Hong Kong considers new trading rules, adding rebates

HKEx plans to allow so-called innovative companies with dual class share structures as part of the measures


HONG KONG • Hong Kong Exchanges & Clearing Ltd (HKEx) is considering rule changes aimed at increasing trading, according to CEO Charles Li.

Rebates to market makers, simplified rules for using collateral across multiple positions and the removal or reduction of stamp duty charges are among measures being considered, Li said in an interview.

Some of the changes will require approval from the securities regulator or government, he said.

The exchange operator is eyeing changes as it battles for business with its international rivals.

HKEx plans to allow so-called innovative companies with dual-class share structures as part of a slew of measures that could see the biggest changes to its listing rules since 1993.

It has also set up three trading links with mainland China, with more in the pipeline, and in November introduced iron-ore futures, in a head-on challenge to Singapore Exchange Ltd.

“The objective, if there is an objective, is to really make our market more competitive,” Li said in an interview last month.

“Our strategy is making our initial public offering market more relevant, make our market more connected, and make our derivatives market more competitive. That really is our three-leg strategy.”

HKEx’s share price yesterday hit its highest level since July 2015.

The stock gained 37% in the 12 months through last Friday, outperforming the majority of its peers.

Despite being the world’s fourth-biggest stock market, Hong Kong has traditionally lagged behind Singapore Exchange for derivatives trading.

Singapore’s FTSE China A50 index futures, for example, is often Asia’s most traded offshore contract.

One idea under discussion is to pay rebates to market makers during new product launches, Li said.

A common feature in other developed markets including the US, such payments are restricted by the Securities and Futures Commission.

“We are talking about small scale, incremental, early-stage pilot programmes, where people can at least begin to think, ‘we could have cash incentives, we could have rebates, we could do this, that,’” Li said.

Another area of debate is cross-margin requirements, Li said without elaborating.

In Singapore, traders are able to post less collateral on offsetting positions, which requires less cash to be set aside and can reduce execution costs.

“We will review the HKEx’s proposals when submitted to the SFC,” Ernest Kong, a spokesman for the regulator, said by email.

HKEx is also considering whether to ask the government to reduce or remove stamp duty, Li said.

Removing the duty, currently 10 basis points (0.1%) on both sides of a trade, could ignite interest from high-frequency trading firms and others that specialise in exploiting tiny movements in share prices.