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HKEX INVESTOR PRESENTATION
August 2017
2
Disclaimer
The information contained in this document is for general informational purposes only and does not constitute an offer, solicitation,
invitation or recommendation to subscribe for or purchase any securities, or other products or to provide any investment advice or service
of any kind. This document is solely intended for distribution to and use by professional investors. This document is not directed at, and is
not intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution or use would be
contrary to law or regulation or which would subject Hong Kong Exchanges and Clearing Limited (“HKEX”) to any registration
requirement within such jurisdiction or country.
This document contains forward-looking statements which are based on the current expectations, estimates, projections, beliefs and
assumptions of HKEX about the businesses and the markets in which it and its subsidiaries operate. These forward-looking statements
are not guarantees of future performance and are subject to market risk, uncertainties and factors beyond the control of HKEX. Therefore,
actual outcomes and returns may differ materially from the assumptions made and the statements contained in this document.
Where this document refers to Shanghai-Hong Kong Stock Connect and/or Shenzhen-Hong Kong Stock Connect (together, the “Stock
Connect” programs), please note that currently, access to northbound trading is only available to intermediaries licensed or regulated in
Hong Kong; southbound trading is only available to intermediaries licensed or regulated in Mainland China. Direct access to the Stock
Connect is not available outside Hong Kong and Mainland China.
Where this document refers to Bond Connect, please note that currently, access to northbound trading is only available to foreign
investors that are able to trade onshore bonds on the China Foreign Exchange Trade System & National Interbank Funding Centre.
Although the information contained in this document is obtained or compiled from sources believed to be reliable, HKEX does not
guarantee the accuracy, validity, timeliness or completeness of the information or data for any particular purpose, and shall not accept
any responsibility for, or be liable for, errors, omissions or other inaccuracies in the information or for the consequences thereof. The
information set out in this document is provided on an “as is” and “as available” basis and may be amended or changed. It is not a
substitute for professional advice which takes account of your specific circumstances and nothing in this document constitutes legal
advice. HKEX shall not be responsible or liable for any loss or damage, directly or indirectly, arising from the use of or reliance upon any
information provided in this document.
3
Agenda
Agenda
2
1 HKEX Group Financial and Market Update
HKEX Strategic Plan 2016-18
China Connectivity Update
Appendix
3
4
4
1H 2017 – Key Highlights
Political and economic uncertainties continue to cloud global economic prospects
Improved Cash Market sentiment offset by reduced Derivatives volumes
Bond Connect Northbound trading link launched on 3 July 2017
Maintained cost discipline while continuing with strategic initiatives
Excluding one-off items, revenue up 9% and PAT up 15% yoy;
Revenue boosted by increased net investment income
5
8 7 10 16 18
34
88
72 62
69 70
54 63
69
106
67 77
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 Y
TD
64 111 214
282 302
525 591
427
642
859
490
305 379
943
1,115
490
200
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 Y
TD
IPO Follow On
2017 Volume Picked up since February
Source: HKEX & LME data
(1) 2017 YTD as of 31 Jul 2017
237 234 286 283 312
345 369
446 442 475
584 634
676 700 670 619 633
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 Y
TD
44 45 62 80 104 174
359 432 398
468
572 488
533 577
769 762 800
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 Y
TD
Futures Options
Securities ADT (HK$ billion) Derivatives ADV (’000 contracts)
Total Funds Raised (HK$ billion) Commodities ADV (’000 lots)
(1) (1)
(1) (1)
6
Investment income
Trading and clearing fees flat
as cash market gain offset by
fall in derivatives, including
commodities
Listing fees
One-off Lehman post-
liquidation interest
income Basic Earnings per
Share
+ 10% + 14% + 17% + 16%
5,630
6,203
1,688 1,711
3,942
4,492
2,985 3,493
2.47 2.86
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
($)
Operating
Expenses (1) EBITDA
Profit Attributable to
HKEX Shareholders
Staff and Premises costs
partly offset by IT expenses EBITDA margin 2%
PAT more than EBITDA
due to D&A as certain assets
became fully amortised
$67.5bn
ADT
+13% $76.0bn
% increase lower than PAT due
to shares issued for
scrip dividends
+ 15%
(excluding one-off items)(2)
+ 12%
(excluding one-off items)(2)
(1) Excludes depreciation and amortisation, finance costs, and share of loss of a joint venture
(2) 2017 one-off revenue item is Lehman post-liquidation interest payment of $55m. One-off opex item is an insurance recovery of $23m
Revenue and Other
Income
Margin 70% 72%
+ 1%
+ 14%
(excluding one-off items)(2)
+ 3% (excluding one-off items)(2)
+ 9% (excluding one-off items)(2)
($ million)
Highlights – 1H 2017 Results
Prior year comparison
7
Revenue Movement by Segment
6,203
(113) (83)
230 186 15 338
5,630
1H 2016 Cash Equity Equity andFinancial
Derivatives
Commodities Clearing Platform andInfrastructure
Corporate Items 1H 2017
($ million)
Change year-on-year
Trading fees & tariff
from ADT
Market data fees
due to allocated
fees from trading
activity
Listing fees due
to listed cos and
IPOs
+363% +18% -11% -10% +9% +6%
%
Trading fees
due to ADT of
DWs, CBBCs,
warrants and
ADV on HKFE
Listing fees due
to newly listed
DWs and CBBCs
Trading fees
from ADV and
fee reductions
+10%
Net investment
income due to
Margin Fund size
and return
One-off Lehman
post-liquidation
interest of $55m
Clearing fees
from HK ADT but
offset by LME
ADV
Network fees
due to participants
migrating to Orion
Central Gateway
Hosting services
fees due to
new customers and
increased usage
Net investment
income
(1) Headline ADT up 13% (1H 2017: $76.0bn; 1H 2016: $67.5n); ADT of cash equity up 27% (1H 2017: $61.4bn; 1H 2016: $48.3bn); ADT of DWs, CBBCs and warrants included
under equity and financial derivatives down 24% (1H 2017: $14.6bn; 1H 2016: $19.2bn)
Trading related revenue slightly down.
Increase comes from listing and data fees
8
1,012 836
513
1,770
190
3,942
1,221
730
440
1,930
204
4,492
Trading fees & tariff from
ADT
Market data fees due to
allocated fees from
trading activity
Listing fees due to
listed cos and IPOs
Staff costs
Trading fees
due to ADT of DWs,
CBBCs and warrants and
ADV on HKFE
Listing fees due to
newly listed DWs and
CBBCs
Allocated costs due to
volume of DWs and
CBBCs
Trading fees from
ADV and fee reductions
Expenses due to one-off
insurance recovery, IT cost
savings and GBP
depreciation partly offset
by QME costs
Net investment income
on Margin Funds
One-off Lehman post-
liquidation interest
Clearing fees from HK
ADT partly offset by LME
ADV
Staff costs, premises costs
& bank charges
Overall EBITDA
margin
(Increase in investment
income under corporate
items has lifted overall
EBITDA margin)
Network fees due to
participants migrating to
Orion Central Gateway
Hosting services fees
due to new customers
and increased usage
+ 21% - 13% - 14% + 9% + 7% + 14%
Performance by Operating Segment
EBITDA
Cash Equity Equity & Financial
Derivatives Commodities Clearing
Platform &
Infrastructure
Group Total
(incl. Corp. Items)
Share of Group EBITDA (before Corporate Items)
%
24% 27%
EBITDA Margin
79% 81% 78% 77% 64% 61% 83% 84% 72% 73%
70% 72%
19% 16% 12% 10%
41% 43%
4% 4%
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
%
($ million)
9
1,158 1,170 1,200
1,024
1,178 1,189 1,287
1,511 1,575
2,520
2,330
1,531 1,432
1,553 1,543
1,241
1,716 1,777
2,222 2,218 2,134 2,149 2,335 2,286
2,471
2,757 2,796
4,057
3,747
2,775 2,751
2,879 2,848 2,638
3,048 3,155
669 672 677 759 734 689
753 782 718
862 881 829 854 834 834
933 833 878
1,553 1,546 1,457
1,390
1,601 1,597 1,718
1,975 2,078
3,195
2,866
1,946 1,897
2,045 2,014
1,705
2,215 2,277
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Profit attributable to Shareholders
Revenue and Other Income
Operating Expenses
EBITDA
2016 2015 2013 2014 2017
(1)
Quarterly Trend
Results in line with historical trend
(1) Excludes depreciation and amortisation, finance costs, and share of loss of a joint venture
(2) Dotted trend lines are illustrative and do not constitute a forward forecast
Quarterly Performance
($ million)
Record 2015 performance distorts long term view; subsequent performance in line with historical trend
10
Agenda
2
1 HKEX Group Financial and Market Update
HKEX Strategic Plan 2016-18
China Connectivity Update
Appendix
3
4
11
Our Journey So Far
Mainland China
RMB internationalisation
Progressive two-way capital opening
Expansion of Free Trade Zones
Domestic capital markets develop
Retail investors are the driving force
Derivatives turnover grows quickly
Fast Economic Growth
Privatisation of SOEs
Opening
Up Era 2011-2014
Domestic
Growth Era 2001-2010
IPO Era 1993-2009
Mutual Market Era 2014-
Shanghai-Hong Kong Stock Connect
Shenzhen-Hong Kong Stock Connect
Mutual Recognition of Funds (MRF)
Bond Connect
RMB trade settlement and payments
Expansion of direct access: RQFII
Offshore RMB benchmarks
Capital gateway for IPO proceeds
Limited direct access: QFII & QDII
Offshore fundraising centre
Segregated from Mainland market
Hong Kong
12
HKEX’s Strategic Vision
Expanded our asset class reach
Created mutual market access
channels
Enhanced market microstructure
and efficiency
Continued to build and upgrade
systems and platforms
1
2
3
4
Mainland International
Issuers / Products
Issuers / Products
WEALTH
MANAGEMENT
CENTRE
RISK
MANAGEMENT
CENTRE
COMMODITIES
PRICING
CENTRE
Investors Investors
Mainland Investors
International issuers
Commodities capability
Risk management / derivatives
Need to bring:
What have we achieved so far? What is our long-term aspiration?
13
Strategic Development Highlights
TWO
Gold
LMEprecious
USD&CNH Physically
Delivered Gold Futures
Contracts
THREE
RMB
RMB Currency Options
5-Year Treasury Bond
Futures (Pilot)
Co-branded RMB Index
Futures
FOUR
Primary Connect
Derivatives Connect
Bond Connect
Commodities Connect
ONE
Connect
Build Qianhai
Mercantile Exchange
Platform
Portfolio of initiatives across asset classes and connecting to China
14
Market Development Highlights
TWO
Boards
GEM
New Board
THREE
Enhancements
Hong Kong Market
Quality
London Market
Structure
Extend trading hours
and products in AHFT
FOUR
Orion Trading Platform
– Securities Market
Derivatives Market
System Upgrade
Next Generation
Clearing
HKEX Private Market
ONE
Reform Investments
Listing regime
Strong emphasis on listing reform and continued enhancement of market structure
15
Business Update
2017 YTD(1)
Launched 17 Leveraged & Inverse Products tracking HSI & HSCEI in March 2017
Continued to enhance Stock Connect operating model
Launched consultation on a proposed New Board and a review of GEM on 16 June 2017
Equities
FIC
Launched new USD/CNH Currency Options on 20 March 2017
OTC Clear launched Client Clearing and allowed acceptance of non-cash collateral in Q1 2017
and continued with new members onboarding
Launched pilot MOF T-Bond Futures on 10 April 2017
Launched Bond Connect Northbound trading link on 3 July 2017
(1) YTD as of 9 Aug 2017
Launched discussion paper on LME market structure on 24 April 2017
Upgraded LMEselect in Q1 2017, LMEsmart and LMEmercury in Q2 2017
Launched physically settled CNH and USD Gold Futures contracts in Hong Kong and
LMEprecious in London on 10 July 2017
Commodities
Launched Volatility Control Mechanism (VCM) in the derivatives market on 16 January 2017
Introduced margin offset between HSI and HSCEI futures and options on 20 March 2017
Introduced the revised stock options position limit (SOPL) model on 1 June 2017
Issued a consultation paper on the proposed after-hours trading enhancements on 28 June 2017
Introduced China Connect Central Gateway to facilitate Northbound trading on 17 July 2017
Launched Phase 2 of the Closing Auction Session (CAS) on 24 July 2017
Market
Microstructure &
Platforms
Equities
Commodities
Market
Microstructure &
Platforms
FIC
Equities
Commodities
Market
Microstructure &
Platforms
16
Objectives of the New Board and GEM Reform Proposals
Market Concerns How We Address Them
MARKET QUALITY
Post-IPO liquidity / volatility
“Shell” creation
Circumvention of Main Board due
diligence requirements via GEM
“stepping stone”
Raise listing criteria
Mandatory public offer to broaden shareholder base and reduce price
volatility
Limit impact on existing issuers and investors
Widen access to listings
Maintain protection standards appropriate for eligible investors
Remove obstacles to secondary listings by Mainland issuers
ACCESS TO LISTINGS
High concentration of “Old Economy”
sectors
Lack of exposures to growth sectors
Current listing framework does not cater
to needs of “New Economy” issuers:
Pre-profit companies
Non-standard governance features
No secondary listings of Mainland
companies
GEM REVIEW
NEW BOARD CONCEPT
Remove Main Board “stepping stone” mechanism
Targeted measures to attract New Economy issuers
17
Potential Benefits of New Board
Size of Addressable Market (Primary funds raised by Mainland
companies listed in the past 10 years)
7.2
7.8
Mainland Companieswith WVR
Mainland Pre-ProfitCompanies
12%
% of HK IPO funds raised:
5%
Listed in the US
Listed in Mainland
US$15bn
US$34bn
Enhance Hong Kong’s competitiveness as a
global financial centre
Attract high growth New Economy issuers
Diversify Hong Kong’s Market
Develop Hong Kong’s high tech ecosystem
Generate additional tax revenues from trading
Create job opportunities
18
16 JUNE 2017
18 AUGUST 2017
Market Feedback Process
Deadline for
market feedback Launched
consultation process
2 months
KEY DATES
Subject to responses, we will finalise detailed rules by early 2018
HKEX invites market views on the two proposals
19
Agenda
Agenda
2
1 HKEX Group Financial and Market Update
HKEX Strategic Plan 2016-18
China Connectivity Update
Appendix
3
4
20
HKEX Mainland Strategy with Evolution of Cross-Border Integration
Broadening and
deepening China
Inc. relationships
Relationship
Building Trading hours
Listing of Mainland
companies
Continued
Harmonisation Index development
with SSE and SZSE
CESC JV Created leverage in
commodities
LME
Acquisition Mutual market
access across
asset classes
Shanghai-Hong
Kong Stock
Connect
Shenzhen-Hong
Kong Stock
Connect
Bond Connect
China
Connectivity
Infrastructure
Products
TSF
RMB
Readiness
Institutional Quotas
QFII / QDII
Issuers
A+H Shares
Access Products
ETFs / RQFII
Individual Flows
Shanghai-HK Stock Connect
Shenzhen-HK Stock Connect
Mutual Recognition of Funds
Bond Connect
China’s rollout of Mutual Market Access remains on track
RMB Internationalisation
21
Shenzhen NB Connect Shanghai NB Connect
9011 (Main: 253, SME: 425, ChiNext: 223)
RMB 15.6 tri (72%)
RMB 132 bn (59%)
572 (One single board)
RMB 24.2 tri (82%)
RMB 119 bn (58%)
Eligible
Stocks
No.
Mkt Cap
ADT
Removed
RMB 13 bn
None
RMB 13 bn
Agg. Quota
Dly. Quota Quota
Investors Eligibility None ChiNext participation limited to institutional
professional investors initially3
NORTHBOUND
Shenzhen SB Connect Shanghai SB Connect
Eligible
Stocks
No.
Mkt Cap
ADT
Agg. Quota
Dly. Quota Quota
Investors Eligibility
SOUTHBOUND
Removed
RMB 10.5 bn
None
RMB 10.5 bn
RMB 500k RMB 500k
310 (Hang Seng Composite LargeCap, MidCap &
A+H shares not in indices)
HKD 23.8 tri (84%)
HKD 46 bn (85%)
4182
(Hang Seng Composite LargeCap, MidCap, SmallCap
& A+H shares not in indices )
HKD 24.8 tri (88%)
HKD 49 bn (91%)
Estimated data as of end May 2017
Key Features of Shanghai & Shenzhen Connect
(1) SZ Northbound: Constituents of SZSE Component & SZSE Small/Mid Cap Innovation indexes with market capitalization of at least RMB 6 bn (average daily market cap in 6 months prior to the periodic review of relevant index, i.e. 1 May 2016 to 31 Oct 2016; to be reviewed half-yearly), and SZSE-SEHK A+H shares (except shares under “risk alert” or delisting arrangement)
(2) SZ Southbound: Constituents of Hang Seng Large & MidCap indexes, constituents of Hang Seng SmallCap index with market capitalization of at least HKD 5 bn (average month-end market cap in 12 months prior to the periodic review of the index, i.e. 1 Jan 2016 to 30 Dec 2016; to be reviewed half-yearly), and SSE-SEHK and SZSE-SEHK A+H shares
(3) Subject to resolution of related regulatory issues, other investors can trade ChiNext stocks listed on Shenzhen Stock Exchange
22
The Level of Penetration in the Equity Market through Stock Connect
Data as of May 2017
* www.szse.cn, www.sse.com.cn, HK data based on HKEX Main Board only
% of all China & HK*
listed companies:
45%
46%
21%
% of listed companies in the mutual market*
MUTUAL MARKET
82%
72%
88%
58%
59%
91%
By
Market
Cap
By
Turnover
By
Number
Shenzhen Connect represents a significantly increased penetration
of China and Hong Kong listed companies
(from 15% under SSE Connect)
(from 84% under SSE Connect)
(from 85% under SSE Connect)
SSE Connect only Including SZSE connect
81% 59%
62% 34%
36% 17%
SSE
SSE
SSE
SZSE
SZSE
SZSE
418
572
901
23
Enlarged and Enhanced Connect Ecosystem
* Note: Eligible shares for the Shanghai & Shenzhen Southbound links are different
* Note: Eligible shares for the Shanghai & Shenzhen Southbound links are different
Stock Connect brings together two different market structures
to facilitate seamless cross-border trading
“Home Market” rules
Leverages existing
infrastructure
Gross order routing
RMB
Super-clearer model
Regulatory cooperation
En
forc
em
en
t Co
op
era
tion
CSRC
SFC
Reg
ula
tory
Co
op
era
tio
n
HKSCC
SEHK
HK Shares
Eligible Shares*
SH A Shares
SZSE
Eligible Shares Eligible Shares
Cle
ari
ng
Lin
k
Cle
ari
ng
Lin
k
SSE/SZSE Members & ChinaClear Participants
Mainland investors
SZ A Shares
SEHK SZ SPV
ChinaClear SZ ChinaClear SH
SSE
SEHK SH SPV
SSE SPV
HK & Overseas investors
Order
Routing
Order
Routing
EPs / CPs
SZSE SPV
MAINLAND
HONG
KONG
24
MSCI China A Shares Inclusion
Source: MSCI as of 21 June 2017
(1) As of 31 May 2017
(2) The 5% inclusion factor will be applied to the free-float market cap of China A share in the MSCI China Index at the review date
(3) Including H-shares(HK), Red Chip(HK), P Chip(HK) and B-shares(Mainland) and Overseas
MSCI announced on 20 June 2017 that it will include 222 China A Large Cap shares in the MSCI Emerging Markets Index
China 28.55%
China A shares 0.73%
KR 15.27%
TW 12.07%
IN 8.75%
Others 34.63%
China Total:
29.28%
(3)
MSCI may revise the planned implementation to a single phase should the daily limit be abolished
or significantly expanded before the scheduled inclusion dates
China 27.66%
KR 15.65%
TW 12.23%
IN 8.75%
Others 35.71%
(3)
Include only Large Cap shares accessible through Stock Connect
Include A shares that have H shares listings
Exclude:
Stocks suspended for >50 days in the past 12M
Stocks suspended at time of index reviews
2-step inclusion process of 5% inclusion
2.5% inclusion at the May 2018 semi annual index review
5% inclusion at the Aug 2018 quarterly index review
August 2018: 5% Inclusion(2) Today(1)
Potential increase of the currently announced 5% Inclusion Factor
Potential addition of China A Mid Cap shares
Subject to:
Greater alignment of the China A shares market with international market accessibility standards
The resilience of Stock Connect
The relaxation of daily trading limits
Continued progress on trading suspensions
Further loosening of restrictions on the creation of index-linked investment vehicles
Roadmap of
Future China
A Shares
Inclusion
25
97 69
90
200
155 143 126 94 82 80 75 62
82 66 64 65 60 62 62 66 74 61 67 64 57 82 82 74 79 80 85
0
5000
10000
15000
20000
25000
30000
35000
0
50
100
150
200
250
300
350
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2015 2016 2017
392 276 514
829 820 954 701
514 282 378 440 314 217 193 234 211 151 190 226 194 158 193 268 202 171 211 222 236 181 167 215
246 230
434
603 741 792
523
463
299
508 624
479 324 296 349 360
281 384 380
292 255 290 353
245 205 238 282 276 247 218 250
638 506
948
1,432 1,560
1,746
1,224
977
581
886 1,063
793
541 489 583 572
432 574 606
486 413 483 620
447 376 449 504 512 428 385 465
0
1,000
2,000
3,000
4,000
5,000
6,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2015 2016 2017
Market Activity in Mainland and Hong Kong Markets
Source: HKEX, SSE, SZSE & Bloomberg, as of 31 Jul 2017
Index ADT RMB bn
January – June 2015
China A Share rally
Hong Kong index and volumes
catch-up
Unprecedented volumes in 2Q
2015
July 2015 – July 2016
Downturn in A Share market
Prompted significant policy
actions by Mainland authorities
Q4 2015 saw renewal of A Share
rally, with lower volumes reflecting
less leverage
1H 2016 more subdued cash
market activity both locally and
globally
Since August 2016
Shenzhen Connect announced on
16 August and launched on 5
December
Recent pick-up in volumes
ADT HKD bn Index
SSE ADT (LHS) SZSE ADT (LHS) CSI 300 (RHS)
2015 : +2% 2016: -5%
2015: -8% 2016: +3%
2017 YTD: +12%
2017 YTD: +23%
HKEX ADT (LHS) Hang Seng Index (RHS)
26
5.9 7.6 6.2 5.6 7.8
10.8 10.5 14.2
11.1 7.0 5.5 5.8 5.8
3.6 3.8 3.3 5.0 3.5 2.5 3.3 3.4 3.7 3.7 3.6 4.3 4.8 3.7 4.2 4.7 5.9 5.4 5.7 5.6
1.7 1.6 2.1
2.9 3.8 3.9 4.4 4.1
0.8 1.0
1.5 0.8
1.6
12.4
5.4
4.4
4.2
2.4 1.7 1.7 1.8
2.1 2.6 2.0 2.4
2.1 2.5 4.0 2.9 4.1
8.0 3.8
4.6
5.0 4.1
6.9 6.6
6.1 6.8 7.1 7.6
0.5 0.5
1.0 1.7
1.4 1.4 1.7 2.2
6.6 8.6 7.7
6.4
9.4
23.1
15.9 18.6
15.4
9.4 7.2 7.5 7.6
5.6 6.4 5.3
7.4 5.7 5.0
7.3 6.3 7.8
11.7
7.4 8.9
12.0 9.9
14.1 15.9
17.2 17.5 18.9 19.5
0.5% 0.5% 0.8% 0.6%
0.9%
3.1%
1.8% 1.5% 1.7% 1.3%
1.0% 1.1% 1.2% 1.7% 1.6% 1.5%
1.9% 1.6%
2.0%
3.2%
2.3%
3.1%
5.4%
3.2% 3.4%
4.3% 4.0%
4.8% 5.0% 5.0% 5.2% 5.5% 5.8%
-5.00%
-3.00%
-1.00%
1.00%
3.00%
5.00%
0
5
10
15
20
25
30
35
40
45
50
Stock Connect – Trading Trends
Source: HKEX data as of 31 Jul 2017
(1) Northbound trading is conducted in RMB; The NB figures in the chart are converted to HKD based on the month-end exchange rate
(2) CSRC and SFC jointly announced the approval of Shenzhen-Hong Kong Stock Connect on 16 August 2016
(3) China Insurance Regulatory Commission (CIRC) published the notice on 8 September 2016
NB record
of HKD29.2 bn
on 6 July 2015
SB record
of HKD26.1 bn
on 9 April 2015
Northbound turnover exceeded Southbound at the initial stage
Southbound turnover picked up after the announcement of Shenzhen-Hong Kong Stock Connect(2) and the approval of onshore
insurance funds to trade through Shanghai-Hong Kong Stock Connect(3)
Stock Connect Average Daily Trading Volume (HKD bn)
Aggregate quota removed since 16 August 2016; Shenzhen Connect launched on 5 December 2016
Shenzhen Southbound
Shanghai Northbound (1)
Shenzhen Northbound (1)
Shanghai Southbound
Stock Connect contributed $162m in income in 1H 2017 and $71m for 1H 2016
Total average daily trading volume
Percentage of Southbound turnover of Hong Kong Market
27
Northbound Stock Connect – Top 10 Traded Stocks
Source: HKEX, from 1 July to 31 July 2017 (* A&H listed stocks)
Rank Stock Name ADT
RMB Million %
1 Kweichow Moutai 296.5 6.2%
2 Ping An Insurance* 278.3 5.8%
3 Jiangsu Hengrui Medicine 114.5 2.4%
4 SAIC Motor 111.7 2.3%
5 Anhui Conch Cement* 110.5 2.3%
6 China Merchants Bank* 109.4 2.3%
7 ICBC* 102.1 2.1%
8 China State Construction
Engineering 101.3 2.1%
9 Industrial Bank 95.9 2.0%
10 CITIC Securities* 93.0 1.9%
Rank Stock Name ADT
RMB Million %
1 Hangzhou Hikvision Digital
Technology 331.6 9.5%
2 Gree Electric Appliances 269.9 7.7%
3 Midea Group 251.8 7.2%
4 Wuliangye Yibin 115.9 3.3%
5 Yunnan Baiyao 71.5 2.0%
6 BOE Technology 70.7 2.0%
7 Zhejiang Dahua Technology 68.7 2.0%
8 Ping An Bank 62.0 1.8%
9 Jiangsu Yanghe Brewery Joint-
Stock 55.9 1.6%
10 IFLYTEK 47.1 1.3%
Shanghai – Hong Kong Stock Connect Shenzhen – Hong Kong Stock Connect
28
Southbound Stock Connect – Top 10 Traded Stocks
Source: HKEX, from 1 July to 31 July 2017 (* A&H listed stocks)
(1) IGG was newly included in Hang Seng Composite SmallCap Index, effective on 6 Mar 2017
Rank Stock Name ADT
HKD Million %
1 Tencent 502.4 6.6%
2 ICBC* 462.7 6.1%
3 HSBC 441.2 5.8%
4 Sunac China 406.0 5.3%
5 Ping An Insurance* 201.8 2.7%
6 Evergrande Real Estate 200.4 2.6%
7 Geely Automobile Holdings 192.7 2.5%
8 GAC Group* 162.9 2.1%
9 NCI* 161.5 2.1%
10 Great Wall Motor* 46.0 1.9%
Rank Stock Name ADT
HKD Million %
1 Tencent 126.5 5.7%
2 Sunac China 117.5 5.2%
3 China Vanke* 85.9 3.8%
4 Evergrande Real Estate 73.1 3.3%
5 MEITU 68.1 3.0%
6 IGG(1) 67.7 3.0%
7 Future Land 67.6 3.0%
8 Geely Automobile Holdings 54.8 2.4%
9 ZTE* 48.1 2.1%
10 GAC Group* 43.1 1.9%
Shanghai – Hong Kong Stock Connect Shenzhen – Hong Kong Stock Connect
29
Tapping into China’s Vast Bond Market
Sources: WIND, CBRC (Jun 2017), IMF, SIFMA
Bank Loans Equities Bonds
USD28 tn
USD8.5 tn USD10.1 tn
~90% Interbank
~10% Exchange
55% SSE
45% SZSE
International
Investors
China’s Bond
Market
Key Policy Drivers
• Risk migration from banking sector to bond market
• Greater credit differentiation amid ongoing market
reforms
• Funding needs for economic transition and infrastructure
projects –e.g. Belt & Road; Panda bonds
• Enhanced bond issuance and disclosure standards
Growing International Demand
• Yield differential against developed markets
• Inclusion in emerging market bond indices
• Geographical and asset class diversification
• Growing convertibility of RMB / SDR inclusion
• More efficient access – Bond Connect
Outstanding,
USD tn Relative to GDP
20
40
US JP China DE FR UK
212%
87% 249%
146% 171% 157%
30
68%
64%
46%
41% 39% 38%
29%
13%
8%
2.6%
DE FR AU UK IT CA US RU JP China
Foreign Participation in China’s Bond Market
Sources: ChinaBond, Bloomberg, BIS
International Bond Market Comparison Foreign Participation in the CIBM
Average: 38.5%
15%
Achievable
target
Foreign participation still only ~2%, well below the international average for large bond markets
Foreign Ownership %
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Au
g-1
6
Se
p-1
6
Oct-
16
Nov-1
6
Dec-1
6
Jan
-17
Fe
b-1
7
Ma
r-1
7
Ap
r-17
Ma
y-1
7
Jun
-17
Jul-
17
Bond Holdings,
RMB trillions
As % of total
2.6%
31
Next evolution in the Mutual Market Access scheme developed by HKEX after Shanghai & Shenzhen Connect
Northbound to launch first: foreign investors can trade the China interbank bond market on CFETS(1)
Southbound to follow in due course: Mainland investors to trade in overseas OTC bond markets
Key parties:
Regulators: PBOC and HKMA
Trading: CFETS, HKEX, BCCL(2), and Recognised Access Platforms
Settlement: CMU(3), ChinaBond(4) and Shanghai Clearing House
A simple and efficient access for offshore investors
Full access to onshore bond market
Deal with familiar trading interface
Deal with familiar global custodian
Nominee structure, with fully-secured holding of onshore securities using offshore cash
A fully-fledged solution offering hedging for FX (CNH/CNY) and rates (OTC / ETD)
Launched on 3 July 2017; foreign holdings in CIBM increased by RMB37.8bn during July 2017 according to CCDC
Service fee
A Service Fee, 0.0075% of the notional value of transaction, applies to each trade executed through Bond Connect
The Service Fee shall be waived for the first six months upon launch (from 3 July 2017 to 29 December 2017)
What is Bond Connect?
(1) CFETS – China Foreign Exchange Trade System & National Interbank Funding Centre
(2) BCCL – Bond Connect Company Limited
(3) CMU – Central Moneymarkets Unit of the Hong Kong Monetary Authority
(4) ChinaBond / CCDC – China Central Depository & Clearing Co., Ltd
32
Comparison with Stock Connect
The two Connect programmes offer increased convenience for investors, while having regard to
the characteristics of the onshore bond and stock markets respectively
Northbound Bond Connect Northbound Stock Connect
“Home Market” Rules “Home Market” Rules
Regulatory Cooperation – CSRC & SFC Regulatory Cooperation – PBOC & HKMA
Leverages Existing Infrastructure Leverages Existing Infrastructure
Daily Quota No Quota
Northbound + Southbound Northbound First
Trading Link: SSE/SZSE & SEHK Trading Link: CFETS & Recognised Access
Platforms
No Investor Eligibility Requirements Investor Eligibility per PBOC Guidelines
Eligible Stocks Only All CIBM Bonds (~30,000 instruments)
HKSCC as nominee holder CMU as nominee holder
Secondary Market Primary + Secondary Market
33
Comparison with CIBM Access Scheme
Trade directly with eligible CFETS
dealers
Existing CIBM Access Scheme
Trade Counterparties
Application Process
Quota
Trading Method
Products
Trading Hours
Complicated process
Primarily voice / trade capture
No hard quota, but state investment size
Cash bonds; IRS & bond forwards for
hedging; CNY repos1
Northbound Bond Connect
Cash bonds at the initial stage; to include
repos & CNY derivatives at a later stage
Electronic RFQ
Trade via agent bank
Simplified application
Settlement Method
Settlement Cycle
Custody
Inflow Currency
T+0, T+1 and T+2
Nominee structure via CMU
CNH or other currencies
Individual account
Same
Same
No quota or estimated investment size
Eligible Investors Medium/long-term buyside investors Same
Follow Mainland market Same
Gross settlement, DVP Follow CMU arrangement
Access Model Onshore money holding onshore assets Offshore money holding onshore assets
(1) For offshore clearing banks, overseas participating banks and supranationals only
34
Agenda
Agenda
2
1 HKEX Group Financial and Market Update
HKEX Strategic Plan 2016-18
China Connectivity Update
Appendix
3
4
35
Financial Highlights – Income Statement
($ million, unless stated otherwise) 1H 2017
% of Revenue &
Other Income 1H 2016
% of Revenue &
Other Income Y-o-Y Change
Results
Revenue and other income 6,203 100% 5,630 100% 10%
Operating expenses (1,711) (28%) (1,688) (30%) 1%
EBITDA 4,492 72% 3,942 70% 14%
Depreciation and amortisation (362) (6%) (382) (7%) (5%)
Operating profit 4,130 66% 3,560 63% 16%
Finance costs and share of loss in a joint venture (70) (1%) (48) (1%) 46%
Profit before taxation 4,060 65% 3,512 62% 16%
Taxation (582) (9%) (540) (9%) 8%
Loss attributable to non-controlling interests 15 0% 13 0% 15%
Profit attributable to HKEX shareholders 3,493 56% 2,985 53% 17%
Basic earnings per share $2.86 $2.47 16%
Average daily turnover on the Stock Exchange $76.0 bn $67.5 bn 13%
Capex $306 m $266 m 15%
36
Performance by Operating Segment – 1H 2017
(1) % Share of Group EBITDA (including Corporate Items)
$ million Cash
Equity
Equity &
Financial
Derivatives
Commodities Clearing Platform and
Infrastructure
Corporate
Items
Group
1H 2017
Group
1H 2016
Revenue and other income 1,512 952 721 2,308 279 431 6,203 5,630
% of Group Total 24% 15% 12% 37% 5% 7% 100% 100%
Operating expenses (291) (222) (281) (378) (75) (464) (1,711) (1,688)
EBITDA 1,221 730 440 1,930 204 (33) 4,492 3,942
% of Group Total(1) 27% 16% 10% 43% 5% (1%) 100% 100%
EBITDA margin 81% 77% 61% 84% 73% N/A 72% 70%
Depreciation and amortisation (33) (36) (136) (92) (21) (44) (362) (382)
Finance costs - - - - - (65) (65) (43)
Share of loss of a joint venture - (5) - - - - (5) (5)
Profit before taxation 1,188 689 304 1,838 183 (142) 4,060 3,512
37
Staff cost due to
headcount and annual
payroll adjustments
1,016
251
162
46
213
382
1,073
210 176
18
234
362
- 16% + 9% - 61% + 10% - 5%
Operating Expenses and Depreciation & Amortisation
Staff costs and
related expenses
LME IT costs from
cost savings and
depreciation of GBP
Rental expenses due
to new offices
One-off insurance
recovery in 2017 relating
to LME’s warehouse
litigation and less
project related legal
expenses
Some assets became
fully amortised
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
IT & computer
maintenance exp Premises expenses
Legal &
professional fees
Other operating
expenses (1)
Depreciation and
amortisation
Overseas travelling
expenses and bank
charges
- 11% (excluding one-off item)
+ 6%
($ million)
(1) Includes product marketing and promotion expenses
38
304
88
(16)
0
(21)
443
19 0
327
32
82
263
10
428 382
11
Net investment income for 1H 2017
increased by 131% versus 1H 2016
mainly due to:
(1) Gains on collective investment
schemes in 1H 2017 in
particular the low volatility
equities investment category
(2) Higher net investment income
on Margin Funds due to
increases in deposit rates and
higher average fund size
Net Investment Income
1H 2017: Total $821m; 1H 2016: Total $355m
Net Investment Income by Funds
($ million)
($ million)
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
Clearing House
Funds
Corporate Funds Margin Funds
Debt
Securities
Collective
Investment
Schemes
Cash & Bank
Deposits Equities FX
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
Net Investment Income by Sources
39
678 828
371
398 200
238 33
48 1,282
1,512
Drivers of Trading and Clearing Revenue
Cash Equity
Trading fees & tariff from ADT, partly
offset by average transaction size
dampening the rate of growth in tariff
Listing fees due to listed companies
and IPOs
Market data fees due to allocated
fees from trading activity
Trading fees & tariff due to ADT of
DWs, CBBCs and warrants and ADV of
derivatives contracts traded on HKFE
Listing fees due to newly listed DWs
and CBBCs
Trading fees from ADV, fee
reduction for short-dated carries and a
position transfer fee cap from Sept 2016
Net investment income
due to Margin Funds
One-off Lehman post-liquidation interest
Clearing fees from HK ADT, partly
offset by LME ADV
791 660
160 195
109 90
5 7
1,065 952
644 561
95 91
65 69
804 721
142 131
1,187 1,224
473 459
47 101 273
393 2,122
2,308
1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017 1H 2016 1H 2017
Stock Exchange listing fees Clearing and settlement fees Depository, custody and nominee
services fees Market data fees Other revenue and sundry income Net investment income
Trading fees and trading tariff
Commodities
+ 18% ($ million)
$48.3bn
ADT
+27% $61.4bn
- 10%
635k
LME ADV
-6% 598k
Equity & Financial Derivatives
488k
Futures & Options ADV
-13% 425k
293k
Stock Options ADV
+21% 355k
- 11%
$19.2bn
ADT
-24% $14.6bn
Clearing
+ 9%
$177.6bn
SI
+15% $204.1bn
$67.5bn
ADT
+13% $76.0bn
40
Trading and Clearing Transactional Revenue by Market
Fee diversification continues following acquisition of LME and with steady growth of Derivatives Market
(1) Includes all products traded on the Stock Exchange (ie, equity products, DWs, CBBCs and warrants)
54%
17%
2%
27%
77%
18%
4%
1%
66% 12%
3%
19%
(1)
Acquisition of LME
in Dec 2012
Strong growth
of Derivatives Market
$53.9bn $69.5bn $66.9bn ADT
$3,854m $5,758m $6,786m
LME Clear
commenced operation
since Sep 2014
58% 15%
2%
25%
2012 2014 2016 1H 2017
Improved sentiment in Cash Market,
but reduced volatility impacted
Derivatives
$3,404m
$76.0bn
Revenue
Commodities Stock
Options
HKFE Futures
& Options
Cash Cash Cash Cash
(1) (1)
(1)
2015 2013
LME fee
commercialisation
since Jan 2015
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