HKEX to expand derivatives, commodities offerings
Hong Kong Exchanges and Clearing unveiled a new three-year strategic plan in January that sets ambitious goals for expanding its equity derivatives business, expanding the product services offered by the London Metal Exchange, entering the physical commodity markets in mainland China and introducing derivatives based on Chinese interest rates.
The main theme of the strategic plan is to strengthen the exchange's position as the main point of connection between China's financial and commodity markets and the rest of the world. Having succeeded in implementing the "Stock Connect" scheme linking Hong Kong and Shanghai's equity markets, the exchange is now looking to extend that scheme to equity derivatives and build similar linkages in other asset classes.
Charles Li, the exchange's chief executive, said this year's strategic plan, the third since he joined the exchange, "is our most ambitious yet" and said the goal is to "connect China with the world" in three main asset classes: equities, commodities and fixed income and currencies.
In commodities, the exchange outlined three main goals:
- Build a channel for Asian liquidity to access the LME market by listing its products in Hong Kong and by developing "London-Hong Kong Connect," a way to provide LME access to HKEX participants;
- Develop a spot commodities trading and financing platform on the mainland that will serve physical producers and consumers, warehouse operators and financing banks better than existing futures exchanges and spot markets; and
- Expand the commodity product set beyond base metals into "contiguous areas" such as precious and ferrous metals.
In fixed income and currencies, the exchange said it plans to launch new exchange-traded derivatives in Hong Kong on RMB and onshore interest rates, further develop its OTC derivatives clearing service by adding products and opening it to client trades and explore mutual market access with the mainland's institutional cash bond market through a “Bond Connect” scheme.
In equity derivatives, the plan is to expand the product range by listing derivatives based on A-share indices, adding sector-specific products and exploring the potential to list international benchmark derivatives in Hong Kong.
"We know these goals are ambitious, and they won’t be realized overnight," Li explained in a Feb. 3 article written for his blog. "But we won’t get to the finish line unless we start the race. Once these initiatives are in place, Hong Kong will become more relevant to both the Chinese and international market users, and cement our position as a comprehensive financial center across multiple asset classes."
