Annual Review :
Achievements and New Initiatives
Paul Chow
Chief Executive, Hong Kong Exchanges and Clearing Limited
13 January 2006
Agenda
 New Records Set In 2005
 2005 Major Achievements
 2006 Major Initiatives
 Conclusion
2
New Records Set in 2005
New Records in the Securities Market
2005
HK$
Market Capitalisation
Pre-2005 Record
$8,260.3 bil (21 Dec 2005) $6,695.9 bil (31 Dec 2004)
(up to year-end)
#
2005
HK$
Total Market Turnover
Securities Achieved Highest Turnover Record
Trading Turnover of H shares
Trading Turnover of Derivative Warrants
$4,520.4 bil
Previous Record
$3,974.1 bil (Year 2004)
$953.3 bil
$856.6 bil
$941.1 bil (Year 2004)
$524.5 bil (Year 2004)
$165.7 bil *
$137.4 bil
$71.6 bil
$132.1 bil (Year 2000)
(up to year-end)
New Funds Raised Records by Initial Public Offers
IPO equity capital raised ^
- IPO equity capital raised by H shares
- Largest single IPO by a listed company
Number of Newly Listed Derivative Warrants
1,682
$52.4 bil (Year 2000)
$43.6 bil (Year 2000)
1,259 (Year 2004)
#
The figures represent the total market capitalisation of all equity securities listed on the Main Board and Growth Enterprise Market (GEM) and
exclude other listed securities such as REITs and government bonds. Trading only stocks under pilot programmes are also excluded.
^ IPO equity capital raised exceeded post-IPO capital raised for the first time.
*
The figure excludes funds raised by REITs, which are classified as Unit Trusts. Total IPO funds raised by the Link REIT (0823), Prosperity
REIT (0808) and GZI REIT (0405) was $25.8 billion.
3
New Records in the Derivatives Market
Volume
Number of Contracts in 2005
(Up to year-end)
Previous All-time-high
(Contracts)
Total Futures and Options
25,523,007
19,629,692 (Year 2004)
Total Futures
13,433,386
11,884,152 (Year 2004)
Total Options
12,089,621
7,745,540 (Year 2004)
Hang Seng Index Futures
9,910,565
8,601,559 (Year 2004)
Stock Options
8,722,393
5,611,832 (Year 2004)
4
Building a Quality Market
HKEx strategic plan for 2004 – 2006
Consolidation
• Cost rationalisation
• Prioritise projects &
streamline internal
processes
• Upgrade obsolete
systems
• Improve operational
efficiency
• Strengthen staff team
• Strengthen risk
management
Building a
quality market
• Strengthen regulatory
regime
• Foster Corporate
Governance culture
• Improve market
Becoming a
Mainland partner
• Expand Mainland
Time
China offerings
• Strengthen cooperation with
Mainland entities
infrastructure
• Increase market liquidity
• Raise customer
satisfaction & investors’
confidence
• Improve investor education
& information
dissemination
5
2005 Achievements – Building a Quality Market
Listing Regulation
 Enhanced regulation of sponsors & IFAs (Jan)
 Revised Corporate Governance Best Practices (Jan)
 Solicited public views on new structure for Listing decision-making (Feb-May)
 Support establishment of statutory listing requirements (submission made in
Mar)
6
2005 Achievements – Building a Quality Market
Listing Regulation
 Published second Listing Committee Annual Report (Jun)
 Set out future model for dissemination of regulatory information by Main
Board issuers (Nov)
 First phase of Listing Committee structure rule amendments approved by the
Exchange (Dec)
 Prepared for a major review of GEM (H2 2005)
 Implemented case database for Listing Division
7
2005 Achievements – Building a Quality Market
Trading
 Commenced Trading Hall renovation (Jul)
 Reduced minimum trading spreads for shares above $30 – phase 1, and
changed AMS/3 parameters to complement spread reductions (Jul)
 Exempted placing or fund-raising activities by Exchange Participants from
current prohibition of dealings in suspended securities under trading rules
(Sep)
 Increased maximum number of outstanding orders per price queue from
2,000 to 4,000 orders in AMS/3 (Nov)
 Increased Exchange Participants’ Open Gateway trading capacity via sale of
total 271 standard throttles
8
2005 Achievements – Building a Quality Market
Product and Market Development
 Enhanced measures for stock options (Feb)
 Introduced new products, including FTSE/Xinhua China 25 Index Futures and
Options, and six additional classes for stock options & futures (May, Jul, Nov
& Dec)
 Obtained SFC’s agreement to increase position limits for stock options
 Reviewed derivative warrant market (HKEx’s views published in Oct)
 Enhanced market-making arrangement for Exchange Traded Funds (ETFs)
 Introduced Real Estate Investment Trusts and more ETFs
 Explored the introduction of Callable Bull/Bear Contracts
 Provided continuous education and training for 7,200 employees of Exchange
Participants
9
2005 Achievements – Building a Quality Market
Clearing
 Upgraded Clearing Service Call Centre and Interactive Voice Recording
System (Jan)
 Waived monthly stock custody fee for delisted securities and securities in
prolonged suspension (Feb)
 Abolished DCASS standard instruction input/processing fee for performing
external trade transfer (Mar)
 Improved CCASS Nominee Services by extending CCASS deadline for
Participants to submit voting instructions and corporate action instructions
(Apr and Aug)
 Implemented Derivatives Market Clearing Houses fee changes on interest
retention rate and accommodation charge (Jun)
10
2005 Achievements – Building a Quality Market
Clearing
 Introduced further fee concessions for Investor Participants Account Services
in CCASS (Jul)
 Enhanced CCASS money settlement (Aug)
 Harmonised capital requirements of different categories of clearing
participants of the three clearing houses (Oct)
 Announced elimination of scrip fee on deemed book close dates (Nov)
11
2005 Achievements – Building a Quality Market
Market & Related Systems
 Upgraded the operating systems of the HKATS, DCASS and CCASS/3 (Jun)
 Commenced consolidation of four existing market system networks into
SDNet; phase 1 migration of the HKATS/DCASS/PRS network completed
(Oct)
 Upgraded HKEx website capacity and substantially enhanced disaster
recovery arrangements (Sep - Nov)
12
2005 Achievements – Building a Quality Market
Market & Related Systems
 Migrated AMS/3 Order Routing System to an integrated technology platform
(Nov)
 Upgraded system capacity of AMS/3 (Dec)
 Replaced all (over 400) AMS/3 off-floor terminals installed since 1998 and
upgraded the corresponding security solution (Oct - Dec)
 Consolidated AMS/3 satellite systems (Dec)
13
2005 Achievements – Building a Quality Market
Information Services
 Introduced new service for redistribution of historical data products and signed
the first vendor in September
 Extended special offer for Mainland users of real-time market data (Nov)
Business Development
 Continued to organise conferences to promote the Hong Kong market
 Provided training programmes
14
2005 Achievements – Business & Corporate Citizenship Recognition
1.
Financial Reporting
–
2.
3.
Hong Kong Management Association: Bronze prize for Best Annual Reports
Awards 2005
Corporate Governance
–
Hong Kong Institute of Certified Public Accountants: Best Corporate
Governance Disclosure Awards in 2003, 2004 and 2005; and Significant
Improvement Award in 2004 (Non-Hang Seng Index Constituent category)
–
The Hong Kong Institute of Directors: Director of the Year Awards 2005
(Listed Companies: Main Board – Constituents of Hang Seng Indices group)
–
CLSA and Asian Corporate Governance Association: CG Star in 2005
Investor Relations
–
A member of the FTSE4Good Index Series since September 2005
15
2005 Achievements – Business & Corporate Citizenship Recognition
4.
Cash Market Infrastructure Systems
–
5.
Hong Kong Computer Society’s IT Excellence Award : Won the Gold Award
in the Applications Category for securities trading system (AMS/3) in 2004
and for securities clearing and settlement system (CCASS/3) in 2005
Charity Donation
–
Total donations of about $40 million in 2005 and over $130 million since 2000
to The Community Chest via Stock Code Balloting for Charity Scheme
16
2006 Major Initiatives
Listing Regulation
 Implement abolition of paid announcements and enhance issuer information
content on HKEx website
 Continue work towards the establishment of statutory listing requirements
 Revamp listing decision-making structure: 2nd phase
 Study on introducing a comprehensive Listing case management and
information system
 Further refinement of IPO vetting process
 Continue review of GEM
 Further enhance corporate governance
 Support establishment of Financial Reporting Council
 Establish China Affairs Team
17
2006 Major Initiatives
Trading
 Complete Trading Hall renovation (Trading Hall and media booth open on
16 Jan; Public Gallery opens in Apr)
 Consider reducing minimum trading spreads of shares traded below $30
(phase 2)
 Launch and develop Callable Bull/Bear Contracts market
 Strengthen derivative warrant market, including web-based resource centre
 Establish more favourable position limit regime for derivatives trading
 Review market-maker model for derivatives market
 Review possible introduction of tailor-made Combo orders in derivatives
market
18
2006 Major initiatives
Clearing
 Further enhance CCASS nominee services
 Harmonise collateral policies of the three clearing houses
 Study expanding admission of Investor Participants to CCASS
 Explore Third Party Clearing
19
2006 Major initiatives
Market Systems
 Upgrade the capacity of HKATS, DCASS and PRS (Jan – Feb)
 Upgrade software of HKATS Network Gateways (Q2-Q3)
 Implement phase 2 of network consolidation with migration of CCASS
network to SDNet (Q2)
 Replace hardware and software of AMS/3 Open Gateway and Multi-Work
Station (Q2/2006 – Q1/2007)
 Feasibility study and prepare for migration of AMS/3 for a higher version of
server technology (Q3 – Q4)
20
2006 Major Initiatives
Business Development
 Continue to organise listing promotion events to attract potential issuers from
the Mainland, including the Mainland operations of companies from Taiwan
and Japan
 Continue to provide training programmes for issuers
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Thank you
22