The BRICS Securities and Derivatives Markets - Hong Kong ...

The BRICS Securities and Derivatives MarketsIn Hong Kong, the Securities and Futures Commission (SFC) is the securities andderivatives market regulator while the Hong Kong Monetary Authority (HKMA) is thefrontline regulator of banks which conduct securities and futures businesses.5.1 Securities marketOf the exchanges in the China/Hong Kong markets, only HKEx is currently a member of theBRICS Exchange Alliance. It operates a Main Board and the Growth Enterprise Market(GEM). Listed securities include equities, equity warrants, derivative warrants, CallableBull/Bear Contracts (CBBCs) 10 , debt securities and funds (including ETFs). Clearing andsettlement is performed by the Hong Kong Securities Clearing Company (HKSCC) on animmobilised basis. Securities registration is performed at the share registrars.On the Mainland, the SHSE operates a Main Board while the SZSE operates a Main Board, aSmall and Medium sized Enterprise (SME) Board (launched on 24 June 2004) under the MainBoard, and a separate board, ChiNext, for growth enterprises (launched on 30 October 2009).Listed securities on the SHSE and SZSE include equities, government bonds, corporate bonds(including convertibles), equity warrants, investment funds (including ETFs) and bondrepurchases. Securities clearing, settlement and registration is performed by the ChinaSecurities Depository & Clearing Corporation (SD&C) 11 in electronic book-entry form asthe Mainland securities market is already dematerialised.The Mainland securities market is partly opened to foreign investors through the QualifiedForeign Institutional Investor (QFII) scheme for investment in A shares and through thespecialised equity product, B shares, which are traded in foreign currencies. The investmentof QFIIs is subject to authorised investment quota controlled by the Mainland Government.B shares were originally designed for foreign investors but were subsequently opened todomestic residents in February 2001. The Hong Kong market, on the other hand, is an openmarket without restriction on investor participation and fund flows.The Hong Kong market and the Shanghai market have comparable market size by value oflisted companies while the Mainland markets have higher turnover value. Figure 5-1 showsthe trend in market capitalisation and turnover for the three markets in the past decade. As atthe end of 2011, the market capitalisation of HKEx was US$2,258 billion and that of theSHSE was US$2,355 billion. Among the three, the SHSE has the largest average dailyturnover value (US$30 billion in 2011 vs US$13 billion for the SZSE and US$9 billion forHKEx) while the SZSE has the highest equity turnover ratio (227% in 2011 vs 160% forSHSE & 69% for HKEx).1011CBBCs are a kind of structured product issued by a third party, usually an investment bank, that tracks theperformance of an underlying asset without requiring investors to pay the full price required to own theactual asset.SD&C is the securities central clearing house established by the two exchanges, which operates two branchcompanies in Shanghai and Shenzhen to serve the respective markets.- 20 - Research & Corporate Development, HKEx31 December 2012