Hong Kong, China Announce Cross-Border Derivatives Joint Venture

Hong Kong Exchanges & Clearing Ltd., Asia’s biggest exchange company by value, agreed to set up a joint venture to develop index-linked and equity derivative products with its mainland Chinese counterparts.

The venture with the Shanghai and Shenzhen stock exchanges will develop cross-border indexes and products, according to a statement from Hong Kong Exchanges yesterday. The announcement comes before China’s President Hu Jintao visits Hong Kong for the 15th anniversary of the city’s return to Chinese rule.

Hong Kong Exchanges is seeking to expand by offering yuan-denominated and China-linked products as the pipeline of big initial public offerings from the world’s second-largest economy slows. The exchange this month agreed to pay 1.39 billion pounds ($2.2 billion) for the London Metal Exchange, which handles more than 80 percent of trade in futures for industrial metals, of which China is the No. 1 consumer.

“Further integration of exchanges will actually enhance trading at the three exchanges,” Charles Li, chief executive of Hong Kong Exchanges, said at a press conference yesterday.

The partners will each invest HK$100 million ($12.9 million) in the new company, to be established within three months of yesterday’s signing of the agreement.

Future Plans

The venture will develop off-shore products related to shares traded in China, though no timeline was set, according to a presentation by Hong Kong Exchanges. The indexes should be created by the end of 2012 with futures and options listed in 2013.

The joint venture’s nine-member board will include three directors nominated by each of the exchanges, according to the statement. Shanghai and Shenzhen will each appoint a co-chairman and Hong Kong will supply the chief executive.

Li told reporters that there had been no discussion about merging with the Chinese exchanges.

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