10.08.2019

Hong Kong Drops Offer For LSEG

Latest Charles Li Direct: Through the looking glass

By Charles Li, chief executive of HKEX

Running a business, any business, in any sector almost anywhere in the world, needs you to be firmly rooted in your daily operations, but also to be looking forward, to where you are going and critically assessing, ‘What next?’. It is finding the right balance of delivery and ambition, operations and strategy, certainty and risk.  HKEX is no different: we need to make decisions, often in a very fluid environment, about what is best for our organisation. As HKEX’s Chief Executive I know that this means we need to be disciplined, to apply balance to all that we do. It underpins the strong execution of our strategy and is crucial to our business success. And there is no crystal ball, no looking glass, no short cut.

Today, disappointingly, we announced our decision not to proceed with a firm offer for London Stock Exchange Group. We still believe the strategic rationale for the combination of our two businesses is compelling and would create a world-leading market infrastructure group.  However, despite a huge amount of work and discussions with a broad set of regulators and extensive shareholder discussions, the level of engagement from LSEG led us to conclude that the continued pursuit of a combination of the two businesses would not be in the best interests of our own shareholders.

Our primary obligation as a Board and a management team is to always act in the interests of our investors all around the world, and to make the right decisions for the long-term growth of our business and the successful execution of our strategy.

HKEX is the global markets’ leader in the Asian time zone, offering a unique destination market as well as unrivalled, trusted access into and out of China for corporates and investors.

Since the start of 2009, we have successfully delivered a 207% increase in our share price and Total Shareholder Returns of 315%. This reflects our clear vision, the fundamental strengths of our business, our commitment to product and market innovation and our ability to respond and adapt in a highly dynamic, complex and evolving global industry. It also reflects the strengths of our relationships with all our stakeholders and the trust they have in us to do the right thing for the benefit of the market as a whole. This includes working with our regulators, our customers, our partners, vendors and market participants.

We are particularly proud, for example, of the strong complementary mutual market access programmes we have built with Mainland stock exchanges in Shanghai and Shenzhen, and Bond Connect platform with the China Foreign Exchange Trade System (CFETS). In recent years, these pioneering programmes have revolutionised capital markets in the region, with HKEX playing a unique role in the continuing growth and advancement of Asian capital markets.

The success of these schemes demonstrates that trading on our exchange remains central to our proposition. Other exchanges around the world have chosen to look for new sources of growth as the value associated with their trading models has been impacted by an increasingly fragmented market. In contrast, in Hong Kong, and Asia more widely, we place an emphasis on price discovery, the concentration of liquidity and strong and fair regulation, which helps to ensure that providing the platform on which securities and other financial products are traded remains an important source of revenue growth and that it continues to be  a key driver for our business moving forwards. HKEX cash and derivatives trading volumes, our Connect Schemes and our global IPO franchise are the bedrocks of our successful business.

The strategy we set out earlier this year was underpinned by the core pillars of ‘China Anchored, Globally Connected and Technology Empowered’, and these remain our focus. And we are making good progress so far. Our vision for the business looking forward is to build upon the role we already play in Hong Kong, China, Asia and more widely.

Under the first pillar – China Anchored – Stock Connect has seen more than US$1.7 trillion of total turnover to date. By the end of last year, this channel represented 58% of the US$172 billion foreign portfolio holdings in Chinese onshore equities. Bond Connect, has seen total turnover to date of US$210 billion, and accounts for 10% of foreign holdings in China’s onshore bond market.

Complementing our China-Anchored strategy is our focus on increasing HKEX’s global connectivity. What does this mean? It means building our broader ASEAN equity market franchise, leveraging our world-leading commodities expertise in London though the LME and working with international partners such as the World Economic Forum and the UN’s Sustainable Stock Exchanges initiative. It also means leading by example in the promotion of boardroom diversity, corporate ESG disclosure and our responsible sourcing initiative in the metals industry. Despite a more challenged geopolitical backdrop, it is our belief that the world needs more connections not less, and we know that we have a key role to play in that. Being globally-connected is a must for HKEX.

The role that technology plays in our strategy is fundamental. From the smooth and successful daily operation of our markets, to the ways in which we are deploying new technologies such as AI and blockchain, HKEX is at the forefront of global exchange technology. This year we became the majority shareholder in a Mainland fintech business, invested in a new HK-based virtual bank and deployed  a number of new technology-led projects across the organisation – such as our ‘Next-Gen’ programme which is designed to reduce risk and enhance our post trade offering to Clearing Participants.

Our strategy is broad, multi-dimensional, and constantly evolving. The complicated regulatory, technical and technological landscape in which we operate, means we are resolutely focused on our ambitions, whilst also maintaining flexibility in our approach. We are honest with ourselves too – as we know some things we try will not develop at the speed which we would like, or in some cases, at all. Our goal is to keep moving forward, reinforcing HKEX ’s role and building Hong Kong’s strength as a financial market.

I don’t have a crystal ball, but I am reminded of Lewis Carroll, the much-loved British children’s author of ‘Through the Looking Glass’ who once said, ‘We only regret the chances we didn’t take.’ My job as CE at HKEX is, along with the board and the management team, to make sure we take those chances with our eyes wide-open, balancing risk and opportunity. I need to be rooted in our day-to-day business but forward-focused, certain that if we try something and it doesn’t work, we are strong enough and diverse enough to dust ourselves down and move forward. And today, in the absence of a looking glass, I am as certain as I can be, that we are.

Source: HKEX

London Stock Exchange Group statement:

The Board of London Stock Exchange Group plc (“LSEG”) notes the announcement made by HKEX that it does not intend to make an offer for LSEG.

LSEG remains committed to and continues to make good progress on its proposed acquisition of Refinitiv. Regulatory approval processes are underway and shareholder approval for the transaction is expected to be sought at an Extraordinary General Meeting in November 2019. The transaction remains on track to close in H2 2020.

Unless otherwise defined herein, capitalised terms and abbreviations used in this announcement shall have the same respective meanings as those defined in the LSEG announcement as on 13 September 2019.

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