BEIJING - Discovering that size does matter, stock exchanges around the world
are rushing to establish alliances and partnerships with one another that could
lead to outright mergers and acquisitions.
The London Stock Exchange recently announced that it has bought Italy's Borsa
Italiana SpA for 1.63 billion euros (US$2.2 billion). Weeks before that, Tokyo
Stock Exchange said it has bought a 4.99% stake in Singapore Exchange Ltd to
enhance
cooperation on derivatives business between the two bourses.
This cooperation between two Asian bourses has given a renewed impetus to the
idea of creating a link between the Hong Kong Stock Exchange (HKSE) and the
Shanghai and Shenzhen exchanges as many mainland companies are listed on both
bourses.
Economists and analysts say stock exchanges are being prompted to look for
partners by rising trading costs, fierce competition in wooing companies to
list, fast-growing derivative products and the ballooning turnover of hedge
funds.
"International stock exchanges are in a hurry to expand their businesses to vie
for the limited capital market resources," said Sun Lijian, a professor with
Fudan University.
"Stock exchanges are seeking cooperation in different areas to provide
differential services to clients, and avoid the fierce competition with
sub-market leaders," he added.
For example, the Tokyo Stock Exchange is beginning to focus on the derivative
market instead of providing the traditional capital settlement service, which
is Hong Kong's main strength.
Asked whether similar possibilities of merger and acquisition exist between the
Hong Kong and Shanghai stock exchanges, Paul M Y Chow, the administrative
president of HKSE, told Security Times that there is no such possibility at the
moment because the yuan is not freely convertible and the mainland stock
exchange has not been listed.
Sun added: "Besides, the restriction of capital account has not been totally
eased."
But the benefits from a merger of two bourses, if it ever happens, are
enormous.
Joseph Yam, chief executive of the Hong Kong Monetary Authority (HKMA), said in
his recent report: "It's clear, at least to me, that there would be big
advantages if the two markets were linked: overall liquidity would be
increased, price discovery would be made more efficient, market discipline
would be promoted, and it would be easier for market players, intermediaries
and the authorities to manage risks."
Mainland China is now the fourth-largest economy in the world in terms of gross
domestic product, the third-largest trading nation, and the largest holder of
foreign reserves.
"The creation of a channel between the two markets will allow them to function
as one and enjoy the benefits of one, much larger market," Yam said.
Shanghai Stock Exchange (SSE) now ranks ninth in the world in terms of total
market value and seventh by total turnover, according to statistics from the
World Federation of Exchanges.
In the past six months alone, the market capitalization in SSE has increased
99% to 14.2 trillion yuan ($1.86 trillion), while the daily turnover is up 455%
to 133 billion yuan.
Meanwhile, the average daily turnover at HKSE was as high as HK$33.9 billion in
2006, up 85% from the year before. Its net profit was up 88% to HK$2.519
billion (US$322.3 million).
The only cooperation between the Shanghai and Hong Kong stock exchanges till
now is the memorandum of understanding signed in May 2002 on staff training
exchange.
Yam said the HKSE, together with the Shanghai and Shenzhen bourses, organized
two working groups last year to research how to improve the mechanism of an
"A+H" listing, including the simultaneous trading suspension,
suspension-lifting rules, and synchronous price quoting.
"If we are to achieve that channel between the mainland and Hong Kong financial
markets, it will be necessary for the authorities in both jurisdictions to
establish a working relationship between the two financial systems that will
enable the country to benefit from the opportunities arising from the
differences between them," said Yam in his report.
The bourse-acquisition spree began with the New York Stock Exchange buying
91.42% shares of Pan-European Stock Exchange for US$11 billion last June. The
stock-trading platform, currently connecting New York, Paris, Brussels,
Amsterdam, Lisbon and London, has an average daily turnover of $120 billion.
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