Hong Kong Exchanges and Clearing Limited: history, ownership, mission, how it works & makes money

A Brief History of Hong Kong Exchanges and Clearing Limited

Hong Kong Exchanges and Clearing Limited (HKEX) is one of the largest stock exchanges in the world. Established in 1891 as the Hong Kong Stock Exchange (HKSE), it has undergone several transformations and consolidations over the decades.

In 2000, HKEX was formed through the merger of the Hong Kong Stock Exchange, the Hong Kong Futures Exchange, and the Stock Exchange of Hong Kong.

The exchange became publicly traded in 2000, listed on its own platform under the ticker symbol 388. Following its IPO, HKEX raised approximately HK$ 22 billion (around US$ 2.8 billion), marking one of the largest IPOs of that year.

In 2012, HKEX acquired the London Metal Exchange (LME) for £1.4 billion (approximately US$ 2.2 billion), enhancing its global reach in commodity trading.

HKEX has consistently ranked highly among global exchanges, with a market capitalization of approximately HK$ 47 trillion (around US$ 6 trillion) as of October 2023, making it one of the most valuable exchanges worldwide.

As of 2023, HKEX had more than 2,500 listed companies, including key firms such as Tencent, Alibaba, and HSBC, which account for a significant portion of its market capitalization.

In terms of trading volumes, HKEX recorded an average daily turnover of approximately HK$ 150 billion (around US$ 19 billion) in 2023, reflecting the exchange's robust trading activities and liquidity.

HKEX has also been recognized for its efforts in fostering sustainability, launching a sustainability reporting framework in 2016. This initiative has encouraged listed companies to adopt ESG (Environmental, Social, and Governance) practices, further solidifying HKEX’s position as a leader in responsible investment.

The Hong Kong Stock Connect program, launched in 2014, allowed international investors easier access to mainland Chinese stocks, amplifying cross-border trading volumes. As of 2023, the scheme has seen trading volumes reach approximately HK$ 1 trillion (around US$ 128 billion).

In recent years, technological advancements have shaped the operations of HKEX. The exchange has invested heavily in digital infrastructure, with a budget allocation of around HK$ 1 billion annually towards tech innovation and improvements. This investment aims to enhance trading platforms and ensure market resilience during high volatility.

In conclusion, HKEX has established itself as a key player in the global financial landscape, driven by strategic acquisitions, innovative trading programs, and a commitment to sustainability.

A Who Owns Hong Kong Exchanges and Clearing Limited

Hong Kong Exchanges and Clearing Limited (HKEX) operates as the operator of the Hong Kong Stock Exchange and provides a platform for trading securities, derivatives, and commodities. Understanding its ownership structure involves analyzing both institutional and individual stakeholders.

As of the latest available data, HKEX’s major shareholders include a mix of institutional investors, individual shareholders, and the Hong Kong government. The ownership is distributed as follows:

Among institutional investors, BlackRock holds approximately 7.9% of the total shares, while Vanguard Group owns around 6.9%. These figures highlight the significant influence of large asset managers on HKEX's governance and operational decisions.

Regarding financial data, as of September 2023, HKEX reported a market capitalization of approximately HKD 440 billion (around USD 56.4 billion). The exchange's revenue for the first half of 2023 was approximately HKD 10.5 billion, showing an increase of 8% year-on-year.

Furthermore, HKEX's earnings before interest, taxes, depreciation, and amortization (EBITDA) for the same period was around HKD 6.8 billion, resulting in an EBITDA margin of approximately 65%. The company also declared a dividend of HKD 4.00 per share in 2023, reflecting its robust financial health.

In terms of trading volumes, HKEX recorded an average daily turnover of approximately HKD 120 billion in the third quarter of 2023, which indicates a stable trading environment amidst fluctuating market conditions.

The ownership structure is pivotal in influencing HKEX's strategic direction, particularly as it seeks to expand its reach and enhance its offerings in line with global market trends. Investors are keenly observing how this ownership dynamic plays out, especially in light of ongoing financial innovations and geopolitical factors impacting the Asian financial landscape.

Hong Kong Exchanges and Clearing Limited Mission Statement

Hong Kong Exchanges and Clearing Limited (HKEX) operates with a clear mission statement: to be the world's leading marketplace for the trading of securities, derivatives, and other financial products. The organization seeks to capitalize on Hong Kong's unique position as a bridge between China and the global financial markets.

As of September 2023, HKEX boasted a market capitalization of approximately $64 billion. The exchange is known for its diversified revenue streams, which include trading, clearing, and settlement services. In the first half of 2023, HKEX reported a total revenue of $2.99 billion, reflecting an increase of 5% year-over-year.

HKEX also emphasizes its commitment to innovation and technology. In 2022, the organization announced plans to invest $1 billion over the next five years in enhancing its technological infrastructure. This investment aims to support more efficient trading, clearing, and settlement processes while increasing the overall competitiveness of the market.

The mission statement is further supported by specific strategic goals outlined by HKEX's management:

• Enhance market connectivity and competitiveness in Asia.
• Foster sustainable growth in the financial services sector.
• Advance Hong Kong as a global financial hub.
• Encourage innovation in financial products and services.

In terms of financial performance, HKEX has consistently demonstrated robust growth metrics. Below is a table summarizing key financial statistics from the last fiscal year:

HKEX’s mission statement is not just a declaration; it drives the company’s strategic initiatives and decisions. They are committed to maintaining high regulatory standards, which is evident as they operate under a stringent regulatory framework enforced by the Securities and Futures Commission of Hong Kong. This ensures a stable and transparent market environment for all participants.

Additionally, HKEX has successfully attracted a diverse array of international companies seeking to list their shares, contributing to the depth and breadth of the exchange. As of mid-2023, the exchange had over 2,800 listed companies, which collectively raised over $30 billion in initial public offerings (IPOs) in 2022.

The commitment to corporate social responsibility (CSR) is another pillar of HKEX's mission. They aim to promote sustainable finance initiatives, encouraging transparent reporting on ESG (Environmental, Social, and Governance) criteria among its listed companies. In 2022, HKEX launched a set of guidelines for issuers, aimed at improving sustainability disclosures.

Through these initiatives and a clear mission statement, HKEX continues to solidify its position as a leading global financial marketplace, making strides in innovation, market connectivity, and sustainable growth.

How Hong Kong Exchanges and Clearing Limited Works

Hong Kong Exchanges and Clearing Limited (HKEX) operates one of the largest stock exchanges in the world, facilitating trading and clearing for securities, derivatives, and commodities. As of the end of 2022, HKEX had a market capitalization of approximately HKD 31 trillion, positioning it as a dominant player in the Asia-Pacific region.

HKEX's core businesses include:

• Equities: Trading and listing of stocks, including the Stock Connect program, which connects Hong Kong with Mainland China's stock exchanges.
• Derivatives: Offering a comprehensive range of futures and options for both local and international investors.
• Commodities: Operating the London Metal Exchange (LME), the leading venue for trading base metals.
• Clearing Services: Providing clearing and settlement services for various financial products.

In 2022, HKEX recorded a total revenue of HKD 17.5 billion, with net profit attributable to shareholders reaching HKD 10.5 billion. The company also reported a trading volume increase of 12% year-on-year, driven by strong demand in both equity and derivative markets.

HKEX's trading statistics include:

HKEX has expanded its international presence by integrating with global markets. In 2022, it launched the “Sustainable and Green Finance” initiative, positioning itself as a leader in promoting sustainable investment practices. The exchange is making significant strides in environmental, social, and governance (ESG) areas, with over 100 ESG-listed companies as of 2023.

In terms of workforce, HKEX employs over 2,500 employees, aiming to enhance operational efficiency and customer service. It continues to invest in technology, with expenditures on IT reaching nearly HKD 2 billion in 2022, focusing on enhancing trading platforms and cybersecurity measures.

Moreover, the company’s strong financial position is reflected in its dividend policy, which maintained a dividend payout ratio of approximately 70% of net profits in 2022, delivering a dividend of HKD 5.25 per share.

As a vital hub for capital raising, HKEX attracted 140 new listings in 2022, which included companies from diverse sectors such as technology, healthcare, and renewable energy. The exchange’s diversified product offerings and robust regulatory framework bolster its attractiveness to both domestic and international investors.

HKEX's strategic priorities for the next few years involve:

• Enhancing data and analytics capabilities.
• Expanding derivatives product offerings.
• Strengthening market connectivity and introducing more efficient trading mechanisms.
• Promoting sustainable finance products and services.

How Hong Kong Exchanges and Clearing Limited Makes Money

Hong Kong Exchanges and Clearing Limited (HKEX) generates revenue through a variety of business segments, including trading, clearing, and other services. Here’s a breakdown of its revenue sources derived from the latest financial reports.

Revenue Breakdown

For the year ended December 31, 2022, HKEX reported total revenue of HKD 18.7 billion, showing a slight increase from HKD 18.4 billion in 2021. The primary revenue segments are:

• Trading Fees: HKD 8.5 billion
• Clearing Revenue: HKD 6.4 billion
• Market Data Revenue: HKD 1.9 billion
• IPO & Listing Fees: HKD 1.4 billion

Trading Revenue

Trading revenue constitutes a significant portion of the company’s earnings. For the year 2022, the average daily turnover of securities was HKD 112.8 billion, reflecting the trading activity on the exchange. The rise in trading activity led to increased trading fees.

Clearing Revenue

Clearing revenue is derived from the clearing and settlement of trades made on the exchange. In 2022, the average daily cleared volume reached HKD 65.1 billion, contributing significantly to the HKD 6.4 billion in clearing revenue.

Market Data Revenue

Market data revenue comes from the dissemination of trading information and analytics. In 2022, this segment generated HKD 1.9 billion in revenue, driven by growing demand for real-time data services.

IPO and Listing Fees

The initial public offerings (IPOs) and listing fees are essential components of HKEX revenue. In 2022, the exchange welcomed 69 IPOs, raising a total of HKD 42.5 billion. This resulted in listing fees of approximately HKD 1.4 billion.

Cost Structure

To understand profitability, it’s crucial to look at costs as well. In 2022, HKEX reported total expenses of HKD 9.5 billion, of which HKD 3.1 billion were staff costs, and HKD 3.5 billion were IT and operational costs.

Profitability Metrics

With total revenue of HKD 18.7 billion against total expenses of HKD 9.5 billion, the company reported an operating profit of HKD 9.2 billion, leading to an operating margin of approximately 49.2%.

Table: HKEX Revenue and Performance Metrics

In summary, HKEX's business model leverages various sources of revenue, including trading, clearing, and market data services, alongside generating revenue from initial public offerings and listing fees. The company maintained a strong profitability profile, reflected in its operating margins and robust revenue growth across key segments.