The Hong Kong Stock Exchange (HKG) is a wholly-owned subsidiary of the Hong Kong Exchange and Clearing Limited (HKEx) and the leading regulator of issuers in Hong Kong and Mainland China. It is ranked as the third-largest stock market in Asia in terms of the aggregate market capitalization of the listed companies. The Hong Kong Stock Exchange traces its origin to the Association of Stockbrokers in Hong Kong, established in 1891 and renamed in 1914.
The Hong Kong Stock Exchange (HKG) is the third-largest stock exchange in Asia by its aggregate market capitalization.
As of 2018, the exchange counted 2,137 listed companies with an aggregate market capitalization of HK$42,088.
The Securities and Futures Commission (SFC) serves as the front-lead regulator of the Hong Kong Stock Exchange (HKG) to integrate and implement provisions on securities and financial products, as well as to protect investors.
Hong Kong Stock Exchange Explained
The Hong Kong Stock Exchange (HKG) is Asia’s third-largest stock exchange based on market capitalization, trailing only the Tokyo Stock Exchange and the Shanghai Stock Exchange. It is also one of the fastest-growing market exchanges in Asia, with 2,137 listed companies as of 2020, up from 1,200 in 2008.
The combined market capitalization of the listed companies is approximately HK$42,088. The growth has been fueled by the progressive development of the Mainland China market, with more companies from the mainland being listed.
The minimum capitalization for a listing and the minimum value of public float on the Hong Kong Stock Exchange currently stands at HK$500 million and HK$125 million, respectively. The minimum values were raised in 2017 to make trading liquidity for market participants robust and enhance the volatility of listed equities. Banks and insurance firms from Mainland China top the list of all the listed companies on the Hong Kong Stock Exchange.
Development of the Hong Kong Stock Exchange
The Hong Kong Stock Exchange can be traced back to 1891 when the Association of Stockbrokers in Hong Kong was established as the first formal stock exchange. In 1914, its name was changed to the Hong Kong Stock Exchange (HKSE). Non-Chinese membership characterized the exchange until 1921, when the Hong Kong Stockbrokers’ Association was formed, which was an all-Chinese stock exchange. After the end of World War II, the two exchanges merged to form the new Hong Kong Stock Exchange.
The rapid growth of Hong Kong’s economy triggered the emergence of other exchanges – i.e., the Kam Ngan Stock Exchange, the Far East Exchange, and the Kowloon Stock Exchange. The three exchanges unified their activities in 1980, with the formation of the Stock Exchange of Hong Kong.
However, calls to completely reform the Hong Kong securities industry emerged in 1987, following the market flows associated with the 1987 market crash. Significant regulatory and infrastructural changes followed thereafter, and in 1989, the Hong Kong Securities Clearing Company was created to implement a central clearing and settlement system for securities transactions.
Within the same year, the Securities and Futures Commission (SFC) was created as the single statutory securities and future market regulator. In 2000, HKSE merged with the Hong Securities Clearing Company and Hong Kong Futures Exchange (HKFE) to form the Hong Kong Exchanges and Clearing Limited.
Hong Kong Stock Exchange’s Structure
The main regulatory board for the Hong Kong Stock Exchange is the Securities and Futures Commission (SFC). The commission was promulgated in 2003 as the Securities and Futures Commission Ordinance (SFCO) before other sector ordinances emerged.
The primary role of the regulation is to consolidate and implement legislation on securities and financial products, as well as to protect investors by ensuring a level field. It specifically defines the powers, functions, responsibilities, and transparency requirements of SFC. The commission adopted similar but more developed objectives compared to the stock exchange of Mainland China. Its four operational units are as follows:
Enforcement Division: Focuses on investor protection and ensuring market integrity is upheld through surveillance and enforcement.
Corporate Finance Division: Oversees the listing procedures, control of the stock exchange listing activities, Share Repurchase Code, administration of security legislation, and the Share Repurchase Code.
Supervision of Market Division: Monitors and supervises clearinghouses and stock exchange activities through self-regulation.
Intermediaries and Investment Products Division: Defines authorization requirements for the financial integrity of listed intermediaries and business conduct and listing of securities and features.
Hong Kong Exchanges and Clearing Limited (HKEx)
The Hong Kong Exchanges and Clearing Limited (HKEx) is the holding company of the Hong Kong Stock Exchange. Its formation stemmed from progressive integration of the derivative markets and securities, which saw the creation of the Stock Exchange of Hong Kong Limited (SEHK), the Hong Kong Futures Exchange Limited (HKFE), and their clearinghouses.
By operating under the supervision of the SFC, HKEx regulates and operates the market securities and derivatives. Some of the products HKEx deals with include securities, bonds, funds, and warrants.
A new applicant for listing in the Hong Kong Stock Exchange is required to generate positive cash flow from its operating activities of at least an aggregate of HK$20 million for the first two financial years immediately after listing.
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