Hongkong Equity and Debt Markets


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Hongkong Equity and Debt Markets

  1. 1. SOURCE :HKEX 1
  3. 3. SOURCE :HKEX 3 Source: HK Ex
  4. 4. HISTORY • The Hong Kong Stock Exchange (SEHK) is a stock exchange located in Hong Kong. • It is Asias third largest stock exchange in terms of market capitalization behind the Tokyo Stock Exchange and the Shanghai Stock Exchange, and the sixth largest in the world • HKEx is the holding company of • The Stock Exchange of Hong Kong Ltd • Hong Kong Futures Exchange Ltd • Hong Kong Securities Clearing Company Ltd • The Hang Seng (HSI), started in 1969, is the leading index for shares traded in the HKSE. • Source :International Research Journal of 4 Finance and Economics - Issue 62 (2011) 51
  5. 5. SOURCE :HKEX 5
  6. 6. TRADING HOURSThe trading day consists of:A pre-opening auction session from 9:00 am to 9:30 am. The opening price of a security is reported shortly after 9:20 am.A morning continuous trading session from 09:30 am to 12:00 pmAn extended morning session from 12:00 noon to 1:00 pm, also referred to as the lunch break.An afternoon continuous trading session from 1:00 pm to 4:00 pm SOURCE :HKEX 6
  7. 7. TRADING PLATFORMTrading will be carried out through the Stock Exchanges Automatic Order Matching and Execution System (AMS) - the third generationIt is an order-driven ( ask –bid)
  8. 8. BIG FOUR REGULATORSHong Kong Monetary Authority (HKMA)Office of the Commissioner of InsuranceMandatory Provident Fund Schemes Authority.Hong Kong Securities and Futures Commission (SFC) SOURCE :HKEX 8
  10. 10. TYPES OF SHARESH shares : refers to the shares of companies incorporated in mainland China that are traded on the Hong Kong Stock Exchange. Many companies float their shares simultaneously on the Hong Kong market and one of the two mainland Chinese stock exchanges.A shares are specialized shares that are purchased and traded on the Shanghai and Shenzhen stock exchanges.B Shares :which are owned by foreigners who cannot purchase A-shares due to Chinese government restrictions. SOURCE :HKEX 10
  11. 11. HKEX & SFC HKEX SFC  The front-line regulator of  an Independent statutory listed companies except body responsible for for takeovers, share safeguarding market integrity, enforcement of repurchase and securities and futures privatization, which are market legislation, the responsibilities of SFC. investor protection and  Responsible for Exchange market oversight. and Clearing House  Is responsible for matters Participant regulation in relating to the conduct of relation to management of Exchange Participants, new investigations and business risk, market disciplinary matters surveillance and the concerning disputes enforcement of their between participants and trading and clearing rules. clients
  12. 12. PRODUCTS OFFEREDEquityDebtExchange-traded FundWarrantsHang Seng Index Futures & OptionsNasdaq Stocks
  13. 13. NASDAQ STOCKS ON HKEXThe Pilot Programme introduced in May 2000, Seven Nasdaq stockslisted on Nasdaq and have been admitted to trading on the Hong Kongstock market.Seven Nasdaq stocks are: Amgen, Applied Materials, Cisco, Dell, Intel,Microsoft, and Starbucks
  14. 14. SOURCE :HKEX 14
  15. 15. BRIEF ON HSIThe Hang Seng Index ("HSI") is one of the earliest stock market indexes in Hong Kong. Publicly launched on 24 November 1969, the HSI has become the most widely quoted indicator of the performance of the Hong Kong stock market.To better reflect the price movements of the major sectors of the market, HSI constituent stocks are grouped into Finance, Utilities, Properties, and Commerce and Industry Sub-indexes. SOURCE :HKEX 15
  16. 16. Debt securities listed on the Stock Exchange can also be categorized as follows:• Corporate Bonds• Convertible Bonds• Exchange Fund Notes (EFN) - EFN are Hong Kong dollar fixed income bonds issued by the Hong Kong Monetary Authority (HKMA) on behalf of the Hong Kong Special Administrative Region Government for the account of Hong Kong’s Exchange Fund under the Exchange Fund Ordinance. Whenever the HKMA arranges the listing of an EFN on the Stock Exchange, investors may participate in the tendering for the new issue. Investors should contact their brokers for details. EFN trading is similar to stock trading and investors may trade EFN through their usual stock accounts. Like all debt securities traded on the Exchange, EFN are quoted in units of $100 of their nominal value. The buyer of an EFN has to pay to the seller the accrued interest calculated from the last interest payment date to the settlement date.• Government/Supranational bonds (GSB) - GSB are debt securities issued by a government or supranational organization such as the People’s Republic of China or China Development Bank. SOURCE :HKEX 16
  17. 17. ISSUER OF GOVERNMENT BONDSGovernment bonds are issued by the Government of the Hong Kong SpecialAdministrative Region of the People’s Republic of China (HKSAR Government).The HKMA is tasked to implement the issuance of government bonds under the GBProgramme.Government bonds under the institutional bond issuance programme are sold atauctions by means of a multiple-price auction mechanism. Investors may submit acompetitive bid through Primary Dealers. The bids are made in terms of the bid priceand the quantity applied for. Competitive tenders accepted will normally be allotted indescending order of the bid price indicated in the applications. SOURCE :HKEX 17
  18. 18. MAJOR INITIATIVES TAKEN IN BONDMARKETS SINCE THE ASIANFINANCIAL CRISIS1. Product development2. Market infrastructure3. Tax and regulation4. Regional cooperation 18
  19. 19. 1. PRODUCT DEVELOPMENTGovernment issuesSecuritised debtsBond fundsRetail bonds 19
  20. 20. GOVERNMENT ISSUESExchange Fund Bills and Notes (EFBNs) HK$ debt instruments issued by the HKMA Benchmark yield curve Good liquidity in the secondary market Banks collectively hold about 85% of the outstanding EFBNs for favourable risk weighting and can be used as collateral to borrow from the HKMA Government bonds The Government successfully launched its first global bond offering in July 2004 Total HK$20 billion of which US$1.25 (around 50%) in a 10-year US$ denominated bond 20
  21. 21. SECURITISED DEBTSThe Hong Kong Mortgage Corporation Established by the Hong Kong SAR Government in March 1997 To promote development of a secondary mortgage market  mortgage purchase  debt issuance  securitisation of mortgage loans  mortgage insuranceIn May 2004, the Government sold HK$6 billion (US$770 million) of securitisation bonds, backed by toll revenues from 5 tunnels and 1 bridge to finance infrastructure projects 21
  22. 22. BOND FUNDSAn EMEAP initiative : AsianBondFund1 (2003) Closed-end: Confined to investment of the central banks only USD-denominated sovereign and quasi-sovereign bonds in the regionABF2 (2005) Open to any interested investors Domestic currency-denominated bonds in the region 22
  23. 23. RETAIL BONDSThe Hong Kong Mortgage Corporation first offered bonds to retail investors in October 2001The HKMA operated a pilot scheme to stimulate retail investment in Exchange Fund Notes in 2003 The programme was refined in 2005 under which the fee structure was simplified and retail distributors were appointed 23
  25. 25. SOURCE :HKEX 25
  26. 26. 2. MARKET INFRASTRUCTUREBenchmark yield curveHong Kong bond settlement systemOn-line access to market information for retail investors 26
  27. 27. BENCHMARK YIELD CURVEA domestic yield curve gradually took shape when the HKMA began issuing Exchange Fund papers in 1990sConsiderable effort has been directed at maintaining a smooth and continuous yield curve in designing the EFBN issuance programme 27
  28. 28. SOURCE :HKEX 28
  29. 29. HONG KONG DOLLAR BOND SETTLEMENT SYSTEMCentral Moneymarkets Unit (CMU) Established in 1990 to provide computerised clearing and settlement facilities to debt securities Linked with other major international securities settlement systems  To foster cross-border bond trading and investment 29
  30. 30. CLEARING AND SETTLEMENT SYSTEM CDC - China USD Clearstream RTGS (2000)Euroclear CMU DvP HKD RTGSAustraClear (1996)- Australia AustraClear KSD - New Zealand - South Korea EURO RTGS (2003) 30
  31. 31. ON-LINE ACCESS TO BOND PRICES CMU Bond Price Bulletin website  Launched in 2006  Provides convenient access to indicative bond prices quoted by major banks in Hong Kong 31
  33. 33. 3. TAX AND REGULATIONDemand side: Tax concessions to bond buyers Trading profits from bonds with a maturity period of 7 years or more (issued after 5 March 2003) were exempted totally from profits tax (previously 50% tax concession) Minimum maturity requirement for the 50% tax concession was relaxed from 5 to 3 yearsSupply side: simplified issuance process for fund raisers The Government and the Securities and Futures Commission have together streamlined regulations and procedures for issuing and listing debt securities Enabled issuers to market their offers with greater flexibility and effectiveness to the public Lowered issuance costs 33
  34. 34. 4. REGIONAL COOPERATIONAPEC Initiative on the Development of Securitisation and Credit Guarantee Markets Asian Bond Market Initiative (ABMI) Asian Bond Fund (ABF) 34
  35. 35. AFTER ALL THESE… 35
  36. 36. HONG KONG DOLLAR BOND MARKETSteadily growth over the past decadeOutstanding Hong Kong dollar bond reached US$85 billion at end-2005 and 225bn$ at end of 2011Almost 50% of GDP 36
  37. 37. Size of LCY Bond Market in US SOURCE :HKEX 37
  38. 38. Size of LCY Bond Market in % of G SOURCE :HKEX 38
  40. 40. IMPEDIMENTS TO THE HONG KONG DOLLAR BOND MARKETSupply Issuance of Exchange Fund papers is limited Government issuance is politically sensitive Lack of corporate issuers Business size Credit bureauxDemand Mutual funds invest mainly in equities Currency board system 40