IN THE FAST-CHANGING WORLD of securities exchanges, Hong Kong Exchanges and Clearing sits in an enviable position. The Hong Kong Stock Exchange, which it operates, is the worlds fifth largest by the market capitalization of its listed companies, $2.83 trillion, and one of the most profitable. Over the past five years, it has had a greater volume of initial public offerings, $141.7 billion, than any other exchange in the world thanks to its status as the premier gateway to corporate China. At home it enjoys a statutory monopoly that protects it from upstart electronic exchanges, which have bedeviled established bourses elsewhere. Not surprisingly, investors have rewarded HKEx with a market cap of $21.5 billion, making it the most valuable exchange in the world, ahead of No. 2 Chicago-based CME Group.
Yet for all of the companys strengths, CEO Charles Li Xiaojia knows he cant afford to be complacent.
HKEx has a much narrower business than most of its global rivals, relying mainly on equity trading for its revenue and profits. The lucrative IPO business is vulnerable to erosion if the powers that be in China decide to promote their domestic exchanges in Shanghai and Shenzhen. Li needs to make the company bigger and broader if he wants to assure its continued success.
The former investment banker is moving quickly to do just that. Last June, HKEx outbid half a dozen rivals, including CME, IntercontinentalExchange and NYSE Euronext, to acquire the London Metal Exchange for £1.4 billion ($2.2 billion). The deal gives HKEx control of the worlds largest metals-trading venue and will, Li believes, enhance the LMEs position in China, the worlds biggest consumer of metals. He intends to use the LMEs platform to expand into other commodity sectors, such as energy. ....