"Exchanges and clearing houses are no longer the only market where buyers and sellers trade or clear transactions," said Kwong Ki-chi, chief executive of Hong Kong Exchanges and Clearing Limited (HKEx). Mr Kwong was speaking in London at the first-ever meeting of the worlds securities industry infrastructure leaders today.
The meeting, co-sponsored by HKEx, follows the publication last October of a white paper by New Yorks Depository Trust & Clearing Corporation (DTCC) on central counterparties (CCP). The paper suggested that the global securities industry would benefit from the development of a global clearing solution, in parallel with national or regional initiatives for the worldwide growth of securities trading.
"Exchanges and clearing houses face competition from each other and from independent service operators," Mr Kwong said. "Institutional investors, investment banks and securities firms have become more powerful, demanding and global.
Mr Kwong said the force of competition had raised overall standards through various market demands, including the demand for round-the-clock processing.
"Globalisation has become a major driver of change. We see rapid growth in cross-border portfolio investment and diversification of investment products and markets," Mr Kwong said.
He said exchanges and clearing houses had responded to increasing competition by greater horizontal and vertical integration and international cooperation.
Jill M. Considine, chairman and chief executive officer of DTCC, and co-chair of the conference, said the implications of expanding global markets and increased cross-border investing were significant for markets and investors and for the world's financial system.
"Today, more than ever, we need to ensure the financial services industry infrastructure keeps pace with the growing demands for seamless cross-border trading by helping to minimise risk, lower cost, optimise capital efficiency and maximise liquidity for industry participants," Ms Considine said.
Mr Kwong said the new landscape had raised questions about the merits of one CCP serving a single market. "But there are questions on whether full integration or just technical linkages between existing entities will be the right way forwards," he said.
"The consolidation of CCP through mergers will realise greater economies of scale, maximise netting and offsetting opportunities and eliminate duplication of infrastructural investment. Its drawback is that the domination of one or a few CCPs may concentrate risks too narrowly," Mr Kwong said.
He pointed out there had not been any consolidation across borders in Asia, unlike in Europe, because of differences in legal frameworks, regulatory approaches and currencies.
However, exchanges and clearing houses in the Asia Pacific region wanted to expand beyond the traditional listing, trading and clearing of domestic shares. This had led to the establishment of some forms of linkages or alliances within the region as well as with parties in other time zones.
Mr Kwong anticipated that the one-and-a-half-day conference would provide insights to the issues facing the industry. "What is clear is that it is not viable for us to do nothing," he said.
"We will only survive and develop successfully if we are able to provide the right products and services to the market in the most efficient way and at the most competitive price," Mr Kwong said.
The full speech is available on the Exchange's website at http://www.hkex.com.hk.