The Chief Executive of Hong Kong Exchanges and Clearing Ltd (HKEX) outlined in a recent blog post titled "CEO Blog: Charting the Future — Building a Diversified Asset Ecosystem" that the Hong Kong SAR government has recently published its first five-year plan for the city's economic and social development, proactively aligning with the national 15th Five-Year Plan. One of the most important objectives is to consolidate and enhance Hong Kong's status as an international financial centre. As the core infrastructure of Hong Kong's financial markets, HKEX should shoulder the responsibility of elevating Hong Kong's standing as a global financial hub, and its long-term strategy of building a diversified asset ecosystem is fully aligned with the national 15th Five-Year Plan and Hong Kong's five-year plan regarding strengthening the functions of an international financial centre. The article noted that going forward, HKEX will focus on building a more complete and internationally competitive diversified asset ecosystem, actively promoting the implementation of Hong Kong's five-year plan.
Regarding what the world needs and what the nation needs, over the past two years, amid shifting geopolitical dynamics and the rise of China's technological innovation, a growing number of international investors have begun diversifying their investments and turning their attention to Asia, which offers higher growth potential. Investing in China has become a must-have option for international investors. Today, international investors are no longer debating whether China is investable; they not only want to invest in Chinese equities but also seek diversified allocation across other asset classes. On the other hand, China's economic transformation and industrial upgrading are accelerating, with strong financing demand from technology companies and companies expanding overseas, while demand from mainland capital for diversified investment allocation and orderly outbound investment is also robust. As Chinese assets undergo a historic revaluation, demand for the renminbi as an investment currency is rising, and the nation is vigorously promoting renminbi internationalisation. In response to these new trends and demands, HKEX's answer is to build a more comprehensive and internationally competitive diversified asset ecosystem centred on connecting people, products and markets.
On the people front, HKEX will continue to bring together mainland and international issuers, investors, financial institutions and long-term capital to broaden the market participation base. On the products front, HKEX will build on its strengthened equities business to further expand fixed income, currency, commodities and other diversified products and risk management tools. On the markets front, HKEX will continue to enhance market infrastructure, promote fintech adoption and market connectivity, and further strengthen Hong Kong's functions, resilience and long-term competitiveness in global capital allocation, renminbi internationalisation and risk management.
Specifically, HKEX plans to proceed in the following four directions. 1. Enhancing the competitiveness of the international fundraising platform
The article noted that world-leading fundraising capability has always been a source of pride for Hong Kong's stock market and remains a reform priority that HKEX places great emphasis on. This year's IPO market has continued last year's momentum, with more than 80% of new listings having international institutions participating as cornerstone investors. To enhance Hong Kong's competitiveness as an international fundraising platform, HKEX keeps pace with market changes and continuously optimises its listing regime by referencing best practices from international markets. Since 2018, HKEX has carried out multiple listing reforms closely tracking economic development trends, aimed at attracting different types of companies, especially new economy companies, to list and providing global investors with richer investment opportunities.
Last year, HKEX optimised the IPO pricing and allocation mechanism by referencing international market experience, increasing the allocation ratio to institutional investors with greater bargaining power in new listings and improving IPO pricing efficiency. In July this year, HKEX launched a new round of listing regime reforms, including relaxing weighted voting rights requirements for companies, facilitating secondary listings for companies already listed overseas, providing greater flexibility for biotechnology and specialist technology companies, and allowing all companies to choose confidential filing of listing applications. Currently, HKEX is conducting a second-stage consultation on enhancing the competitiveness of its listing regime, proposing to optimise rules governing discloseable transactions, connected transactions and spin-offs, reduce compliance costs and increase flexibility for listed companies in mergers and acquisitions, restructurings and business spin-offs. In the future, HKEX will also launch consultations on optimising the listing regimes for specialist technology companies and GEM.
In terms of international cooperation, HKEX has been enhancing liquidity in both markets and creating win-win outcomes through initiatives such as jointly developing indices with international exchange partners and encouraging cross-listing of ETFs. Going forward, HKEX will continue to hold focused promotional events in the Middle East, ASEAN and Belt and Road countries and regions to introduce the advantages of Hong Kong's market and deepen financial cooperation with local exchanges, attracting more international companies to pursue primary or secondary listings in Hong Kong. In summary, HKEX will continue to optimise its listing regime, trading platform and issuer services to enhance Hong Kong's competitiveness as an international fundraising platform and facilitate quality mainland and international enterprises to raise capital in Hong Kong.
2. Deepening the breadth and depth of the secondary market ecosystem
The article mentioned that a vibrant primary market cannot exist without an active secondary market. Since last year, under the combined effect of international investors refocusing on Chinese assets and multiple reforms in Hong Kong's securities market, trading activity in Hong Kong's stock market has become increasingly active. However, under the diversified asset ecosystem strategy, HKEX still has much work to do, with a major focus being enriching product offerings and enhancing liquidity to deepen the breadth and depth of the secondary market ecosystem.
In terms of enriching products, HKEX encourages the issuance of different types of ETF products and has made significant strides into the index business, launching the HKEX Tech 100 Index and multiple cross-market equity indices to facilitate issuers in developing diversified investment products linked to these indices. In August this year, CSRC Chairman Wu Qing attended the listing ceremony for offshore renminbi government bond futures in Hong Kong and stated that the CSRC supports strengthening cooperation between index companies in both markets, launching more indices based on Chinese assets, and promoting industry institutions in both markets to introduce more ETF products, jointly enhancing the international influence of Chinese indices and Chinese assets. HKEX pays close attention to this opportunity and looks forward to cooperating with mainland peers to create product synergies and make it more convenient for global investors to allocate Chinese assets.
To help investors manage stock market risk and enrich investment strategies, HKEX has also accelerated the pace of derivatives development. Since the beginning of the year, it has added 38 weekly stock options, and in November it will add 12 more stock option categories while offering both weekly and monthly expiry stock option contracts. In the future, HKEX will continue to develop more stock indices and launch more short-cycle stock options, thematic futures and options to further enrich the equity derivatives ecosystem.
In terms of improving trading efficiency and market liquidity, Hong Kong's stock market has implemented reforms in recent years such as simplifying board lot sizes and reducing minimum tick sizes, with initial results emerging. Currently, HKEX is consolidating market feedback on shortening the stock market settlement cycle, hoping to lead the industry toward a T+1 settlement cycle as soon as possible to improve capital efficiency in Hong Kong's stock market. In terms of optimising Stock Connect, HKEX and its mainland partners are preparing to include real estate investment trusts (REITs) in Stock Connect and to include renminbi stock counters in Southbound Stock Connect, hoping to further broaden the investment scope of Stock Connect and provide offshore investors investing in mainland A-shares with richer risk management tools, thereby attracting more international capital to allocate Chinese assets through Hong Kong. In addition, HKEX is committed to continuously enhancing market convenience for investors, including supporting paperless securities reform and extending trading hours. HKEX is actively studying extending after-hours derivatives trading hours, and regarding extending stock market trading hours, HKEX will start by leading market discussions to find a solution acceptable to all market parties.
3. Expanding the fixed income, currency and commodities ecosystem to promote renminbi internationalisation
The article noted that any international financial centre seeking to attract and retain massive amounts of capital must offer as rich a shelf of products as possible, not only with a dazzling array of equity products but also with a diverse range of fixed income products and commodities. Equity products are Hong Kong's traditional strength, but fixed income and commodities businesses are just getting started and require significant investment. At the same time, renminbi internationalisation is entering a new phase, with the focus on enhancing the renminbi's function as an investment and financing currency. If Hong Kong's market can leverage its offshore renminbi liquidity pool to provide abundant renminbi-denominated fixed income, currency and commodity products, it will certainly increase international investors' willingness to hold renminbi assets for the long term and enhance the attractiveness of the international financial centre. Therefore, the construction of Hong Kong's fixed income and commodities ecosystem should seize the opportunities brought by renminbi internationalisation.
In building the fixed income and currency market, the Securities and Futures Commission and the Hong Kong Monetary Authority jointly published Hong Kong's Fixed Income and Currency Market Development Roadmap last year, aimed at establishing Hong Kong as a global fixed income and currency centre and consolidating Hong Kong's core position as a global offshore renminbi hub. HKEX's work plan is fully aligned with the direction of the Roadmap, and HKEX should serve as the construction team implementing the Roadmap, fully implementing its initiatives and improving the offshore renminbi ecosystem.
First, HKEX must enrich renminbi fixed income assets, with bonds being the most important category. HKEX will continue to attract more mainland, Hong Kong and international issuers to issue and list bonds in Hong Kong, especially renminbi bonds (dim sum bonds). As of 24 September, the issuance scale of dim sum bonds listed on HKEX this year has reached RMB 266.9 billion, up 14% year-on-year, and the annual issuance scale is expected to reach a new high this year. While attracting bond listings, HKEX is also actively preparing for the first offshore renminbi bond index. With an index, the market can further develop bond ETFs and other index-linked products, facilitating renminbi bond asset allocation. HKEX hopes to form a virtuous cycle: bond issuance brings more investable assets, more indices and ETF products, and new investment demand in turn supports more issuance.
Second, after increasing the supply of renminbi bond products, risk management capabilities must also keep pace. Therefore, HKEX launched five-year Chinese government bond futures this year to provide international investors with renminbi interest rate risk management tools. Government bond futures form a perfect synergy with Bond Connect and Swap Connect: Bond Connect addresses renminbi bond investment, Swap Connect provides flexible over-the-counter interest rate risk management, and government bond futures provide standardised on-exchange hedging and price discovery tools. In the future, HKEX hopes to gradually enrich key tenors when conditions are ripe, allowing investors to manage bond risk across different durations and promoting the formation of a more complete renminbi interest rate curve in the offshore market.
In addition, the repo market is an important financing foundation for the fixed income market. HKEX is studying the establishment of offshore renminbi bond repo market infrastructure and exploring central clearing services for bond repos, hoping to enhance the liquidity and financing efficiency of offshore renminbi bonds. In terms of commodities, Asia's economy continues to lead the world, generating strong demand for commodities, yet Asia does not have a commodities market with global influence; China is already the world's largest consumer and importer of commodities, but its pricing power in the global commodities market is clearly insufficient. These factors provide an entry point for Hong Kong to develop a commodities ecosystem.
HKEX will leverage its London Metal Exchange (LME) and precious metals business to support the construction of Hong Kong's commodities ecosystem. As the world's largest base metals market, LME will soon launch an LME Shanghai hot-rolled coil futures contract in cooperation with the Shanghai Futures Exchange this month, helping Chinese commodity prices go global and enhancing the international influence of Chinese prices. In addition, the number of LME-approved delivery warehouses in Hong Kong has increased to 19, greatly facilitating mainland metal traders. In the future, LME will cooperate with warehouse operators, logistics service providers and other market stakeholders to strive to further expand Hong Kong's storage capacity and enhance the functions of its warehousing network. HKEX is also exploring how to better connect Hong Kong's commodities market with other markets in the Greater Bay Area. LME Clear also further optimised the use of offshore renminbi as collateral this year, which not only helps advance renminbi internationalisation but also provides convenience for participants in the Chinese market.
In terms of precious metals, HKEX has reactivated US dollar-denominated gold futures this year and will soon launch a redesigned renminbi-denominated gold futures, expanding the use of renminbi in investment, commodity trading and risk management scenarios.
4. Upgrading market infrastructure
The article concluded by noting that building a diversified asset ecosystem must be accompanied by well-developed market infrastructure. HKEX will continue to invest in and independently develop future-oriented market infrastructure, including building the Orion Derivatives Platform and upgrading the Orion Cash Platform. The Orion Derivatives Platform will enhance the trading, post-trade and risk management capabilities of Hong Kong's derivatives market and will be built in a modular manner to support the future addition of new products, optimisation of market microstructure and introduction of other functions. The Orion Cash Platform will optimise post-trade services for the cash market in phases, enhance settlement and clearing infrastructure, and provide market participants with more efficient, seamless and modern services. The construction of the Orion platforms will support HKEX in more flexibly launching new products and connecting more market participants in the future.
HKEX is also studying the establishment of a tokenisation platform supporting multiple asset classes, using commodities and carbon credits as pilots to explore tokenisation applications. HKEX is applying artificial intelligence to market surveillance and compliance monitoring of listed companies to improve operational efficiency. In terms of payments, HKEX is cooperating with the Hong Kong Monetary Authority on a pilot project using e-HKD for paying margin deposits during the after-hours trading session, enhancing the derivatives market's risk management capabilities during non-banking hours. HKEX will also work closely with the HKMA to accelerate the commercialisation, internationalisation and modernisation of CMU OmniClear, upgrade the Central Moneymarkets Unit (CMU), and promote interconnection between local stock and bond central securities depository platforms to unlock cross-asset synergies.
In addition, Bond Connect Company, a joint venture between HKEX and the China Foreign Exchange Trade System, is developing an electronic trading platform for Hong Kong fixed income and currency products to improve bond trading efficiency. Through implementing these strategic directions, HKEX hopes to attract more global long-term capital, support the development of quality enterprises and advance renminbi internationalisation, thereby better connecting the needs of China and the world, consolidating and enhancing Hong Kong's status as an international financial centre, and making due contributions to the nation's 15th Five-Year Plan.