Hong Kong Exchanges and Clearing Limited (HKEX)
In his 1999 Budget Speech, Hong Kong's Financial Secretary announced comprehensive market reform of the stock and futures markets. The reforms were designed to increase competitiveness and meet the challenges of an increasingly globalised market.
Under the reform, The Stock Exchange of Hong Kong Limited (SEHK), Hong Kong Futures Exchange Limited (HKFE) demutualised and together with Hong Kong Securities Clearing Company Limited (HKSCC), merged under a single holding company, HKEX.
This was achieved by the approval of the Schemes of Arrangements of SEHK and HKFE at their respective general meetings on 27 September 1999, and which were then approved by the Court on 11 October 1999. The merger of the three institutions took operational effect on 6 March 2000, and HKEX listed itself on SEHK by introduction on 27 June 2000.
At the time of the Exchange merger and listing of HKEX, the authorised share capital is $2 billion divided into 2 billion shares of $1.00 each; and 1,040,664,864 shares were issued.
At the completion of the merger, SEHK shareholder received 747,845,000 HKEx shares in aggregate. On the basis of the 929 SEHK shares issued, each SEHK shareholder received 805,000 HKEX shares. HKFE shareholder received 320,505,000 HKEX shares in aggregate. On the basis of the 230 HKFE shares issued, each HKFE shareholder received 1,393,500 HKEX shares. HKEX has not issue new shares during the listing process.
Scheme Documents for the Exchange Merger
Securities market
Reports of securities trading in Hong Kong date back to the mid-19th century. However, the first formal market, the Stockbrokers' Association of Hong Kong, was not established until 1891. The Association was re-named the Hong Kong Stock Exchange in 1914.
A second exchange, the Hong Kong Stockbrokers' Association was incorporated in 1921. The two exchanges merged to form the Hong Kong Stock Exchange in 1947 and re-establish the stock market after the Second World War.
Rapid growth of the Hong Kong economy led to the establishment of three other exchanges - the Far East Exchange in 1969; the Kam Ngan Stock Exchange in 1971; and the Kowloon Stock Exchange in 1972.
Pressure to strengthen market regulation and to unify the four exchanges led to the incorporation of SEHK, the Stock Exchange of Hong Kong Limited in 1980. The four exchanges ceased business on 27 March 1986 and the new exchange commenced trading through a computer-assisted system on 2 April 1986. Prior to the completion of the merger with HKFE in March 2000, the unified stock exchange had 570 participant organisations.
Hong Kong Securities Clearing Company Limited was incorporated in 1989. It created CCASS, the central clearing and settlement system, which started operating in 1992 and became the central counterparty for all CCASS participants.
The clearing operation is based on the immobilisation of share certificates in a central depository. Share settlement is on a continuous net settlement basis by electronic book entry to participants' stock accounts in CCASS. Transactions between CCASS participants are settled on T+2, the second trading day following the transaction.
The company also offers nominee service.
Derivatives market
Established in 1976, the Hong Kong Commodity Exchange (the predecessor of Hong Kong Futures Exchange Limited) is a derivatives leader in the Asia-Pacific region. The main products traded on the commodity exchange were cotton futures, sugar futures, soybean futures and gold futures. The Hong Kong Commodity Exchange was renamed the Hong Kong Futures Exchange (HKFE) on 7 May 1985.
HKFE launched on 6 May 1986 its flagship product, the HSI Futures, which is still among its most popular futures products in HKEX’s derivatives markets today. HKFE provides efficient and diversified markets for trading futures and options contracts by its more than 160 participant organisations, including many that are affiliated to international financial institutions. The derivatives market under HKEX trades a broad range of products, including equity index, stock and interest rate.
HKEX and its subsidiary companies, HKFE Clearing Corporation Limited and SEHK Options Clearing House Limited, operate rigorous risk management system which enables participants and their clients to meet their investment and hedging needs in a liquid and well-regulated market place.
OTC Clearing Hong Kong Limited (OTC Clear) was incorporated as a subsidiary of HKEX in May 2012 for the purpose of acting as the clearing house for OTC derivatives in Hong Kong. Subsequently, HKEX, under the founding member programme, invited 12 financial institutions as founding members of OTC Clear, who in total hold 25 per cent of issued share capital in OTC Clear (in the form of non-voting ordinary shares) whilst HKEX holds the remaining 75 per cent. HKEX continues to hold 100 per cent of the voting ordinary shares of OTC Clear.
OTC Clear started offering OTC derivatives clearing services in November 2013. OTC Clear created OCASS, the OTC Clearing and Settlement System, for OTC Derivatives clearing and became the central counterparty for all clearing members. OTC Clear is currently providing clearing and settlement services interest rate swaps and non-deliverable forward products.
Base metals market
In December 2012, HKEX acquired the London Metal Exchange, the world’s premier metal exchange since its founding in 1877. (You can read more about the history of the London Metal Exchange).