WFE Focus Team , London , World Federation of Exchanges | Jan 2017

 

We hear CHOW Chung Kong's viewpoints for 2017.

Looking ahead to 2017, what are the key trends you see shaping your exchange, and the market infrastructure industry more broadly?

While there are some encouraging signs on developed economies’ growth perspectives, there is also a lot of uncertainty heading into 2017. We are seeing a rise in populism and nationalism, while support for globalisation and free trade appears to be on the wane.

This year we expect to see the Government of the UK trigger article 50, to formally put in place the process by which the UK will withdraw from the European Union. There is the possibility of new trade barriers after the new President takes office in the United States, and we may see relatively slower growth in China.

These are challenges the world will face together, but we are confident we have built up enough stability within Hong Kong Exchanges and Clearing Ltd to weather the storm. The London Metal Exchange, in London, will have to deal with the regulatory changes to be brought about by Brexit, but note that most of the trading on the LME is done in US dollars so we believe we are insulated to a degree from these changes.

In the post crisis era, access to liquidity and identifying improvements in capital efficiency are fundamental, particularly in the clearing space. In terms of market infrastructure, in Hong Kong, we continue to develop and enhance our marketplace. We recently introduced the Closing Auction Session and Volatility Control Mechanism in our securities and derivatives markets, and they are running smoothly. In parallel, HKEx, as a systemically important financial institution with a duty to appropriately manage and mitigate risk, continues to focus and invest in the reliability and robustness of our technology at the Hong Kong Stock Exchange.

What’s your viewpoint on the 2017 regulatory landscape in your jurisdiction, and indeed globally?

The Hong Kong market is looking closely at a number of potential regulatory changes, mostly pertaining to the listing regime, the potential re-positioning of an existing board in our market, and/or the introduction of a new third board. Last year, HKEX and our regulator, the Securities and Futures Commission, issued a joint consultation on the listing regulatory regime to further enhance our listing process. Those responses are now being reviewed and the matter will be taken forward in due course.

We are also in the process of looking at ways to strengthen our competitiveness vis-à-vis new economy companies, such as those in technology, biocare, and other emerging industries. We must ensure our financial market evolves with market demand, and will take a close look at our positioning in these areas in 2017.

Across the Post Trade landscape, the scale and importance of CCPs globally has greatly increased since the post-crisis G20 commitment to clear standardised over-the-counter (OTC) derivatives through CCPs. CCPs are critical in helping to reduce risks and interconnections through the financial system, and help financial firms and end users such as corporates manage their business risks. There are already relatively high regulatory standards in place for CCPs, but these standards continue to develop. In 2017, the regulators intend to provide further guidance to better ensure consistent implementation of risk management standards and recovery frameworks for CCPs, globally. This guidance will ensure that the critical functions of CCPs are preserved, while maintaining the financial stability of the broader market. We will continue to work in the global environment to ensure we deliver consistent, robust and compliant infrastructure and service to our clients.

Do you think the role of exchanges and CCPs will evolve over the coming years, and if so, how?

We have witnessed profound change in the exchange space over the last 20 years. The proliferation of electronic trading, high-speed trading, increased competition, dark pools, and more have meant traditional exchanges have needed to be nimble to embrace opportunities arising from this change.

I think exchanges will continue to be a vital part of the financial landscape, as well as reliable and robust platforms for companies to raise funds. I expect smaller developing economies to continue launching and growing their respective national and regional exchanges that meet the needs of these developing economies. I also expect further consolidation at some of the regional exchange and tier-1 exchange level, as increased competition and cost incentivises exchanges to seek mergers or acquisitions. We have seen this in recent years in Europe, and I expect we may see other cross-border moves in 2017.

While CCPs have become increasingly critical components of the financial system, and have expanded their roles and businesses in recent years, due in part to the introduction of mandatory central clearing for standardised OTC derivatives in some jurisdictions, the growing trend of tightening regulatory and capital requirements to ensure resilience has impacted the costs of CCPs, and their operations and the market. It is incumbent on financial market infrastructures to identify ways to best respond to the regulatory requirements whilst also providing value added services and efficiencies to clients.

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