May 7, 2019 / 9:03 AM / 7 months ago

Hong Kong exchange, Euroclear launch ETF tie-up

HONG KONG, May 7 (Reuters) - Hong Kong’s stock exchange operator will partner with Euroclear, Europe’s largest settlement house for securities, on new arrangements to help bring European Exchange Traded Funds (ETF) to Hong Kong, the companies said on Tuesday.

Earlier this year, Hong Kong Exchanges and Clearing (HKEX) said it planned to become an ETF hub in Asia as part of its broader three-year strategic plan to make the exchange more relevant to global investors.

This plan includes listing ETFs in Hong Kong, which are based on shares of companies trading on other bourses.

The new model marks a change from HKEX’s previous strategy, which was focused primarily on connecting international investors and mainland China.

Currently, the bulk of stocks that can be traded in or through Hong Kong are those of Greater China-focused companies.

As part of this drive, HKEX will be the first exchange in Asia to adopt Euroclear’s international central securities depository settlement model, the companies said.

“By doing this, we can remove a lot of the operational inefficiencies that exist when you take a product out of its home market and put it into another market, and remove a lot of the liquidity fragmentation that can emerge,” said Brian Roberts, HKEX head, Exchange Traded Products.

The model allows trades to be settled in one central location rather than in various depositories in different markets - a significant move for ETFs including shares listed on different stock exchanges.

Such inefficiencies had kept some firms from issuing ETFs in Hong Kong, said Mohamed M’Rabti, deputy head, Euroclear’s FundsPlace business.

“Many issuers came to us two or three years ago saying that they have problems when they cross-list ETFs in Asia, as if there is a transaction the market maker needs to move some shares from Europe which can take four or five days to happen. Therefore, they are not confident to list and trade those ETFs,” he added.

ETFs with a value of 230 billion euros ($257.51 billion) are currently issued in the international structure, according to Euroclear.

HKEX, which competes with mainland Chinese as well as international exchanges, has also been looking to diversify revenue away from that linked to equities trading.

$1 = 0.8932 euros Reporting by Alun John, Editing by Sherry Jacob-Phillips

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