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Hong Kong Stock Exchange: HKSE Basics Explained

Date Modified: 21/04/2024

The Hong Kong Stock Exchange (exchange code “HKG”) is a major financial marketplace situated in Hong Kong, China. Its main function is to act as a platform for the trading of company shares, and a venue for companies in Hong Kong and mainland China to raise capital.

Main Points:

  • The primary function of the Hong Kong Stock Exchange is to act as a platform for trading company shares and facilitating initial public offerings for companies in Hong Kong and mainland China.
  • Hong Kong's stock market journey began in 1891 with the Stockbrokers' Association and is now a subsidiary of the holding company Hong Kong Exchanges and Clearing Limited (HKEX).
  • The Hong Kong Stock Exchange operates on an order-driven trading system, known as OTP-C.
  • The Securities and Futures Commission (SFC) is the main regulatory board for the Hong Kong Stock Exchange.

Understanding the HKSE and HKEX

Formally known as the Stock Exchange of Hong Kong (SEHK) and ranked among the largest stock exchanges by market capitalization, the Hong Kong Stock Exchange is one of the primary securities markets in Hong Kong. It is a subsidiary of the holding company Hong Kong Exchanges and Clearing Limited (HKEX).

The HKEX is a combination of different parts of the Hong Kong financial market including:

  1. Stock Exchange of Hong Kong (SEHK): Where people buy and sell shares of companies.
  2. Hong Kong Futures Exchange (HKFE): Where people trade contracts based on the future prices of stocks and other assets.
  3. Clearinghouses: Organizations that ensure smooth and secure transactions between buyers and sellers in Hong Kong.

As a result, HKEX establishes itself as a home to different securities under the supervision of the Securities and Futures Commission (SFC), and helps people trade and invest in shares, bonds, real estate investment trusts (REITs), derivatives, exchange-traded funds (ETFs), etc.

In January 2024, the combined market capitalization of HKEX amounted to $3,97 trillion. There were a total of 2,609 companies listed on the HKEX, including the HKSE. Most of these companies (2,428) are from within Hong Kong, and the others (181) from other countries.

Some of HKEX biggest companies are publicly traded Fintech companies such as Chinese banks and insurance companies, including the ICBC (Industrial and Commercial Bank of China), CCB (China Construction Bank), and ABC (Agricultural Bank of China). The most notable is Tencent Holdings, a major internet company, which stands out as the most valuable company.

The Significance of the Hong Kong Stock Exchange

HKSE plays a key role in several important areas of both its domestic and the broader global economy:

  1. Hong Kong Stock Exchange is located in Hong Kong, the fourth largest financial hub in the world.
  2. By market capitalization, HKSE is the fifth largest stock exchange in the world and the third largest Asian stock exchange behind the Tokyo Stock Exchange and Indian Stock Exchange.
  3. As of the end of 2020, the exchange reported 2,538 listed companies with an aggregate market capitalization of about HK$47 trillion (USD 6.06 trillion).
  4. HKSE serves as a leading venue for companies in Hong Kong and mainland China to raise capital, thus facilitating economic growth and investment in the region.

The History of the Hong Kong Stock Exchange (HKSE)

Hong Kong's stock market journey began in 1891 with the “Stockbrokers' Association,” the first official exchange in Hong Kong which was renamed in 1914 to “Hong Kong Stock Exchange.” Later, in 1921, another exchange emerged, the “Hong Kong Stockbrokers' Association” (exclusively for Chinese members). After World War II, both exchanges merged in 1947, forming a unified “Hong Kong Stock Exchange”.

As Hong Kong's economy boomed, new exchanges like the Far East, Kam Ngan, and Kowloon Stock Exchanges appeared. Recognizing the need for consolidation, all the exchanges merged together in 1980 to form the “Stock Exchange of Hong Kong.”

However, the 1987 market crash highlighted the need for further reform which led to significant changes including the establishment of a central clearing system (Hong Kong Securities Clearing Company) and a dedicated regulatory body (Securities and Futures Commission) in 1989.

Embracing technological advancement, the Stock Exchange of Hong Kong (SEHK) introduced automated trading in 1993 and options trading in 1995.

In 2000, a major merger took place. The HKSE (SEHK), the Hong Kong Securities Clearing Company, and the Hong Kong Futures Exchange merged to create the "Hong Kong Exchanges and Clearing Limited" (HKEX) which became a publicly traded company in the same year.

This marked a significant step in modernizing and strengthening the Hong Kong financial market infrastructure.

By 2017, as electronic trading became dominant, the physical trading floor closed. Following the symbolic end to the era of electronic trading, in 2018, the Orion Trading Platform - Securities Market (OTP-C) was launched to enhance the handling of electronic trading orders, process numerous orders simultaneously, match orders quickly and efficiently, and adapt to evolving needs and technologies.

How Does the Hong Kong Stock Exchange Work?

  1. HKSE Trading Mechanism
  2. The Hong Kong Stock Exchange's technology, known as OTP-C, operates on an order-driven trading system.

    This means orders are executed in price and time priority i.e. if a buyer and a seller agree on the same price for a stock, the orders are instantly matched. However, if there's no immediate match, the order doesn't disappear. It waits in line at its chosen price point. As other orders at the same price get matched, the order moves up the queue, getting closer to finding its perfect match.

    Once an order is inputted into the system, it cannot be changed or canceled. The order stays in the system until it's either matched with another order for the same price or until the market closes.

    Only the Board of the Stock Exchange can cancel a trade if there are exceptional circumstances.

  3. HKSE Trading Hours and Holidays
  4. The Hong Kong Stock Exchange (HKSE) is open for trading from Monday to Friday, excluding holidays.
    Here's a breakdown of the HKSE trading sessions:

    Session

    Time

    Pre-opening Session

    9:00 AM - 9:30 AM

    Morning Session

    9:30 AM - 12:00 PM

    Extended Morning Session

    12:00 PM - 1:00 PM

    Afternoon Session

    1:00 PM - 4:00 PM

    Closing Auction Session

    4:00 PM - Between 4:08 PM and 4:10 PM

    Additional Considerations:

    Half-Day Trading: Sometimes, the HKSE has shorter trading days without the extended morning or afternoon sessions.
    Holidays: On major holidays like the Eve of Christmas, New Year and Lunar New Year there are no Extended Morning or Afternoon Sessions.

  5. HKSE Order Types and Trading Session
  6. The Hong Kong Stock Exchange (HKSE) offers various order types, tailored to specific trading sessions. They include:

    1. Orders for the Pre-opening and Closing Auction Sessions:
      • At-Auction Orders: Orders are placed without a specified price. Instead, the system matches orders at a single "fair" price, determined by the prevailing supply and demand.
      • Auction Limit Orders: Orders are placed with a specified price limit, ensuring execution only occurs if the market price meets or exceeds this limit.
    2. Order types for the main trading session (morning, ext morning, and afternoon):
      • Limit orders: You set a specific price you're willing to pay/sell at. The order stays in the system until matched with another order at that price or a better one.
      • Enhanced limit orders: More complex orders with specific rules for execution, like time limits or hidden prices.
      • Special limit orders: Used for large trades with special conditions.
      • All-or-Nothing: Your order is either filled completely or not at all, it doesn't stay partially fulfilled.

    How to Buy and Sell Shares Listed on the Hong Kong Stock Exchange

    Several financial instruments provide liquidity for traders looking to engage in speculating on the shares listed on the Hong Kong Stock Exchange.

    Traders may:

    • Trade Hong Kong Shares
    • Trade Hong Kong Indices
    • Trade Hong Kong ETFs

    1. How to Trade Hong Kong Shares
    2. You can gain exposure to stocks listed on the Hong Kong Stock Exchange by trading share CFDs on our trading platform. Contracts for Difference (CFDs) allow you the flexibility to open leveraged positions and gain exposure on any stock listed on the Hong Kong Stock Exchange with the sole aim of making a profit (or loss) from the price difference between your entry and exit without physically owning it.

    3. How to Trade Hong Kong Stock Market Indices
    4. The Hong Kong Stock Market is tracked by a variety of stock indices, each focusing on specific groups of stocks. They include the Hang Seng Index, Hang Seng China Enterprises Index, Hang Seng China AH Index Series, Hang Seng China H-Financials Index, Hang Seng Composite Index Series, and Hang Seng China A Industry Top Index, etc.

      Among these, the Hang Seng Index (HSI), also known as the Hang Seng 50 index (HS50) or Hong Kong 50 (HK50), stands out as the most prominent and widely followed index. To gain exposure to the HSI, you can trade Hong Kong 50 CFDs on the Plus500 trading platform.

    5. How to Trade Hong Kong Stock Market ETFs
    6. Traders looking to buy or sell Hong Kong shares can do so through exchange-traded funds (ETFs) CFDs. Hong Kong Stock Market ETFs are funds that provide diversification, allowing you to buy or sell a basket of Hong Kong shares in a single trade position. Popular Hong Kong ETF CFDs include the iShares MSCI Hong Kong ETF and the Franklin FTSE Hong Kong ETF.

    Steps to Buy and Sell Shares Listed on the Hong Kong Stock Exchange

    To start trading contracts for difference on any financial instrument linked to the Hong Kong Stock Exchange, you can take the following steps:

    1. Sign up for a CFD trading account.
    2. Access the Plus500 interactive trading platform.
    3. Identify the specific Hong Kong instrument you wish to trade.
    4. Analyze the instrument price to decide if you want to go long (buy) or short (sell).
    5. Adjust your number of contracts (i.e. choose your trade size).
    6. Set your risk management parameters: Take profit, stop loss, etc.
    7. Click the "Buy" or "Sell" button to open a trade on your chosen Hong Kong stock.

    Who Regulates the Hong Kong Stock Exchange (HKG)?

    The Securities and Futures Commission (SFC) is the main regulatory board for the Hong Kong Stock Exchange. It was established in 2003 with the primary role of creating clear rules and regulations to protect investors and traders. Compared to the stock exchange of Mainland China, the Securities and Futures Commission (SFC) developed more comprehensive objectives to ensure fairness, trust, and safeguarding of the HKSE. This is supported by its four operational units, as follows:

    1. HKSE Enforcement Division: They enforce market integrity to protect investors and traders.
    2. HKSE Corporate Finance Division: They act as gatekeepers, overseeing companies listing activities on the HKSE.
    3. HKSE Supervision of Market Division: Conducts supervision and regulation of stock exchange and clearinghouses through self-administered measures.
    4. HKSE Intermediaries and Investment Products Division: They set the rules and requirements for the financial companies and trading instruments on the Hong Kong Stock Exchange (HKSE) making sure they're financially stable and operate ethically.

    How do Companies Get Listed on the Hong Kong Stock Exchange?

    To be eligible for listing on the Main Board of the HKSE, a company is required to have:

    • a financial track record of 3 years trading history.

    The company must meet at least one of the following three financial criteria at the time of listing:

    • A market cap of at least HK$500 million and a total profit of HK$80 million over 3 years, with minimum profits in the last year and previous 2 years combined.
    • HK$4 billion market cap & HK$500 million revenue in the last audited year.
    • HK$2 billion market cap, HK$500 million revenue, and positive cash flow of HK$100 million over 3 years.

    Additionally, the company must have the following:

    • Sufficient working capital for at least the next year.
    • No minimum share price set.
    • At least 25% of shares publicly held and 300 shareholders at listing.
    • No single or combined ownership exceeding 50% of publicly held shares by the top 3 shareholders.

    Steps to List a Company on the Hong Kong Stock Exchange

    With a clear understanding of the HKSE market environment, let’s see the steps required of a company to get listed on the Hong Kong Stock Exchange. The listing process is as follows:

    1. Assemble a team of professional advisors, including sponsors, underwriters, both foreign and domestic lawyers, accountants, etc.
    2. Conduct due diligence and draft a prospectus detailing the operations of your company, describing the securities that have been put up for sale, and reason for offering the securities.
    3. Submit the listing application to the Listing Department.
    4. Get evaluated based on eligibility, sustainability, and compliance with rules, among other criteria.
    5. Present your case to the board (Listing Committee) for approval.
    6. Market your IPO (initial public offering) and sell shares to investors.
    7. Once approved and shares are sold, your company is officially listed and begins trading on the HKSE.

    Top 20 Largest HKSE Stocks by Market Cap (February 2024)

    #

    Company

    Symbol

    Market Cap (bn)

    1

    Tencent

    00700.HK

    2,712.58

    2

    Alibaba

    09988.HK

    1,510.91

    3

    China Mobile

    00941.HK

    1,436.52

    4

    HSBC

    00005.HK

    1,179.79

    5

    CCB

    00939.HK

    1,120.34

    6

    AIA Group

    01299.HK

    714.66

    7

    CNOOC

    00883.HK

    700.18

    8

    NetEase

    09999.HK

    566.54

    9

    Meituan

    03690.HK

    425.60

    10

    ICBC

    01398.HK

    333.29

    11

    Xiaomi

    01810.HK

    316.45

    12

    HKEX

    00388.HK

    307.07

    13

    Baidu

    09888.HK

    290.52

    14

    JD

    09618.HK

    276.20

    15

    Li Auto

    02015.HK

    252.73

    16

    Ping An

    02318.HK

    252.10

    17

    BOC

    03988.HK

    246.69

    18

    CITIC

    00267.HK

    222.25

    19

    Nongfu Spring

    09633.HK

    215.99

    20

    SHK Properties

    00016.HK

    209.65


    Conclusion

    The Hong Kong Stock Exchange (HKSE) began its journey in the late 1800s. Since then, it has grown to become one of the largest stock markets in Asia. It has also embraced technological advancements to provide a seamless trading experience for traders and investors globally, all under the regulatory oversight of the SFC.

    FAQs

    Can I Buy and Sell Hong Kong Stocks?

    Yes, you can buy and sell Hong Kong stocks by speculating on Hong Kong share CFDs (Contracts for Difference) on the Plus500 trading platform.

    What Are H-shares?

    H-shares refer to securities of companies incorporated in mainland China that are listed on the Hong Kong Stock Exchange, allowing them to be traded by investors and traders internationally.

    How Many Exchanges Does Hong Kong Have?

    Hong Kong's financial market infrastructure is mostly centered around the HKEX, the holding company that oversees the Stock Exchange of Hong Kong, the Hong Kong Futures Exchange (HKFE), the Growth Enterprise Market board, and various other segments of the market.

    Hong Kong's financial market infrastructure is mostly centered around the HKEX because there are various segments of the Hong Kong financial markets under the HKEX. The HKEX as a holding company oversees the Stock Exchange of Hong Kong, the Hong Kong Futures Exchange (HKFE), the Growth Enterprise Market board, Clearing houses, and other minor segments of the Hong Kong financial market.

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