Hong Kong Stock Exchange

The Stock Exchange of Hong Kong Limited
香港聯合交易所有限公司
Type Stock exchange
Location Central, Hong Kong
Founded 1891
Owner Hong Kong Exchanges and Clearing
Key people Li Xiaojia, Charles (CEO)
Chow Chung-kong (Chairman)
Currency HKD, CNY, USD
No. of listings 1,866 (2015)[1]
Market cap HKD 24.68 trillion (2015)[1]
Volume HKD 26.09 trillion (2015)[1]
Indices Hang Seng Index
Website www.hkex.com.hk
Hong Kong Stock Exchange
Chinese 香港交易所
Alternative Chinese name
Chinese 港交所

The Stock Exchange of Hong Kong Limited (SEHK) is a stock exchange located in Hong Kong. It is East Asia's and Asia's third largest stock exchange in terms of market capitalization behind the Tokyo Stock Exchange and Shanghai Stock Exchange, and the sixth largest in the world before Euronext. As of 31 October 2016, SEHK had 1,955 listed companies, 989 of which are from mainland China, 856 from Hong Kong and 110 from abroad (e.g. Taiwan, Malaysia, United States, Singapores, etc.) [2] Hong Kong Exchanges and Clearing owns SEHK and is itself listed on SEHK.

A small physical trading floor still exists at Exchange Square (Hong Kong) but accounts for less than 1% of volume.[3]

History

Hong Kong Exchange Trade Lobby

The Hong Kong securities market can be traced back to 1866 but the stock market was formally set up in 1891, when the Association of Stockbrokers in Hong Kong was established.[4] It was renamed The Hong Kong Stock Exchange in 1914.

By 1972, Hong Kong had four stock exchanges in operation. There were subsequently calls for the formation of a unified stock exchange. The Stock Exchange of Hong Kong Limited (the Exchange) was incorporated in 1980 and trading on the Exchange finally commenced on 2 April 1986. Since 1986, a number of major developments have taken place. The 1987 market crash revealed flaws in the market and led to calls for a complete reform of the Hong Kong securities industry. This led to significant regulatory changes and infrastructural developments. As a result, the Securities and Futures Commission (SFC) was set up in 1989 as the single statutory securities market regulator.

The market infrastructure was much improved with the introduction by the Exchange of the Central Clearing and Settlement System (CCASS) in June 1992 and the Automatic Order Matching and Execution System (AMS) in November 1993. Since then, the framework of market rules and regulations, both Exchange-administered or otherwise, have been undergoing continuing review and revision to meet changing market needs while ensuring effective market regulation.

The Exchange Listing Rules have been made more comprehensive, and other existing regulations have been improved or new regulations introduced to enhance market development and investor protection. Enhancements were also made to the system infrastructure, including the launch of off-floor trading terminals in brokers’ offices in January 1996. The third generation of the trading system, AMS/3, will be launched in 2000. It will provide enhanced functionality and a platform for a straight-through transaction process.

In respect of market and product development, there are the listing of the first derivative warrant in February 1988, the listing of the first China-incorporated enterprise (H share) in July 1993; and the introduction of regulated short selling in January 1994 and stock options in September 1995. Furthermore, the Exchange introduced the Growth Enterprise Market (GEM) in November 1999 to provide fund raising opportunities for growth companies of all sizes from all industries, and to promote the development of technology industries in the region.

According to the reform plan announced in March 1999, the Exchange, the Hong Kong Futures Exchange and their clearing houses merged into a new holding company, the Hong Kong Exchanges and Clearing Limited.

Brief chronology

source: HK Ex[5]

Exchange history and predecessors

Association of Stockbrokers in Hong Kong (Founded 1891)
(1914) Renamed to Hong Kong Stock Exchange
(1947) A merger is made after World War II with Hong Kong Stock Exchange retaining the name
 Hong Kong Stockbrokers Association (Founded 1921)
Hong Kong Stockholders Association Ltd (Founded 1956) allow info sharing between HKSE and other exchanges
 Far East Exchange Ltd (Founded 1969) Kam Ngan Stock Exchange Ltd (Founded 1971) Kowloon Stock Exchange Ltd (Founded 1972)
(1986) HKSE merges with other exchanges and retain the name but also presented as Stock Exchange of Hong Kong
(2000) Hong Kong Exchanges and Clearing becomes the holding company for Hong Kong Stock Exchange
 Hong Kong Futures Exchange Ltd (Founded 1976) Hong Kong Securities Clearing Company Ltd (Founded 1989)

Trading hours

Russian President Dmitry Medvedev with exchange Chairman Ronald Arculli during a visit to Hong Kong on 17 April 2011.

The trading day consists of:

The closing price is reported as the median of five price snapshots taken from 3:59 to 4:00 pm every 15 seconds.[9] In May 2008, the exchange also implemented a closing auction session to run from 4:00 pm to 4:10 pm, with a similar pricing mechanism as the opening auction; however, this resulted in significant fluctuations in the closing prices of stocks and suspicions of market manipulation. Initially, the exchange proposed limiting price fluctuations in the auction sessions to 2%; in the end, they removed the closing session entirely in March 2009.[10]

Up until 2011, trading hours comprised a pre-opening auction from 9:30 AM to 9:50 AM, followed by continuous trading from 10:00 AM to 12:30 PM and 2:30 PM to 4:00 PM. The two-hour lunch break between the morning and afternoon sessions was the longest among the world's 20 major stock exchanges. A 2003 proposal to shorten the lunch break failed due to opposition from brokers. Another plan to shorten the lunch break to one hour was floated by the exchange in 2010; the morning session would then start earlier, run from 9:30 am to 12:00 pm, and the afternoon session from 1:00 pm to 4:00 pm, leaving the closing time the same as before. Justifications included bringing hours into line with China. Reactions from both brokers and the restaurant industry were mixed.[11]

On 7 March 2011, the exchange extended its hours in the first of two phases. The morning session now ran from 9:30 am to 12:00 noon, followed by a ninety-minute lunch break, and an afternoon session from 1:30 pm to 4:00 pm. Index futures and options now began trading at 9:15 am, thirty minutes earlier than before, and closed at the same time as before, 4:15 pm. On 5 March 2012, the lunch break was cut to sixty minutes, with the afternoon session running from 1:00 pm to 4:00 pm.[7]

Electronic trading

The exchange first introduced a computer-assisted trading system on 2 April 1986.[12] In 1993 the exchange launched the "Automatic Order Matching and Execution System" (AMS), which was replaced by the third generation system (AMS/3) in October 2000.[13]

Regulatory role

David Webb, independent non-executive director of the Exchange since 2003, has been arguing for a super regulatory authority to assume that role as regulator, as there is inherent conflict between its commercial and regulatory roles. In the meantime, he argues for improved investor representation on the Hong Kong Stock Exchange.

In 2007, the uproar by smaller local stockbrokers over the decision by board of directors to cut minimum trading spreads for equities and warrants trading at between 25 HK cents and HK$2 caused the new board to vote to reverse the decision. The reforms were to be implemented in the first quarter, but was put back on the table following protests by brokers. Webb criticised the board for caving in to vested interests.[14]

Trading characteristics

17 Largest stocks by market capitalisation

Source: Bloomberg, in billions of Hong Kong dollars, Data updated on 20 April 2010

  1. PetroChina: $2,492.04
  2. Industrial & Commercial Bank of China: $1,810.14
  3. China Mobile: $1,584.90
  4. China Construction Bank: $1,514.72
  5. HSBC Holdings: $1,433.27
  6. Bank of China: $1,127.57
  7. Sinopec Corp: $957.57
  8. China Life Insurance: $922.64
  9. China Shenhua Energy: $636.23
  10. CNOOC: $609.29
  11. Ping An Insurance Group of China: $448.11
  12. Bank of Communications: $439.83
  13. Standard Chartered Bank: $429.77
  14. China Merchants Bank: $366.36
  15. China Telecom: $309.16
  16. Sun Hung Kai Properties: $299.51
  17. Tencent Holdings: $286.53

See also

References

  1. 1 2 3 HKEX Fact Book 2015 (PDF). HKEX. p. 1.
  2. ↑ http://www.hkex.com.hk/eng/listing/listhk/our_markets.htm
  3. ↑ https://www.hkex.com.hk/eng/stat/epstat/floorstat/2014floorstat.htm
  4. ↑ "Hong Kong Securities Market"
  5. ↑ Trading Hall Renovation Moves Forward
  6. 1 2 3 4 Trading Hours, hkex.com.hk, 8 March 2011, retrieved 8 March 2011
  7. 1 2 HKEx Receives Approval to Extend its Trading Hours from 7 March, hkex.com.hk, 24 January 2011
  8. ↑ Markets Make Smooth Transition to New Trading Hours (PDF), Hong Kong Exchanges and Clearing, 4 April 2011, retrieved 20 June 2011
  9. ↑ Closing Price Calculation (PDF), hkex.com.hk, 23 March 2009, retrieved 5 June 2009
  10. ↑ Ng, Katherine (13 March 2009), "HKEx scraps closing auction", Stand. (Hong Kong), archived from the original on 17 March 2009, retrieved 5 June 2009
  11. ↑ Wan, Hanny (12 August 2010), "Hong Kong Brokers Balk at Prospect of Losing Their Long Lunch", Bloomberg News, retrieved 13 August 2010
  12. ↑ History of HKEx and its markets, Hong Kong Stock Exchange, 31 October 2013, retrieved 7 January 2015
  13. ↑ "HKEx Builds its Market Infrastructure with Competitive Technology" (PDF), Exchange Newsletter, Hong Kong Stock Exchange, October 2004, retrieved 7 January 2015
  14. ↑ Cheung, Jackie (15 February 2007), "Plan for tighter spreads dropped", Stand. (Hong Kong), retrieved 19 March 2007
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