HONGKONG EQUITY AND DEBT MARKETS

1. SOURCE :HKEX 1

2. LOCATION
SOURCE :HKEX 2

3. SOURCE :HKEX 3
Source: HK Ex

4. HISTORY
• The Hong Kong Stock
Exchange (SEHK) is a stock
exchange located in Hong Kong.
• It is Asia's 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. SOURCE :HKEX 5

6. TRADING HOURS
The 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 pm
An 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. TRADING PLATFORM
Trading will be carried out through the Stock Exchange's Automatic Order
Matching and Execution System (AMS)
- the third generation
It is an order-driven ( ask –bid)

8. BIG FOUR REGULATORS
Hong Kong Monetary Authority (HKMA)
Office of the Commissioner of Insurance
Mandatory Provident Fund Schemes Authority.
Hong Kong Securities and Futures Commission (SFC)
SOURCE :HKEX 8

9. CURRENT RATES OF TOP 20 COMPANIES (TURNOVER)
SOURCE :HKEX 9

10. TYPES OF SHARES
H 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. 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. PRODUCTS OFFERED
Equity
Debt
Exchange-traded Fund
Warrants
Hang Seng Index Futures & Options
Nasdaq Stocks

13. NASDAQ STOCKS ON HKEX
The Pilot Programme introduced in May 2000, Seven Nasdaq stocks
listed on Nasdaq and have been admitted to trading on the Hong Kong
stock market.
Seven Nasdaq stocks are: Amgen, Applied Materials, Cisco, Dell, Intel,
Microsoft, and Starbucks

14. SOURCE :HKEX 14

15. BRIEF ON HSI
The 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. 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. ISSUER OF GOVERNMENT BONDS
Government bonds are issued by the Government of the Hong Kong
Special
Administrative Region of the People’s Republic of China (HKSAR
Government).
The HKMA is tasked to implement the issuance of government bonds under
the GB
Programme.
Government bonds under the institutional bond issuance programme are
sold at
auctions by means of a multiple-price auction mechanism. Investors may
submit a
competitive bid through Primary Dealers. The bids are made in terms of the
bid price
and the quantity applied for. Competitive tenders accepted will normally be
allotted in
descending order of the bid price indicated in the applications.
SOURCE :HKEX 17

18. MAJOR INITIATIVES TAKEN IN BOND
MARKETS SINCE THE ASIAN
FINANCIAL CRISIS
1. Product development
2. Market infrastructure
3. Tax and regulation
4. Regional cooperation
18

19. 1. PRODUCT DEVELOPMENT
Government issues
Securitised debts
Bond funds
Retail bonds
19

20. GOVERNMENT ISSUES
Exchange 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. SECURITISED DEBTS
The 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 insurance
In 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. BOND FUNDS
An EMEAP initiative : AsianBondFund1 (2003)
 Closed-end: Confined to investment of the central
banks only
 USD-denominated sovereign and quasi-sovereign
bonds in the region
ABF2 (2005)
 Open to any interested investors
 Domestic currency-denominated bonds in the region
22

23. RETAIL BONDS
The Hong Kong Mortgage Corporation first offered bonds to
retail investors in October 2001
The 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

24. SOME OF THE LISTED BONDS
SOURCE :HKEX 24

25. SOURCE :HKEX 25

26. 2. MARKET INFRASTRUCTURE
Benchmark yield curve
Hong Kong bond settlement system
On-line access to market information for retail investors
26

27. BENCHMARK YIELD CURVE
A domestic yield curve gradually took shape when the HKMA began issuing
Exchange Fund papers in 1990s
Considerable effort has been directed at maintaining a smooth and
continuous yield curve in designing the EFBN issuance programme
27

28. SOURCE :HKEX 28

29. HONG KONG DOLLAR BOND SETTLEMENT SYSTEM
Central 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. CLEARING AND SETTLEMENT
SYSTEM
CDC
- China
USD
Clearstream RTGS
(2000)
Euroclear
CMU DvP HKD
RTGS
AustraClear (1996)
- Australia
AustraClear KSD
- New Zealand - South Korea
EURO
RTGS
(2003) 30

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

32. CMU BOND PRICE BULLETIN
32

33. 3. TAX AND REGULATION
Demand 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 years
Supply 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. 4. REGIONAL COOPERATION
APEC Initiative on the Development of Securitisation and Credit Guarantee
Markets
Asian Bond Market Initiative (ABMI)
Asian Bond Fund (ABF)
34

35. AFTER ALL THESE…
35

36. HONG KONG DOLLAR BOND MARKET
Steadily 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. Size of LCY Bond Market in US
SOURCE :HKEX 37

38. Size of LCY Bond Market in % of G
SOURCE :HKEX 38

39. LESSONS AND IMPEDIMENTS: ANY
MORE WE CAN DO?
39

40. IMPEDIMENTS TO THE HONG
KONG DOLLAR BOND MARKET
Supply
 Issuance of Exchange Fund papers is limited
 Government issuance is politically sensitive
 Lack of corporate issuers
Business size
Credit bureaux
Demand
 Mutual funds invest mainly in equities
 Currency board system
40