The equity, derivatives and bond markets of Hong Kong are considered among the most advanced in Asia. Although it is a relatively small market, trading on the Stock Exchange of Hong Kong (SEHK) is 24-hour and has a very high volume for an Asian market. The total market capitalization of all local companies was $1 trillion as of December 2012.
The stock exchange was set up in 1891 and now consists of 2 markets:
The HKFE serves as a secondary listing platform for international companies who do not wish to obtain a complete Main Board listing but only need a secondary one: e.g., Adidas AG. Those companies that seek further expansion into China or South East Asia may choose to obtain an additional GEM listing where available.
GEM
The GEM is a virtual trading board established in 2002 as a platform for small to medium-sized companies. There is no physical trading floor. All trading is conducted electronically via the SEHK’s computerized system, with prices displayed on the Stock Exchange of Hong Kong Limited internet website.
Hong Kong represents 2% of global market capitalization as of December 2012, according to World Federation of Exchanges (WFE) estimates.
In 2011, China’s stock market represented 52% of global market capitalization by WFE estimates. Japan represented about 10%
Brazil, Russia and India had total market capitalizations below Hong Kong at this point.
These numbers highlight the relatively small size of the Hong Kong equity markets. However, in terms of liquidity, it performs better than most markets with a low overall bid-ask spread and an average holding period for stocks is around eight months.
This is the price at which the first bidder was prepared to buy a share or the highest price that a seller was willing to accept for a share.
It does not necessarily represent what happened in that transaction – just what would have been needed to complete that transaction. So if there were higher bids along the way, this is not reflected here.
The best task is also called “offer”. This is the lowest price a seller will accept for selling one unit of an asset.
Again this does not reflect what would happen in practice, but the lowest price someone is willing to sell. Hence it’s also called “ask” or “offer”.
Therefore, this would be the highest bid and the lowest ask (or offer), respectively.
Stock Exchanges
The Hong Kong Securities Clearing Company Limited (HKSCC) operates a different system for settlement of trades than in many other stock exchanges. After executing a transaction, both parties have to wait three working days before settling them.
This withdrawal of cash is known as T+3 and has been part of their market design since 1987, according to HKSCC. Other stock exchanges use a system called T+2, where cash gets withdrawn two working days later instead.
Hong Kong does not operate an exchange-traded fund market.
Similar to other exchanges, the HKFE operates a “call market” for companies experiencing liquidity problems. It functions as a miniature version of the exchange and runs in parallel with the official trading system: the platform is managed by Hong Kong Exchanges and Clearing (HKEX). Still, it has an independent board that decides which companies can list there.
Calls are announced when a company’s stock falls into specific price ranges, allowing such stocks to re-enter regular trading at prices close to their respective book values. However, these measures do not apply to any foreign companies listed in Hong Kong.
Derivative Markets
HKFE does not have its own derivatives market either at this point.
The vast majority of derivative products, including interest rate futures and options, currency futures and options, and stock index futures and options, are traded on the SEHK.
The Hong Kong Futures Exchange (HKFE) was established in May 1986 by the then colonial government of Hong Kong under the Hong Kong Futures Exchange Ordinance Cap 482 to provide a risk management facility for those sectors of the community who wish to hedge against any future uncertainty.
The HKFE is now an integral part of the global economy, with transactions linking to all major financial centres.
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