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Wednesday, March 2, 2016, 14:12

Record HK$7.96b year for HKEx

By Emma Dai
Record HK$7.96b year for HKEx
A trader in the Hong Kong Stock Exchange. Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Ltd, believes the next two years will be a golden time to build up a commodities market, featuring physically deliverable contracts, on the Chinese mainland. (Parker Zheng / China Daily)

Hong Kong Exchanges and Clearing Ltd (HKEx) — the city’s bourse operator — saw its net profit for 2015 soar to a record high of HK$7.96 billion, a jump of 54 percent over the previous year’s figure of HK$5.17 billion, fueled by last year’s bull run on the mainland stock markets.

The group’s revenue climbed 36 percent to HK$13.38 billion, driven by increased cash and derivatives trading in Hong Kong, especially during the second quarter of last year, earnings from commodities trading and clearing from London, as well as a one-off income of HK$445 million from the disposal of a Hong Kong leasehold property.

Despite the strong performance, earnings fell sharply in the final three months of 2015, prompting Chief Executive Charles Li Xiaojia to warn that HKEx’s financial results this year is not likely to be as good, given economic headwinds on the Chinese mainland and the region.

“The fourth quarter had been a difficult time, and we see the trend continuing in the first quarter of 2016,” he said.

He also proposed the setting up of a spot commodities market on the mainland, while advocating reform in the SAR’s delisting regulations.

HKEx’s share price reacted strongly to the company’s results, jumping 3.49 percent on Wednesday to HK$175 apiece, as the benchmark Hang Seng Index surged 3.07 percent, or 596 points, to close above the 20,000 barrier at 20,003.49 for the first time since Jan 8.

Li told the media that HKEx — the parent company of the London Metal Exchange — will leverage its experience in commodities trading on the Chinese mainland.

“Thanks to the collapse of commodity prices, the next two years will be a golden time for us to build up a commodities market, featuring physically deliverable contracts, on the Chinese mainland.”

“When commodity prices were rising, we did not have such a chance. But now, as China’s domestic commodities capacity declines, bank loans are hard to acquire, risks accumulate in the market, traders would flock to a credible trading platform which provides high-quality services to help solve all the problems, such as reliable warehousing, fund raising and credit enhancement.

“As long as we set up such a platform in the next two to three years, endless revenue will come in future,” Li added.

Li had explained in his blog last month that HKEx is planning to establish an onshore commodities spot market on the mainland, starting with base metals, to create an effective spot trading platform where physical settlement is guaranteed for real users.

He revealed on Wednesday that HKEx is hiring new staff through its mainland subsidiary, particularly for the spot commodities project, which will see “small increments over the cost base”.

Meanwhile, the bourse operator intends to launch a third board in the Hong Kong equity market to attract “promising emerging companies” and kick out “bad apples” and “zombie” shell companies more efficiently by improving the delisting mechanism on the third board.

Li said that, in the face of vested interest and the due process under the rule of law in Hong Kong, it might be a faster way to introduce a better delisting mechanism along with a brand-new third board than to try to change existing regulations in the Growth Enterprise Market.

“However, it would be up to the SFC (Securities and Futures Commission) to decide which way is better, and we will work with the regulator in consulting all parties,” he said.
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