Hong Kong Exchanges Bids $39B to Take over London Stock Exchange
reuters.com
reuters.com
To those who thought this has nothing to do with China political agenda, please check the background of current CEO and president. Also, note that HK gov appoint half of the board member.
It took the British over 70 years to fully pacify the Hong Kong people, culminating in the ‘67 protests that ended with over 50 dead protesters. Heck, it took well over a hundred years after the Civil War before true civil rights.
Maybe we just need more time before the Chinese change?
While I of course admire the idea of the west standing up to China, the reality is that the free market is large, and doesn’t necessarily care.
In the end I think it’s mostly important to get rid of our “addiction” to cheap factories and production in China, as it proves problematic long-term.
The outcome is still the same though is it not? You’re not really in control of anything.
This is deeply subjective obviously: It didn't strike me as "whataboutism," but more a refutation of what seemed like a moral-political superiority complex. Devopyl's comment expressed this old-fashioned view; very reminiscent of the 80s and 90s, for me, and I think geogra4's balloon-popping was well in order.
We may have different definitions of "whataboutism" as well :)
We in HK witness on first hand the determination and capability of CCP to slowly gobble up our society. If CCP would be allowed to sliently infiltrate Western society and political sphere, in 20yrs........
https://www.theguardian.com/world/2019/sep/11/new-zealand-op...
Just because Trump has tried to normalise just that (ref: Russia and North Korea) doesn't make it acceptable.
The US has the highest incarceration rate in the world, by a large margin, almost 7 times that of China.
It's happened on both sides of politics: https://www.abc.net.au/news/2017-12-12/sam-dastyari-resigns-...
And even state politics get $100,000 cash donations in aldi bags: https://www.abc.net.au/news/2019-09-06/huang-xiangmo-denies-...
The more HK is economically hard to kill,the more it can bribe its way out of chinese integration. This is a good move.
On this rate, within 20 years, CCP would have major political grip on most major Western societies from within those countries. What a horrifying thought.
You just described Google, and they seem to have plenty of cash in the bank.
If there exists a business whose product is “scalable real-time order-book matching software” as licensed software or SaaS, I’d love to know about it! I’m in an adjacent space, and I’d love to strike up a partnership with such folks.
As far as I know, such a business doesn’t exist; all the big exchanges maintain their own core IP, much like all the big telcos in the 90s maintained their own core telecom-equipment IP. From what I know of the space, each player thinks that licensing the IP would just be either inviting a new player to the table, or more likely inviting enough new players to the table that other parts of the trading value chain would start to see value in abstracting-away and commoditizing their part of it.
The government ban on any competition to HKEX means that their net profit margin was 61% last year.
As activist investor David Web put it:
"On top of that, HKEX doesn’t even do its job well as an exchange, because it has been exempted from the Competition Ordinance and has fees, profit margins and archaic practices that only a monopoly could get away with."[2]
>Exchanges don't do clearing
True, but this is HKEX, which stands for Hong Kong Exchanges and Clearing. They operate 4 clearing houses in HK.
update: 61% was first 9-months. Fully year was 58%[1]
[1] https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Releas...
Stock options do the same, with a very flawed mathematics (assuming a random walk while having a fat tail distribution). Good luck.
No-deal would be so damaging that the markets don't think it's going to happen, and that props up the Pound. So it takes a lot of political madness to convince the market that the worst is happening, and that's when the Pound starts plumbing historical depths. Then the madness recedes, and the Pound bobs back up again.
Brexit is a whole great big seething can of uncertainty. Just look at the last few years.
How do you price in all those disparate outcomes into the same price?
[0] UKs own requirements for Brexit are mutually exclusive 1) No customs union, 2) No Northern Ireland border, and 3) No border inside the UK. These three can't exist in the same deal. The only real way to properly Brexit would be to cut Northern Ireland lose or risk reigniting the Troubles by violating the Good Friday Agreement.
Then you can't make the claim that the pound will continue to devalue. The pound is volatile, but you can't make predictions about the long term value with certainty.
Something being priced in requires there to be at least some certainty about what will happen.
Why on earth would that be when it has not come to pass yet?
OTOH, as there is considerable and evolving uncertainty about even the short-term Brexit prospects (as in, will the UK leave, and if so when and on what terms), estimates of the likelihood of various long-term scenarios are likely to also be in considerable flux,even before considering potential evolution in estimates of the effects of each potential scenario.
“The market knows the future and has already completely priced it in” is disproved every time the market moves, but people still like to treat it as some kind of deep wisdom.
Well at best you can know the future probabilistically. The fair price of flipping a coin and getting $2 on heads is $1, but once the coin is flipped, you have new information, and the fair price is either $2 (if it landed heads) or $0 (if tails).
Wait, someone finally proved P ≠ NP?
Conditioned on Brexit actually happening, a prediction of a weaker pound is reasonable.
You can also hide money in Switzerland, Liechtenstein or other offshore centers. But if you know the market, you know that it has gotten a little bit tricky, especially since last year.
the EU can ban EU firms from using LCH, but they can't stop firms outside the EU using Euros
it'll just end up in a situation like the eurodollar
1. Joining the EU
2. Making reforms (Thatcher)
3. Found oil in the Northern Sea.
The oil is gone and they leave the EU. Lets see how that goes.
Please also take this into consideration: https://hbr.org/2019/08/did-austerity-in-the-uk-lead-to-the-...
3. Found oil in the Northern Sea.
Could you elaborate on this or add a link to an article that explores this under-mentioned reason as one of the contributing factors for the UK's decision to pull out of the EU?
Were the oil revenues very significant in the previous decades? Have they tapered off due to the U.S. shale boom?[1] Did the UK see this development coming? [2]
[1] Shale gas in the United States
https://en.wikipedia.org/wiki/Shale_gas_in_the_United_States
[2] How The Shale Boom Turned The World Upside Down
https://www.forbes.com/sites/rrapier/2017/04/21/how-the-shal...
I did not make this statement. But
1. I once saw a graph that showed that the re-rise of the UK strongly correlated with oil production. The correlation does not imply causation but it was quite stunning. I looked several times for the article but did not find it again. But it made me always doubt that it was only Thatchers reforms the reinvented the UK.
2. I did not say that the UK is pulling out of the EU because of sinking oil revenues. But please consider the article that I already posted: https://hbr.org/2019/08/did-austerity-in-the-uk-lead-to-the-...
UK Oil production: https://en.wikipedia.org/wiki/Oil_and_gas_industry_in_the_Un...
So there may be a connection (less social services, less income from oil, frustrated people). London voted to stay, it was poor areas that voted "leave".
Edit: I see you are referring to country specific taxes. Where does Hong Kong play into this then—why not just say tax haven?
Being outside the EU financial system will somehow make it the HK of Europe?
Fundamentally though I don't see why an exchange is worth much. Yes it sees all the deal flow, but it can sell info, it can't trade on it (else, apart from getting in trouble with regulators, it would lose all its customers).
It is a "cash-and-share" transaction, the cash is borrowed. If it were shares only, you take ownership and you give $27b of newly minted shares to the previous owners (as a very crude approximation).
Of course, there's a lot more going on than just the above!
pre-brexit it was, anyway :) Moving forward remains to be seen...
Who owns the company has very little to do with whether it's operating in the UK.
The relationship between India & the UK is quite a bit different than with China. Also the impact on the economy that foreign owners could have through an individual company is significantly less than what could be achieved with the continent's largest exchange. In the past China has had no problem financially blackmailing a company into submission when they happen to reference Taiwan as an independent country. It was very much like "Oh, nice business you have, and lots of it in China! Shame if something were to happen to it. Shame about your slip up with Taiwan too. Shut it down, your business in China, for a few weeks. And publicly grovel like a dog begging for a treat."
I can only imagine what they would do if China owned the LSE and there was any type of high-profile disagreement with China & the UK or Europe.
HKEX (which wholly owns the Stock Exchange of Hong Kong) is a publicly listed company. The HK Governeent owns 5.4%[1].
[1] https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0319/...
It seems unlikely that this deal would create a monopoly.
https://www.predictit.org/markets/detail/5429/Will-the-UK-of...
So arguably both the political factors are actually encouraging these moves.
I'm sorry. This is neither the place nor the time. I'll clear my desk within 15 minutes.
the City is a glorified borough council with a long complicated history, which has granted it a large bank balance, weird electoral franchise, small police force, and an observer in Parliament
every business in the City follows the same set of laws as those a 10 miles away in Croydon, other than local bylaws (laws on things like littering and dog mess)
Although it's a valid point, most of the dodgy stuff is now done in a weird off-the-books theoretical location (or downright explicitly in the whole city).
Still interesting the Queen can't go inside without permission.
The City of London is part of Greater London and subject to the jurisidiction of the Greater London government. ("Greater London" being the entity that most people are thinking of when they refer to "London"). The London Stock Exchange is in the City of London, which means that it's also in London (Greater London) as well.
It is organised differently to anywhere else in the UK, and distinctly odd. The rest of the UK got rid of those few last remnants of the Middle Ages in the 50s through 70s, though nowhere had kept around as many as the City.
They some senior people in the City of London government was clear that they had to balance the desires of the residents with those of employers/employees. Otherwise residents (<10,000) would have significant sway over employees (>300,000).
Its not some weird dystopian future. It simply makes sense to listen to those who live and work in the City.
the employer is instructed to allocate such that "voters nominated should reflect the whole diversity of an organisation's employees, including gender, ethnicity and seniority"
the employees nominated can then can vote however they want (secret ballot and all)
the employer itself can't vote
the firms I've worked for in the City handed asked for volunteers each year, and then selected people at random from those volunteers
(and there simply aren't enough upper management per votes allocated to stack the ballot that way)
Politics aside, there's often the mindset that a foreign company would look to increase "efficiencies" and then offshore elements. Not many people will cry tears over lost City jobs, but there'd be an interesting narrative at play.
Is there actually a mechanism where this could be a problem for the UK/The West? Exchanges are pretty well regulated, I don't see how this is going to be a particular problem.
Edit: Spelling
Plus, ability to control the market at critical times.
The Hong Kong government only owns 6% of HKEX, but they have the right to appoint 6 of the 13 directors. If they get one of those remaining 7 directors on their side somehow, the Hong Kong government has total control of HKEX. It seems like the government would be able to assert control if it really wanted to.
And as we've seen recently, the Hong Kong government is basically controlled by the central Chinese government. The Communist party controls all appointments.
If this bid goes through, it would be pretty ironic, because it would mean the Chinese Communist Party now controls the London Stock Exchange. In general I support allowing cross-border purchases but this one seems pretty dangerous.
For example, imagine the Chinese government putting pressure on every company listed on the LSE to stop supporting the Hong Kong protests, or to stop referring to Taiwan as its own country.
I feel that the more free and accessible public market information is, the better it is for all forms of investors and other market participants. Consolidation (in my experience at least), has served to move things in the opposite direction. I do not view further consolidation as a move that helps anyone but the executives and shareholders of the two exchange groups.
Countries have bespoke rules as to how they utilize outside help, everything from merely purchasing the source code and running & operating themselves to fully outsourcing everything.
Outside of US equities, most other worldwide markets are pretty tiny as far as transaction volume goes.
There are 8 nuclear powerstations currently operating in the UK, and they are all owned and managed by EDF Energy, the UK subsidiary of the French state owned EDF.
Obviously there is a large difference between French and Chinese state owned companies
Meanwhile the NYSE is owned by ICE with tons of EU operations after buying Euronext (ie: Paris and Amsterdam to name 2).
Nasdaq owns a bunch of Baltic and Scandinavian exchanges.
The Boursa Italia isn’t exactly a juggernaut in EU/world terms.
And there’s lots of exchanges for Italian companies to list on if they want good access to their shares (e.g. Ferrari cross listed in NY).
For euro based exchanges the ship has largely sailed even with where their corporate parents are based with giant impactful exchanges like Liffe being owned by external companies.
Recently (2016) in the UK SoftBank's acquisition of Arm was at least somewhat controversially approved; it was by no means a done deal just because SB offered and shareholders agreed.
I don't have a lot of cash savings, I'm generally quite LONG on smallholder African farmers, but I think if I was going to put money anywhere right now it would be into a mixture of the Nikkei, FTSE (singapore), Dubai, and KOSPI (korea) indexes. I think all of Japan's problems are understood and priced in. Japan and Korea have the advantage of both tending towards matrix organizations (Toyota and Nissan are both unusually resilient to tariffs) and Singapore and Dubai have the advantage of being financial hubs with nothing going on.
I'm confused by this theory; the only clear resolution I see China accepting would be a very bad one for HK, which doesn't seem like a positive long-term situation for their status as a financial center.