HKEx Strategy From 2006 Onwards
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HKEx Strategy From 2006 Onwards. Paul M Y Chow Chief Executive, HKEx Presentation at the Hong Kong Securities Institute Roundtable Lunch on 1 December 2005. Agenda. 1.HKEx’s vision and strategies 2.Progress so far 3. Hong Kong’s relative performance 4.HKEx Plan for 2006

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Hkex strategy from 2006 onwards

HKEx Strategy From 2006 Onwards

Paul M Y Chow

Chief Executive, HKEx

Presentation at the Hong Kong Securities Institute Roundtable Lunch on 1 December 2005


Agenda

Agenda

1.HKEx’s vision and strategies

2.Progress so far

3. Hong Kong’s relative performance

4.HKEx Plan for 2006

5.Challenges ahead


Hkex strategy from 2006 onwards

Market quality is the key of market growth and sustainability

Market Quality

An open, secure, fair, orderly, efficient and transparentmarketplace

Market

liquidity

Investor

Confidence

Order flow


Hkex s vision and strategy 2004 2006

Becoming a Mainland Partner

Building a quality market

Consolidation

HKEx’s vision and strategy, 2004-2006

Focus on quality will lead to global success

Three-pronged strategy

HKEx’s Vision

A world-class marketplace for Hong Kong and Mainland China securities


Progress so far

Progress so far

Market policies and developments must be driven by a slim, dedicated and efficient business entity.

Consolidation

2004/2005 highlights

  • Prudent cost controls

  • Streamlined project portfolio

  • Reorganisation and staff consolidation

  • Staff training and career development

  • Integrating business operations and policies

  • Strengthening staff communication

HKEx will continue to improve its operations and offer greater values to its customers.


Hkex strategy from 2006 onwards

1Q05

2Q05

4Q04

3Q05

3Q04

664

170

99

81

100

83

79

52

657

188

107

98

70

77

59

59

574

183

97

92

34

79

43

48

733

228

108

110

58

82

103

45

570

147

88

72

57

72

90

43

309

157

55

20

3

3

44

5

31

346

288

141

50

20

4

4

41

5

22

376

283

141

49

20

2

3

44

5

19

292

282

142

49

20

2

4

40

5

20

450

282

129

57

20

2

2

47

5

20

288

Progress so far

HK$ mn

Income

Trading fees & trading tariff

Stock Exchange listing fees

Clearing & settlement fees

Depository/custody/nominee fees

Income from sale of information

Investment income

Other income

Operating Expenses

Staff costs & related expenses

IT & computer maintenance expenses

Premises expenses

Product market & promotion expenses

Legal & professional fees

Depreciation & amortisation

Payment to SFC under dual filing

Other operating expenses

Operating Profit


Hkex strategy from 2006 onwards

Progress so far

Solid Foundation Leading to Record Profit Since Merger

2005 Q3

2004

2003

2002

2001

2000

(HK$ Million)

1,971

2,394

2,020

1,808

1,998

2,312

Income

Operating expenses

853

1,156

1,224

1,165

1,179

1,331

Operating profit

1,118

1,238

796

643

819

981

Share of profits less losses of associates

13

13

9

5

-

-

Profit before taxation

1,131

1,251

805

648

819

981

Taxation

(171)

(194)

(112)

(59)

(85)

(98)

Profit attributable to shareholders

960

1,057

693

589

734

883

Cost to income ratio

43%

48%

60%

64%

59%

58%

Return on equity*

24%

26%

12%

11%

14%

18%

* = based on total shareholders' funds at year-end; if no special dividend was paid for the financial

year ended 2003, ROE for 2003 would have been slightly over 18%.

Note: rounded to the nearest HK$1 million


Progress so far1

Progress so far

Building a quality market

Hong Kong must offer attractive products and world-class market and regulatory infrastructures

2004/2005 highlights

New products

Market infrastructures

Issuer regulation

  • H-shares Index futures and options

  • FTSE/Xinhua China 25 Index futures and options

  • New ETFs

  • REITS

  • CBBC (under development)

  • Launch of DCASS and PRiME

  • Enhanced IP account services

  • Enhanced nominee services

  • Consolidation of market system networks

  • Reduction in trading spreads (Phase 1)

  • Revamp of HKEx website

  • HKEx disaster recovery website

  • Revamp of Trading Hall

  • Revised connected transactions rules and initial listing criteria

  • Enhanced regulation of sponsors and IFAs

  • Improved Listing enforcement

  • Revised Corporate Governance Best Practices

  • Review of listing decision-making structure

  • Enhanced delisting mechanism

  • Review of GEM


Equity and derivatives markets continue to grow

Unit

YTD 30 Nov 2005

Full Year 2004

Full Year 2003

Total fund raised

HK$bn

296.9

281.8

213.8

Fund raised by IPOs *

HK$bn

171.7

97.2

59.1

Fund raised in secondary market

HK$bn

125.2

184.6

154.6

Average daily turnover

HK$bn

18.2

16.0

10.4

Average daily no. of derivatives contracts

Number

102,789

80,533

59,011

No. of listed companies – equity

Number

1,124

1,096

1,037

No. of new listings – equity

Number

54

70

73

Main Board

Number

45

49

46

GEM

Number

9

21

27

Equity and derivatives markets continue to grow

Progress so far

* Include fund raised by The Link REIT


Progress so far2

Progress so far

Becoming a Mainland Partner

Mainland China offers historic opportunity to the securities market in Hong Kong.

We now serve Mainland issuers. In longer term, we hope to extend our services to Mainland investors.


Progress so far3

Mainland

Mainland

% of

% of

Total

Total

enterprises

enterprises

total

total

YTM Oct 2005

YTM Oct 2005

Unit

Unit

Number

Number

No. of listed issuers

No. of listed issuers

1,117

1,117

322

322

29%

29%

Number

Number

No. of new listings

No. of new listings

equity

equity

46

46

23

23

50%

50%

HK$bn

HK$bn

Market capitalisation

Market capitalisation

7,612

7,612

2,863

2,863

38%

38%

HK$bn

HK$bn

Total fund raised

Total fund raised

260.8

260.8

168.5

168.5

65%

65%

HK$bn

HK$bn

Funds raised by IPOs

Funds raised by IPOs

137.1

137.1

129.0

129.0

94%

94%

HK$bn

HK$bn

Fund raised in secondary market

Fund raised in secondary market

123.7

123.7

39.5

39.5

32%

32%

HK$bn

HK$bn

Average daily turnover

Average daily turnover

equity

equity (excluding

14.8

14.8

6.7

6.7

45%

45%

warrants)

warrants)

Progress so far

Mainland China enterprises contribute significantly to Hong Kong market


Hkex strategy from 2006 onwards

Hong Kong’s relative performance

Hong Kong’s securities market outperformance reflects the success of its Mainland China dimension

Worldranking

Securities Market

Market capitalisation

Funds raised

Equity turnover

Derivative warrant turnover

9th

4th

16th

1st

(9/2005)

(9/2005)

(9/2005)

(10/2005)

Derivatives market

Turnover

22th

(9/2005)

HKEx

Net income

4th

(2004/2005)


Hkex ranks 9 th among global exchanges by market capitalisation

US$ 982 bn as of 30 Sept 2005

US$ 1,030 bn (HK$ 8 tr) as of 30 Nov 2005

HKEx ranks 9th among global exchanges by market capitalisation

Hong Kong’s relative performance

US$bn

Source: World Federation of Exchanges


Hkex ranks 16 th among global exchanges by equity turnover

US$ 351 bn as of YTM Sept 2005

US$ 427 bn (HK$ 3.3 tr) as of YTM Nov 2005

HKEx ranks 16th among global exchanges by equity turnover

Hong Kong’s relative performance

US$bn

Source: World Federation of Exchanges


Hkex ranks 4 th among global exchanges by equity fund raised

HKEx ranks 4th among global exchanges by equity fund raised

Hong Kong’s relative performance

US$bn

US$ 24.0 bn as of YTM Sept 2005

US$ 35.6 bn (HK$ 277 bn) as of YTM Nov 2005

Source: World Federation of Exchanges


Hkex ranks 22 nd among global exchanges by derivatives contracts traded

19.3 million contracts as of YTM Sept 2005

23.3 million contracts as of YTM Nov 2005

HKEx ranks 22nd among global exchanges by derivatives contracts traded

Hong Kong’s relative performance

Mil contracts

Source: World Federation of Exchanges


Hkex ranks 4 th among listed exchanges by net income

Market Capitalisation and Net Income of Listed Exchanges *

Market Cap (US$ Mil)

Net income (US$ Mil)

12000

1000

900

10076

Market Capitalisation

10000

800

8918

Net Income

700

8000

600

6000

500

400

3881

322

4000

300

2743

219.6

2217

181.2

2000

200

1817

136

2000

111.4

1299

80.3

78.9

63

100

0

0

0

0

Euronext

HKEX

Deutsche

CME

LSE

TSX

SGX

ASX

Borse

HKEx ranks 4th among listed exchanges by net income

Hong Kong’s relative performance

* Net income for their latest financial year (information gathered in July 2005). Market capitalisation as at 30 June 2005


Hkex plan for 2006

HKEx Plan for 2006

Securities trading

  • New Trading Hall / Exhibition Hall

  • Reduction of trading spreads (Phase 2)

  • Launch of CBBC

  • Review of derivative warrants market

  • Improving market surveillance


Hkex plan for 20061

HKEx Plan for 2006

Derivatives trading

  • Improving position limit regime

  • Review of market maker model

  • Exploring the market needs for tailor-made combo

  • Growing existing products and exploring new products

  • Improving market surveillance


Hkex plan for 20062

HKEx Plan for 2006

Clearing services

  • Enhancing CCASS nominee services

    (e.g. electronic voting)

  • Implementing CCASS fees review

  • Exploring Third Party Clearing

  • Improving risk management


Hkex plan for 20063

HKEx Plan for 2006

Market infrastructures

  • Consolidation of market system networks (Phase 2: CCASS)

  • Capacity upgrade of AMS/3, HKATS and DCASS

  • Re-development of derivatives risk management systems

  • Improving Issuer information dissemination framework


Hkex plan for 20064

HKEx Plan for 2006

Business Development

  • Continue to attract quality issuers for listing

  • Conducting more road-shows and training in Mainland China

  • Strengthening communication with CSRC, other regulatory bodies, issuers and potential issuers in Mainland China


Hkex plan for 20065

HKEx Plan for 2006

Listing regulation

  • Implementing abolition of paid announcements

  • Revamp of listing decision-making structure

  • Review of GEM

  • Enhancing corporate governance

  • Continue to review IPO vetting process

  • Automation of Listing MIS and internal process


Hkex plan for 20066

HKEx Plan for 2006

Corporate

  • Improving customer services

  • Empowering management by better Management Information Systems

  • Review of remuneration structure and policies

  • Succession planning

  • Corporate citizenship


Hkex strategy from 2006 onwards

Challenges ahead

  • Balance between investors protection and market development

  • Shareholder empowerment and regulatory enforcement

  • System development vs system stability and availability

  • Business ethnics and integrity

  • Hong Kong’s quality advantage in China dimension

  • Growing competition in issuer listing and new products

  • Increasing participation of hedge funds


Hkex strategy from 2006 onwards

Thank you

www.hkex.com.hk


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