HKEx Plans Overseas Growth

Terry Flanagan

The world’s second largest exchange operator by market value will look toward aggressive global expansion, starting with the potential acquisition of the London Metal Exchange.

Hong Kong Exchanges and Clearing is among the shortlist of bidders contending for the world’s largest commodities exchange, the London Metal Exchange. In the weeks leading up to the Monday bidding deadline, HKEx was the only potential buyer publicly confirming its interest in acquiring the London bourse.

“We will continue to consider opportunities of this type,” Charles Li, HKEx chief executive said to reporters. He noted that the exchange is confident that it would be the winning bidder for the LME when the dust settles.

“HKEx is always open to opportunities that align with its core strategy, which is focusing on China,” added a HKEx spokesperson via email.

The 135-year-old London Metal Exchange is currently being courted by a host of potential suitors, with CME Group, NYSE Euronext, IntercontinentalExchange and HKEx on the shortlist, according to reports. All four suitors have been in the process of conducting due diligence leading up to the Monday deadline to make offers in a second round of bidding. Industry analysts have estimated the deal could be worth as much as $1.6 billion.

HKEx’s acquisition of the LME would bring the world’s largest metals exchange closer to China, the world’s largest consumer of industrial metals.

“HKEx’s core strength is developing the China markets,” said Li. “If there is any business involving any opportunity to enhance our ability in this regard we will consider it.”

HKEx is also pursuing a host of initiatives aimed at bringing it closer to mainland China, as well as boost its presence internationally.

“This is a very busy year for us, we also implemented the second phase of our new trading hours this year, which more closely aligns the Hong Kong market with those in the Mainland and further enhances our competitiveness,” said the HKEx spokesperson. “Furthermore, we have completed our market consultation on after-hours futures trading and will implement it in the second half of this year.”

“We operate in a very diverse environment, with more than 22% of our market turnover contributed by retail investors and 46% contributed by overseas investors,” said the HKEx spokesperson. “We expect continued interest in our market from both investors and issuers. In particular, we have become the listing venue of choice for several overseas companies, particularly those in the luxury goods or natural resource sectors. Companies with a strong Asian or China story to tell have shown interest in our market. We expect this to be sustained as Asia, and China in particular, continue to grow.”

HKEx also launched a new series of technology initiatives in March called HKEx Orion, a program of technology initiatives that aims to elevate Hong Kong’s position on the world’s financial stage. The HKEx Orion program will deliver connectivity networks, a state-of-the-art data center and systems providing order matching, market data dissemination and market access services.

Technology is one of the main initiatives many global exchange groups are pursuing amid declining trading revenues. NYSE Euronext and Nasdaq OMX have each expanded their technology groups in recent years.

HKEx on Monday posted its financials for the first quarter, with net income dropping 7% from $148.2 million from $158.5 million a year earlier. It also experienced lower trading volumes compared to last year, with $8.1 billion instead of $9.4 billion.

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