Hong Kong Stock Exchange Ready to Invest in Blockchain & Other Tech Firms

The company behind the Hong Kong stock exchange is thinking about investments in innovative technology, people familiar with the matter told Bloomberg. For years, the Hong Kong Exchanges & Clearing (HKEX) has based its growth plans on Hong Kong’s closer relationships with China, but the company is now turning to technologies like blockchain. 

Bloomberg’s sources said that HKEX CEO Charles Li is thinking about acquisitions in the data, blockchain, and analytics sectors. The company has had meetings with at least three investment banks to negotiate potential startups and established firms. However, the sources shared their information of the record and didn’t provide any company names.

Given that the growth of trading relationships with Chinese exchanges is stagnating, Li wants to adopt the model of the venture capital arms of US giants like Nasdaq and CME Group. The sources said that HKEX executives were also worried about the worsening links between China and the US, which could have a negative impact on trading volume and eventually on the company’s revenue growth.

On September 10, the HKEX senior managers touched upon technology acquisitions as part of internal strategy discussions. The topic was also in the spotlight during a meeting with board members on September 12. HKEX’s management is meeting to establish the basics of a three-year strategy plan that would start next year. The final plan will be made public early in 2019.

In 2017, HKEX generated most of its revenue from clearing and trading fees, so it makes sense to turn to innovation and technology in order to diversify the sources of revenue, Li hinted at the meeting with senior managers.

Banny Lam, head of research at CEB International Investment, told Bloomberg:

“The strategy is in the right direction but it is not easy to achieve the targets. HKEX needs to maintain a momentum of growth by exploring new businesses.”

However, the sources said that the stock exchange operator might find it difficult to persuade investors that it can successfully redirect to technology, as it failed to smoothly integrate London Metal Exchange, which HKEX acquired in 2012 for $2.2 billion.

In March of this year, Financial Times reported that HKEX was collaborating with the Australian Securities Exchange (ASX) to implement blockchain. ASX is betting on the technology to fully replace its Clearing House Electronic Subregister System (CHESS).