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Updated: 12 Nov 2020

We’re nearing the end of what has been a memorable 2020. There have been many highs and lows during the year, but rather than look back I am now looking ahead. At HKEX, many of the seeds that we have planted in recent years are beginning to flourish, which fills me with great optimism.

HKEX weathered 2020 well and despite the challenges our business is thriving. I am often asked about the source of that resilience and vitality. Is it macro-driven stimuli, the loose global monetary environment, or even the tense Sino-US relations? Is it the mutual market access programme that connects capital markets in Mainland China and Hong Kong, or our listing reforms that have kept pace with the times?

These things have all played very important roles in driving our business forward, but perhaps one of the most critical factors has been that we have carefully and systematically planted seeds in previous years. These have been planted in rain and shine, and though our actions were not always well understood, that perseverance is today bearing fruit. Our goal in recent years has been to preserve the stability of our business and our markets, but at the same time to push forward with ambition, ensuring that we are well positioned. And we have done this mindful not just of our own success but conscious of the important role we play in Hong Kong. That role will remain critical in the future, reinforcing Hong Kong’s position as the go-to international financial centre in Asia.

HKEX today has a number of new initiatives that have yet to come to full fruition, but I know that these will have a long-term and far-reaching impact on the development of Hong Kong’s financial market.

 

The first one is a new platform we are developing, which can shorten our IPO settlement cycle. This will be our largest IPO infrastructure reform in more than 20 years. At present, our IPO settlement cycle takes five business days from the pricing date, which is commonly known as the "T+5" settlement cycle. We are looking to shorten this and enable regulators and market participants to seamlessly interact throughout the settlement process. When this is ready this will bring us in line with international best practices, reducing the risks associated with the massive fund lock-ups for new share subscriptions, and making our leading global IPO franchise even more attractive.

 

The second initiative is well underway and reflects our commitment to respond to the constantly changing needs of the market, and our efforts to adapt our listing regime to reflect these dynamics. Last month, we announced consultation conclusions on weighted voting rights for corporate entities (corporate WVR), allowing companies with WVR structures that meet certain conditions to come to Hong Kong for secondary listings.

Although the WVR structure has been common in some other jurisdictions, it is new to the Hong Kong market. In 2018 we reformed our listing regime to allow companies with individual WVR structures to list in Hong Kong. Today we are delighted that more new economy companies are using this path to seek a listing in Hong Kong. Many fast growing new economy companies however have adopted corporate WVR structures, so we are turning our focus on that path to listing too. Most of the respondents to our consultation supported the principle of allowing a corporate WVR regime, but there were many different opinions on how the listing regime should look. As a first step forward we have given the market and regulators more time to understand and examine what these corporate WVR structures will entail. At the same time, we have found a way to allow some innovative companies to come to Hong Kong for a secondary listing via a grandfathering route, with proof that they have a good compliance record in a developed overseas securities market. This is a practical interim solution to allow certain eligible companies to secondary list under an alternative arrangement. We know that the insight we gain from the listing of these corporate WVR companies will provide a useful reference for when we revisit a corporate WVR regime in the future.

 

The third initiative we are working on is broadening the investment scope of the Stock Connect programme, especially with regards to including secondary-listed Hong Kong stocks, pre-revenue biotech issuers that meet certain conditions, in the investment scope of Southbound Connect.

Our listing reform has ushered in many new economy companies to the Hong Kong market, while Stock Connect has also achieved great success, bringing more liquidity to both the Hong Kong and Mainland markets. We have worked alongside our Mainland exchange partners and regulators to find innovative ways to broaden the scope of Southbound Stock Connect to provide investors with more investment choices. I believe the work we have done here will ensure that the door to mutual market access will only open wider and wider over time.

There are also other ways to upgrade and enhance Stock Connect. For example, Stock Connect could potentially be extended to the primary market, and from the spot market to the derivatives market. These are opportunities that are worth exploring, as they could bring considerable benefits to all financial markets in the region.

In order for the Connect programme to be extended to the derivatives market, Hong Kong needs to first enrich its own derivatives products. This brings me to the fourth initiative: HKEX has been working with regulators to launch MSCI China A-share index futures. Stock Connect has enabled international investors to increase their A-share holdings, and their requirements for associated risk management tools has become more and more urgent. In 2019 we partnered with MSCI, with a plan to launch MSCI China A-share index futures allowing international investors to invest in Mainland-listed stocks and manage their exposures with greater confidence. If this plan can be implemented, it will promote the further opening of the Mainland stock markets, and deepen our risk management product suite in Hong Kong. This will make our market and our region more competitive, more attractive, and the go-to international financial market in Asia.