Table of Contents
Overview
The Hong Kong Stock Exchange (HKEX) has been around since 1891, making it one of the oldest stock exchanges on the planet! It has become huge in market capitalization and is now a central international investment hub.
In this article, we’ll explain the history of the Hong Kong Stock Exchange and how it has impacted the financial market in Hong Kong today.
History of the Hong Kong Stock Exchange
The Hong Kong Stock Exchange has been around since 1891. It is the oldest exchange in Asia. Before World War II, it only listed colonial securities and a few British companies. Then, in 1945, Chinese businesses started listing their shares. It led to more liquidity in global markets and the thriving HKSE we know today.
The exchange includes primary and secondary markets. Stocks, warrants, callable bonds, convertible securities, and REITs are some traded products. Private equity investments have recently become more popular because of regulation improvements.
Hang Seng Bank, China Construction Bank Corporation, PetroChina Company Limited, China Mobile Limited, and Tencent Holdings Limited are some public companies listed on the exchange. Investors can also use derivatives, like futures and options, or invest in lower-cost services like index funds or ETFs.
The HKSE continues to grow, making it one of Hong Kong’s leading industries. It is also a central global financial hub.
Structure and Regulations
HKEX was started in 1891 and is the third-largest stock exchange in Asia. It is one of the world’s main securities market hubs, handling 80% of China’s trading and investments from over 80 countries. Trading is based on an auction system, with stocks from mainland China, Hong Kong, and London’s LSE.
HKEX comprises Main Board and Growth Enterprise Market (GEM). Main Board is the primary trading source, with local and international firms listed. GEM has higher risks but offers higher returns, focusing on smaller, high-growth companies.
The structure of HKEX includes:
- Trading System Providers (TSPs),
- Clearing Houses (CHs),
- Central Clearing System (CCS), and
- a Central Counterparty Clearing Limited (CCP).
TSPs provide a platform for investors, while CHs act as intermediaries between buyers and sellers. The CCS acts as a global custodian, ensuring collateral is held. Finally, CCP arranges these transactions into one unit, which settles at the close of each day.
HKEX works under several regulatory bodies, such as Listing Standards Committee and Authorization Committee. In addition, the Disciplinary Board resolves disputes about disseminating false or misleading information by listed companies or irregularities committed by customers or brokers. Regulations related to options trading include a formal settlement system and CCP powers for auditing individual trades.
Pre-WWII
Before World War II, the Hong Kong Stock Exchange had an informal market. It traditionally exchanged stocks. 1891 saw the birth of the first true exchange. It made it the oldest in the Far East. Before this, opium, silver, and fine art were traded. But, it wasn’t until the 1930s that the exchange started to grow and become an economic power.
Founding of the Hong Kong Stock Exchange
The SEHK (Hong Kong Stock Exchange) was established in 1891 and is the seventh-oldest in the world. It oversees securities from Asia. Before WWII, it was a renowned stock market with large capitalization and liquidity and was a significant regional hub.
At the start, trading was done by open outcry. Then, in 1914, laws were passed so companies could incorporate without permission from Britain’s colonial administration. It led to more companies applying to be listed on the HKSE and further strengthened its importance in the region.
Electronic trading began to overtake open outcry methods. In 1984, automated order matching was introduced, then computer trading systems across Asia in 1986. Admissions policies were made more available and accessible, both domestically and internationally. These changes allowed investors to achieve their goals through the exchange’s exceptional liquidity and fair market prices in a relaxed regulatory environment that remains in place today.
Pre-WWII Regulations
Before World War II, Hong Kong had no financial regulations. So, brokers bought and sold stocks for themselves instead of customers. It caused wild price fluctuations and speculation.
In 1933, the Government took action. They passed the Stock Exchange Ordinance in 1936, which set rules for listing fees, maximum fees, and other things. It also registered brokers with the Government and the Council of Professional Stockbrokers.
The Securities Regulation Code was introduced in 1939. It set up the stock exchange and asset management industry. It also provided protections against fraud, which were not available before.
Post-WWII
Post-WWII, the Hong Kong Stock Exchange’s history, and East Asia’s economic transformation have been intertwined. It has since then become a major stock exchange. Let’s look at the policies and events that shaped it in the post-WWII period. Key milestones were reached, making it what it is today.
Expansion of the Exchange
After World War II, the Hong Kong Stock Exchange proliferated. It went from 6 members at the end of 1945 to 36 by 1947. The number of listed companies rose from 37 to 97 by 1949. It was due to Britain’s new policies, which created fresh business opportunities.
Between 1945 and 1975, there was an economic boom. It led to lots of money coming into Hong Kong and a jump in stock values. Moreover, it drew investors from around the globe. As a result, the exchange almost tripled, becoming 87 members and listing 233 companies. Banks and brokers also moved to Hong Kong.
In 1977, the Computerized Automated Trading System (CATS) replaced the traditional open outcry system. the system improved liquidity and trading efficiency. In addition, new regulations were introduced to reduce volatility and increase investor protection. Structures were also established for New Economy companies to list on local markets. These improvements enabled medium-sized enterprises to list overseas through private placements or Global Depository Receipts (GDRs).
Post-WWII Regulations
In 1891, the HKEX was created. After WWII ended in 1945, the colonial gov of Hong Kong began to regulate the stock exchange. Rules and taxes were implemented to restrict the number of stocks bought and sold. Minimum capital requirements were also imposed on different securities.
It took some time to reform, but by 1973, the market structure was more open and deregulated. The gov no longer interfered with trading prices or activities. Instead, they protected investors’ rights and interests through laws such as the Securities and Futures Ordinance of 1994.
Foreign investments rose, along with cooperation between the Hong Kong Stock Exchange and other international exchanges. It enabled easier cross-border investments from overseas markets. In addition, in 2006, a merger between HKEX and the Stock Exchange of Hong Kong unified domestic trading rules. The unification allowed for increased international recognition and access for overseas investors to participate in the Hong Kong market.
Recent Developments
The Hong Kong Stock Exchange (SEHK) has had a lot of updates lately. In 2017, the SEHK rolled out its new trading and clearing system. They also modified their infrastructure for more efficient trading. Because of these changes, the SEHK has seen a boost in trading volume. Now it is one of the biggest markets in the world.
Let’s examine some of the recent advancements more closely:
Introduction of the Hang Seng Index
The Hang Seng Index (HSI) was introduced in 1969 by the Stock Exchange of Hong Kong to measure the performance of companies listed there. It was made up of 33 stocks and has since expanded to include more than 50.
It attracted more international investors, prompting the exchange to develop technology such as real-time price data updates and off-exchange quotations. In 1993, internet trading systems were rolled out. Finally, 2007 saw the introduction of a daily trading mechanism, allowing professional investors from abroad to settle same-day trades.
Nowadays, the HSI is used as a critical indicator to assess economic trends in Asia or make investment decisions related to industries in Hong Kong and other Asian countries. It is also a reference site for Chinese investors to shape their strategies.
Growth of the Exchange
Over a century ago, the Hong Kong Stock Exchange was founded to finance the colony’s trading activities. Now it’s one of the world’s major stock markets.
Since the early 1990s, investors have been joining forces to drive up the value of shares. As a result, trading hours were extended, and new services were offered to retail and institutional investors to accommodate the influx of investors.
Major milestones include:
- The automated trading system (1994)
- Independent regulator (1995)
- Internet trading platform (2000)
- Cross-border exchanges with Shenzhen (2006)
- Expansion into the derivatives market (2016)
- New trading products (2019)
In 2016, HKEX replaced open outcry with a fully electronic trading system that meets international standards. This system minimizes transaction costs for investors.
Also, in 2018, HKEX became part of the Hang Seng Indexes family. And in 2019, a marketplace for green bonds was launched. It allowed companies to raise capital quickly and meet legal requirements.
Current State
The Hong Kong Stock Exchange (HKEX) is massive in Asia. It’s one of the biggest exchanges in the world, measured by its market capitalization. It has changed a lot over the years. Now, it’s a public firm listed on the London Stock Exchange.
Let’s look at the current state of the Hong Kong Stock Exchange. Plus, we’ll go over its history and what’s in store for its future:
Listing Requirements
The Stock Exchange of Hong Kong (SEHK) has created specific Exchange Listing Rules for companies that want to list their stocks. These rules concern corporate governance, financial reporting, and directors’ obligations to shareholders.
Listed companies must:
- Have profits from 3 years before listing;
- Have equity worth a net asset value of a maximum of HK$200 million;
- Have 25% free float;
- Meet the approved financial standards;
- Pay application fees and cover costs;
- Follow SEHK listing rules and securities regulations;
Overseas companies must also meet additional disclosure requirements. For example, they need to provide information on their business structure and corporate events history. In addition, companies must be aware of statutory requirements to stay compliant and use the Hong Kong stock market.
Overview of the Current Market
The Hong Kong Stock Exchange (HKEX) is renowned as a major international exchange. It is a leader in Asia with a market capitalization of over 2.5 trillion USD. It has contributed to China’s economic expansion.
The HKEX offers 1,500 listed companies from a variety of industries. These include tech, finance, and retail. Companies must meet specific listing requirements for different types of shares and derivatives. For example, ordinary shares require a minimum market cap of 100 million.
Moreover, the HKEX provides trading of unusual derivatives such as warrants and convertibles bonds. High-risk investors often seek these out. The exchange is also known for its low transaction fees, which attract institutional investors worldwide.
Finally, foreign companies value Hong Kong’s international outreach, open architecture, and strong regulations. As a result, the HKEX is the perfect place for long-term investments that can help grow the global economy by providing access to new markets and technologies.
