in the U.S. since 2004 and Europe since 2005. The products were created as alternatives to so-called variance swaps, derivatives in which investors take a position on how much a stock or index will move with a bank or dealer instead of via a public exchange. The futures surged in popularity after the 2008 financial crisis, when investors sought products that allowed them to hedge against large market swings.

“It’s definitely something that’s been missing from the product suite in Asia,” Shane Miller, head of flow index trading for the Asia Pacific region at Barclays Capital. “For the more professional investors, who would normally trade variance swaps, this gives them another way to invest in volatility. This product will allow less sophisticated investors holding portfolios of cash or stocks to implement a hedge they didn’t previously have access to.”

Institutional Investors

Ten trades comprised of fifteen contracts, each worth HK$5,000 passed across the exchange on the first day, according to data compiled by Bloomberg. All were February futures contracts, closing at HK$24.50.

“It takes a certain amount of time for people to get comfortable with the product and comfortable with the risk,” Miller said. “Most clients today were focused on the broader macro factors. I think that’s where the focus was, and expect them to have more interest in the coming weeks.”

The HSI Volatility Index was created by Hang Seng Indexes Co. and calculated by the Chicago Board Options Exchange and Standard & Poor’s. It began trading on Feb. 21 last year. The Hong Kong gauge rose 5 percent to 23.84 at the close, indicating investors expect a 6.8 percent swing in the Hang Seng Index in the next 30 days.

“We think institutional investors would come into this market first,” Tai said in a telephone interview on Feb. 17. “We have educational and promotional plans later this year. We are going to work with brokers, and exchange participants to conduct a few rounds of simulation trading on this product.”

Product Evolution

Exchange-traded notes, exchange-traded funds and other structured products have been created in the U.S. and Europe around volatility futures. Similar products may be reproduced in Asia if demand is sufficient, Tai and Miller said in separate interviews.

Volatility index futures products “received attention after the collapse of Lehman Brothers Holdings Inc. (LEHMQ)” in 2008, Osaka Securities Exchange Co. spokesman Masahiro Yada told Bloomberg News. “As global events continued, like the Greece debt crisis and U.S. debt downgrade, financial institutions saw the need to protect their investments and there was more demand for the product.”

[hkskyline]

Portman Taps Investors From Hong Kong Base to Fund Asia-Pacific Projects
By Kelvin Wong - Feb 23, 2012 9:34 AM GMT+0800
Bloomberg

Portman Holdings Ltd., an Atlanta- based developer expanding in the Asia-Pacific region, plans to use its recently set up Hong Kong operation to tap international investors to fund property projects.

The company wants to raise funds from institutional and private investors for its projects estimated to cost $100 million to $1 billion each, Stanley Chin, managing director for Greater China for the company, said in an interview in Hong Kong yesterday. Portman doesn’t have a specific target for the amount it’s seeking to raise, he said.

Portman is betting housing demand fueled by an expanding middle class in China and India, the world’s two-fastest growing major economies, will underpin their property markets. Hong Kong billionaire Li Ka-shing’s Cheung Kong (Holdings) Ltd. (1) and CapitaLand Ltd., Southeast Asia’s biggest developer, said in November they are planning more investments in China.

“Since 2008, it’s generally been challenging to raise funds because many investors were hurt by the global credit crisis,” said Chin, hired by Portman in December from Henderson Global Investors. “Things have eased slightly over the last 18 months. There’s a lot of liquidity in the system.”

The company and a team of international investors built the Shanghai Centre -- a three-tower development with serviced apartments, offices, a shopping mall, and a Ritz-Carlton hotel, in the city’s Jing An district, in 1990, its first project in China. It has since developed properties in Singapore and India.
Hong Kong Hub

Portman, founded almost 60 years ago by architect John Portman, in December opened its Hong Kong office, almost two decades after moving its Greater China base to Shanghai from the city. The company is not actively looking at investing in the Hong Kong property market as “there are too many big players in the city already,” said Chin.

“Hong Kong is a very convenient hub to cover southern China from a project perspective, said Chin. “We are also using it as a hub to liaise with our investors.”

Portman is looking for projects in Chinese cities including Shanghai, Beijing, Fujian and Guangzhou, even after the country’s government said earlier this year it plans to keep home purchase restrictions in 2012 to prevent the formation of an asset bubble.

The company, which has invested $6 billion in real estate projects globally, is completing two residential projects with nearly 2 million square feet in India to tap the country’s growing middle class, according to Rahul Anand, managing director for Portman in Mumbai.

[hkskyline]

Pilot platform for cross-border investment and settlement of debt securities
Tuesday, March 13, 2012
Government Press Release

The following is issued on behalf of the Hong Kong Monetary Authority:

The Hong Kong Monetary Authority (HKMA), Bank Negara Malaysia (BNM) and Euroclear Bank today (March 13) jointly announced the launching of a pilot platform for cross-border investment and settlement of debt securities (Pilot Platform) that will be operational on March 30, 2012, to enhance cross-border debt securities settlement efficiency and strengthen the capacity for debt securities issuance activities in the Asian region.

The launch of the Pilot Platform will strengthen the cross-border issuance of, and foreign investment in, local bonds in Hong Kong and Malaysia. Through the Pilot Platform, investors in Hong Kong and Malaysia can buy and hold foreign debt securities and settle cross-border transactions on a Delivery-versus-Payment (DvP) basis whilst local and international bond issuers can issue a wide range of debt securities. The Pilot Platform also includes a comprehensive debt securities database of Asian debt securities maintained by Euroclear Bank.

The Pilot Platform signifies an important step for Asian bond markets, supported by an international central securities depository (CSD), to collaboratively strengthen post-trade infrastructure. This would facilitate harmonisation of market practices and standardisation of the issuance and settlement of debt securities to deepen Asian bond market liquidity, attract investment and increase operational efficiency.

The Pilot Platform entails the optimisation of existing system links between the Central MoneyMarkets Unit (CMU)* of the HKMA, RENTAS** of BNM and Euroclear Bank and the connections between local CSDs and foreign currency real time gross settlement systems in Asia as well as sharing certain Asian CSD services.

Deputy Chief Executive of the HKMA, Mr Peter Pang, said, "We are pleased to see the Pilot Platform going live. It is a strategic alliance that goes much beyond commercial cooperation and will bring about more significant benefits in fostering global and regional bond market development as well as promoting financial stability in the region. The HKMA will continue to collaborate with BNM and Euroclear Bank to promote the Pilot Platform to other central banks and securities settlement systems in the region and implement additional services to meet market needs."

Deputy Governor of BNM, Mr Muhammad Ibrahim, said, "Bank Negara Malaysia has been collaborating with central banks in the region on the platform for the settlement and depository of debt securities and sukuks. The roll out of the Pilot Platform provides investors and market intermediaries an efficient and cost-effective cross-border access to the bond markets in Malaysia and Hong Kong. This marks a major milestone for regional financial integration, and a step towards a unified bond market platform across Asia. As we expect ongoing growth of emerging East Asian markets, the implementation of the Pilot Platform would indeed be an important step towards sustaining growth and development in the region."

Managing Director and Head of Business Development for the Euroclear group, Mr Anso Thir赌, said, "Euroclear Bank has supported the initiative from the beginning and is very happy to work closely with our Asian colleagues to deliver practical ways of further improving the bond market infrastructure in Asia. Euroclear Bank has strong ties with the Asia-Pacific region, having operated with offices in the region since the 1980s. We value the trust that the HKMA and BNM have placed with us to partner them as they embark on a multi-faceted programme of regional post-trade improvements. We look forward to working with other Asian markets on their settlement, collateral management and corporate action processing challenges."

* CMU is the debt securities clearing, settlement and custodian system in Hong Kong operated by the HKMA.

** RENTAS comprises a real-time gross settlement system used primarily for high-value interbank payments and a debt securities settlement and depository system in Malaysia. It is owned by BNM and operated by BNM's wholly-owned subsidiary, Malaysian Electronic Clearing Corporation Sdn. Bhd.

Background information
**********************

In 2008, a group of central banks and CSDs in the Asian region, and Euroclear Bank formed a Task Force with the aim to develop a cost-effective and efficient cross-border investment and settlement infrastructure for debt securities to facilitate the Asian bond market development and enhance the attractiveness of Asian debt securities to foreign investors.

The Task Force has reached consensus that a Common Platform Model is necessary for achieving its planned objectives. A gradual implementation approach is considered appropriate for Asia given the differences in regulatory and currency regimes among Asian markets. The Task Force issued a White Paper in June 2010, recommending the development of a Common Platform Model in the long run and the introduction of a Pilot Platform in the initial phase as a tactical solution to improve the cross-border investment and settlement infrastructure for debt securities in Asia. The HKMA, BNM and Euroclear Bank decided to join the Pilot Platform as early movers when the platform is launched to set a precedent for other economies and maintain the momentum for a gradual migration towards a fully-fledged Common Platform Model.

[hkskyline]

Hong Kong Exchanges Said to Seek Loan for Potential LME Purchase
Bloomberg Excerpt
Apr 12, 2012 7:12 PM GMT+0800

Hong Kong Exchanges & Clearing Ltd. (388) is seeking an acquisition loan to back a possible bid for the London Metal Exchange, according to two people familiar with the matter.

The loan may be as much as $3 billion, the people said, asking not to be identified because the details are private.

Hong Kong Exchanges spokesman Scott Sapp declined to comment on the potential financing package when contacted by telephone at his office in Hong Kong today. The company owns and operates the city’s stock exchange, futures exchange and their related clearinghouses.

The London Metal Exchange, the world’s biggest metals trading platform, said on March 29 it is in the process of answering questions from bidders, which must submit offers for the 135-year-old bourse by May 7. The LME got preliminary bids from CME Group Inc., NYSE Euronext and IntercontinentalExchange Inc., three people with direct knowledge of the matter said in February. Hong Kong Exchanges also bid, the South China Morning Post reported at the time, citing two people it didn’t identify.

The LME handles more than 80 percent of global trade in metals futures and reported record volume of $15.4 trillion last year. It’s being advised by Moelis & Co. on the sale process. LME may be valued at about $1.3 billion, according to Equity Research Desk, a hedge-fund adviser in Greenwich, Connecticut.

*******************

An “urgent action” is required to build its businesses in financial derivatives and commodities to meet its goal of being a comprehensive financial center for China, the bourse said in its earnings statement on Feb. 29, when it reported a 1 percent increase in its full-year net income.

*******************

[hkskyline]

HKEx wins right to tap market for London purchase
The Standard
Tuesday, April 24, 2012

The Hong Kong Exchanges and Clearing (0388) has won shareholders' approval to issue more shares when the board sees fit, paving the way for its acquisition of the London Metals Exchange.

The resolution to grant the board the right to issue up to 10 percent of its existing share capital, up from 5 percent, took 95 percent of the votes cast. About 4.6 percent of votes went against the resolution.

Based on yesterday's market capitalization of HK$138 billion, the company can now tap up to HK$13.8 billion from the market.

The local bourse operator is seen as a frontrunner to acquire LME, the world's benchmark metals market. Other potential buyers, which include some of the largest exchange operators in the world - CME Group, ICE and NYSE Euronext - are to submit their final bids by early next month.

HKEx is also seeking loans of as much as US$3 billion (HK$23.4 billion) for acquiring LME, according to Reuters.

But chairman Ronald Arculli yesterday again refused to comment on a buyout.

In his last annual general meeting as chairman, he rejected shareholders' questions on whether the exchange should reduce dividend payouts in order to boost its cash positions rather than seek to issue more shares.

He said cutting dividends may spark an even larger debate, and stressed the bourse will issue shares only when necessary. Morgan Stanley has slashed the bourse's target price to HK$100 from HK$110 as daily trading volume remained weak.

HKEx chief executive Charles Li Xiaojia admitted the extension of trading hours, which he had personally promoted, "was not necessarily conducive to boosting trading volumes."

Arculli said the next chairman will face many challenges but he did not comment on whether newly appointed director Chow Chung-kong will succeed him.

Arculli has been appointed a director and will remain a member of the board.

HKEx shares fell 0.9 percent to HK$127.70 yesterday.

[everywhere]

HONG KONG, June 6 (Xinhua) -- The Legislative Council Subcommittee, after three years of investigation, on Wednesday released a long report over the selling of Lehman Brothers' minibonds in Hong Kong, in which it blamed lax regulation, banking malpractice and government inaction for the misselling.

Around 43,700 Hong Kong people invested nearly 15.7 billion HK dollars (2.02 billion U.S. dollars) in products issued or guaranteed by Lehman Brothers before it collapsed in September 2008.

Most of these products were called mini-bonds, although they were not bonds but complex and high-risk structured products. When Lehman Brothers collapsed in 2008, many of these products became worthless or nearly worthless.

The long-awaited report singled out former Hong Kong Monetary Authority Chief Executive Joseph Yam for particular blame.

It said Yam should shoulder the "ultimate responsibility" for failing to take action over the selling of complex products to uninformed investors, and that he should be rebuked for this.

But three members of the Legislative Council committee disagreed, and refused to sign the report.

The report called for regulation of Hong Kong's financial services industry to be streamlined, and for the sale of complex and risky products to be limited to suitable investors.

In response, Joseph Yam said he disagreed with the report. He said he believed as head of the Hong Kong Monetary Authority, he served the city's citizens as well as he could.

According to latest figures released by the Hong Kong Monetary Authority, over 99 percent of 21,856 Lehman- Brothers-related complaint cases has been completed while the remaining 39 cases were still under investigation.

Of those finished complaint cases, 15,769 cases which have been resolved by a settlement agreement, 3,451 cases which have been resolved through the enhanced complaint handling procedures, 2,501 cases were closed because of insufficient prima facie evidence of misconduct, 25 cases which are under disciplinary consideration.

http://www.shanghaidaily.com/article...a.asp?id=75397

[Skybean]

Hong Kong Exchanges Bid for LME Beats out ICE
By Stanley James and Agnieszka Troszkiewicz - Jun 15, 2012 11:01 AM ET

Hong Kong Exchanges & Clearing Ltd., host to the world’s fifth-largest equity market, agreed to pay 1.39 billion pounds ($2.15 billion) for the London Metal Exchange, which handles more than 80 percent of global trade in industrial-metal futures.

LME investors will get 107.60 pounds per ordinary share in cash, with a vote scheduled before the end of next month, the bourses said today. The stock traded at 4.925 pounds in July 2011, before the LME said it was considering bids. JPMorgan Chase & Co., Goldman Sachs Group Inc. and closely held Metdist Ltd. are the biggest LME shareholders.

Hong Kong is the only place in China where investors can freely buy and sell shares in Industrial & Commercial Bank of China Ltd., the biggest lender by value, and PetroChina Co., Asia’s largest company. The deal would be Hong Kong Exchanges’ first overseas acquisition. The 135-year-old LME sets global benchmark prices for metals including copper, aluminum and nickel, of which China consumes more than any other nation. Its network of warehouses doesn’t currently extend into the country.

“Hong Kong Exchanges can be positive for LME if it can enhance its China exposure,” said Jonas Kan, the head of Hong Kong research at Daiwa Capital Markets. “HKEx has a clearing business, visibility in listing for Chinese companies, and has experience working with regulators and authorities in China, which can add value to the LME.”

Morning Post

Buying the LME would give Hong Kong Exchanges its first commodities contracts. Shares of Hong Kong Exchanges retreated 23 percent since the South China Morning Post reported its bid Feb. 18. That compares with a 15 percent drop in the Bloomberg World Exchanges Index. (BNWEXCH) Hong Kong Exchanges is paying with existing cash and new loans of at least 1.1 billion pounds.

“Their full potential will not be realized until they can tap the geography,” Charles Li, chief executive officer of Hong Kong Exchanges, said at a press conference in Hong Kong today. “They need China expertise. They need Asia expertise. And we have a lot of it.”

The LME management led by Martin Abbott, chief executive officer, will stay, Li said. “Given the magnitude of what we’re talking about here, clearly we will significantly augment the management structure.” Some people may be moved between Hong Kong and London and commodities experts hired, he said.

[snip]

http://www.bloomberg.com/news/2012-0...g-out-ice.html

[hkskyline]

Strong response on the cards for iBond issue No2
The Standard
Monday, June 04, 2012

The second batch of the government iBonds issue is set to receive a strong response when subscription starts tomorrow, but potential buyers are warned not to harbor any hopes of making a quick profit on the notes.

High fees and more modest allocations than were given during the first issue of the inflation- linked notes last year are likely to temper the gains .

Subscription for the new batch of HK$10 billion of iBonds will end on June 13.

Some 155,000 locals subscribed to last year's issue locking up HK$13 billion. Orders under 44 lots worth HK$440,000 were fully satisfied.

But the market expects ibonds to get a hotter reception this time. "It will not be surprising if investors are given only one to two lots (HK$10,000 or HK$20,000) of iBonds, given the bad sentiment in equity markets that are encouraging people to invest in bonds, which are less risky," said Raymond So Wai-man, dean of the business school at the Hang Seng Management College.

Most banks and brokerages are waiving some of their fees, including monthly custodian fee, twice- a-year dividend collection fee and fee to redeem the debt at three- year maturity, enabling customers to take almost all of the payout.

Some brokerages even provide interest-free loans for the entire subscription principal, apparently so investors can take short-term profit as the bonds are expected to rise 5 to 6percent on their first day of trading.

The coupon rate on ibonds is equal to the average Hong Kong inflation rate in the past six months, which has been forecast at 3.5 percent.

Prudential Brokerage, meanwhile, has received more than 1,700 orders seeking 100 percent margin subscription of iBonds.

Some are from university students who signed up after the firm gave a talk about investment opportunities on campus.

Prudential Brokerage associate director Alvin Cheung Chi- wai has said profit will be limited from the iBond deal, butit will utilize the opportunity to take in more customers.

Bright Smart Securities also announced it will offer 100 percent margin financing, plus a HK$5 rebate for every HK$10,000 worth of iBonds allotted.

[hkskyline]

First Physical China A-Share ETF to Start Trading in Hong Kong
Bloomberg
Jul 17, 2012 5:34 AM GMT+0800

The first foreign exchange-traded fund backed by stocks listed only in mainland China is scheduled to begin trading today in Hong Kong.

China Asset Management Ltd. received approval from the Hong Kong Securities and Futures Commission to list the ETF, it announced in a statement July 9. The security tracks the China AMC CSI 300 Index via so-called A-shares purchased with yuan raised outside China. The shares are acquired through the Renminbi Qualified Foreign Institutional Investor quota granted by mainland authorities.

The fund will be the first to give investors who don’t have special permission to invest in the Chinese companies access to returns that are determined strictly by gains and losses in mainland shares. The 24 other A-share ETFs listed on the exchange use derivatives to replicate the indexes and are traded in Hong Kong dollars, according to a July 16 statement from Hong Kong Exchanges & Clearing Ltd.

“This is an important development to further strengthen HKEx’s position as a leading international market to trade RMB products by offering more direct access for Hong Kong and international investors to gain exposure to the Mainland A-share market,” Calvin Tai, head of trading at the bourse, said in the statement.
Additional ETFs

Three more physically backed A-share ETFs will be approved by the SFC, Ming Pao Daily reported July 16, citing Alexa Lam, deputy chief executive officer of the SFC. E Fund Management Co., CSOP Asset Management Ltd. and Harvest Global Investments will create yuan-denominated funds with a 5 billion yuan ($784 million) quota each, the paper reported.

While the counterparty risk associated with the derivatives in a synthetic ETF should be absent in the product launched today, the SFC warned investors that its untested nature may make it riskier than traditional exchange-traded funds.

“The RQFII program is still at a pilot stage,” the SFC said on its website. “The uncertainty and change of the laws and regulations on the Mainland (including the RQFII policy and rules) may adversely impact the RQFII A-share ETFs.”

The new funds are part of a push by China to open its capital markets and by Hong Kong to cement its position as the bridge to the mainland. The China Securities Regulatory Commission approved the first two Shanghai- and Shenzhen-listed ETFs tracking Hong Kong indexes on June 30. Hong Kong began listing yuan-denominated IPOs in 2011 and this year cut its lunch break to more closely align with China’s trading hours.

Hong Kong Exchanges has bid 1.39 billion pounds ($2.16 billion) for London Metal Exchange, the world’s biggest commodities market. It says it will increase the commodity bourse’s revenue in part by tapping the large potential base of customers in China, which accounts for about 40 percent of consumption of commodities globally and only as much as 25 percent of trading on the LME, the company said when announcing the deal.

[hkskyline]

HKEx to launch own yuan futures
The Standard
Wednesday, September 12, 2012

To promote its own yuan futures, Hong Kong Exchanges and Clearing (0388) is offering a 79-times leverage - higher than normal foreign exchange contracts available here.

The US dollar-offshore yuan futures, to be launched on Monday, require an initial deposit of 7,930 yuan (HK$9,705) for a contract worth US$100,000 (HK$780,000), with the maintenance margin set at 6,350 yuan, the bourse said.

HKEx has appointed DBS Hong Kong, HSBC and Merrill Lynch as market makers.

Seven contract months will be launched, with the furthest one set for September 2013.

Currency derivative trading is mostly done over the counter.

Most banks offer forex hedging products such as non-deliverable forwards directly to their enterprise and investor clients.

Calvin Tai Chi-kin, HKEx head of trading division, admitted the exchange-traded currency futures would face competition from similar products offered by banks.

But he still hopes to attract users of non-deliverable forwards - which Tai said are a "transitional" product along the progress of the internationalization of the yuan.

Tai said exchange-managed futures provide transparency and help reduce counter party risk.

[hkskyline]

Hong Kong's sukuk bill on track but local interest dim

DUBAI, Nov 14 (Reuters) - Hong Kong's bill to facilitate the issuance of sukuk, or Islamic bonds, is expected to be ready early next year but initially at least, it may attract little interest among issuers.

In March, the government asked for industry feedback on the subject and this month, it said it aimed to introduce a bill in early 2013.

A draft bill could take three months to prepare and then be passed quickly into law provided there is no controversy, said Marcellus Wong, co-chairman of the taxation policy committee at the Taxation Institute of Hong Kong, an association of tax professionals.

But the appetite from local firms to tap the sukuk market does not appear to be as strong as it was when the idea of issuing sukuk in Hong Kong was first considered seriously.

"It is good to have the framework in place but market interest has gone. The consultation was expected a few years back; the market is not that buoyant now," Wong said. "It is already a few years late."

Previously, arrangers hoped that the main issuers of sukuk in Hong Kong would be mainland Chinese companies seeking to tap large pools of Islamic funds from southeast Asia and the Gulf.

Hong Kong's market for yuan bonds has been growing rapidly; last year it saw over 100 billion yuan ($16 billion) of issuance from 81 issuers, three times the volume of 2010, according to the Hong Kong Monetary Authority.

But recent trends within the market have not been favourable for yuan sukuk, analysts said. For one thing, the yuan stopped appreciating against the U.S. dollar in the first eight months of this year and although appreciation has resumed in the last few weeks, the market now sees greater risk of two-way movements in the Chinese currency.

This has reduced the potential appeal of yuan-denominated sukuk to investors, making any deals more expensive for issuers, the analysts said.

"Issuing sukuk is not a priority for Chinese corporates at this moment," said Ivan Chung, vice president and senior credit officer at Moody's Investors Service in Hong Kong.

"Last year, it was almost purely a currency play with lots of short-tenor, small-amount, low-yield bonds. While the change in market dynamics has prompted currency-play investors to leave the market, issuers will be more inclined to launch longer-tenor bond with larger amounts, and thus more eager to attract a larger scope of investors.

"Sukuk is more appealing to a niche investor base, which they (issuers) will likely consider after establishing the larger international institutional investor base."

For potential Hong Kong issuers of sukuk, the territory's real estate sector would probably be the main source of assets to back the Islamic bonds.

But returns on such assets have declined, making sukuk based on them less attractive. In September, monthly investment yields in Hong Kong's real estate market reached their lowest levels since data began in 1999, according to data from the government's Rating and Valuation Department.

FIRST MOVER

Davide Barzilai, banking partner and Asia Pacific head of Islamic Finance at Norton Rose in Hong Kong, said of expected sukuk issuance in the territory: "I think it will only be a small number - this is never going to be a major market."

A first-mover will be needed to show how the laws work in practice, before most companies consider an issue, Barzilai noted. "It will have to stand the test from a real deal."

The idea of a Hong Kong sukuk has been raised as far back as 2008, when the territory's Airport Authority considered selling an Islamic bond of up to $1 billion, but that issue has not materialised.

"We have no further updates on both our financing plan and on the subject of sukuk financing," a spokesperson for the authority told Reuters.

The most important aspect of Hong Kong's sukuk bill will be to clarify the tax status of sukuk. Islamic bonds can face heavy taxation because they involve multiple transfers of the assets backing them; bankers hope the bill will remove this obstacle.

Amirali Nasir, chairman of the Islamic finance working group at the Hong Kong Law Association, said he expected the law to be passed within 2013.

He noted that the government had accepted the industry's recommendation to add the wakala (agency) sukuk structure to four other types of sukuk covered by the bill, in order to broaden issuers' options.

By the time the law is passed, however, many issuers and investors may have become used to issuing in other markets than Hong Kong - particularly Malaysia.

In October, Hong Kong-headquartered Noble Group, a global trader and supply-chain manager, opted to issue a three-year, 300 million ringgit wakala sukuk in Malaysia.

In September, Malaysia's mobile phone operator Axiata Group issued a two-year, 1 billion yuan sukuk, listed on the Malaysian and Singapore stock exchanges. Last year, Malaysia's sovereign wealth fund Khazanah issued a three-year, 500 million yuan sukuk, listed on the Malaysian and Labuan exchanges.

Most interest in issuing yuan sukuk does not now come from Hong Kong or Chinese companies, but from Malaysian companies, said Hassan Ali Shah, special assistant to the chairman at Okasan International (Asia), a Hong Kong-based brokerage.

In April, Hong Kong signed a tax treaty with Malaysia clarifying investors' tax liabilities, which has made it easier for Hong Kong investors to buy sukuk issued in Malaysia. (Editing by Andrew Torchia)

[hkskyline]

After-hours futures trade set for April introduction
The Standard
Friday, February 15, 2013

Hong Kong Exchanges and Clearing (0388) will formally launch its controversial after-hours futures trading from April 8.

The bourse said yesterday it obtained approval from the Securities and Futures Commission to launch after-hours trading, which will allow investors to react to volatility in the European markets and the first session on Wall Street.

In addition to the current futures hours, Hang Seng Index and H-share index futures will be open for trading from 5pm to 11pm every trading day, with the exception of those days that are a bank holidays in both Britain and the United States.

The after-hours session will be subject to a 5 percent volatility limit. Also, responding to worries from the industry, no margin calls can be made until noon the next trading day.

HKEx said after-hours trading will allow the bourse "to move into asset classes traded on a global basis. Over time, it could help attract more European and US investors to the HKEx's derivatives market." Although many advanced financial markets have for long had futures trading around the clock, a relatively large number of small brokerages and individual investors in Hong Kong have been vocal opponents.

They generally worry about so-called "big alligators" who can manipulate the overnight futures market. Also small brokerages are not strong enough to provide after-hours trading services and thus may lose clients.

Meanwhile, HKEx chief executive Charles Li Xiaojia said the London Metal Exchange, which the local bourse operator has bought, may see "substantial progress" in its plan to build warehouses in the mainland within two years.

He said the exchange hopes to develop more fixed income, currency, and commodity businesses with its acquisition of LME.

"Hong Kong needs to accelerate its own shift from its traditional role as China's offshore IPO and fundraising center to a comprehensive global financial center," he said.