Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Hong Kong Exchanges and Clearing / Equity Bottom-Up

Hong Kong Exchanges and Clearing (388 HK)

*Strong Revenue, Controlled Costs: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] reported a strong set of 3Q21 earnings at HKD 3.3 bn, improving HKD 481 mn (17.4%) linked quarter. Results were highlighted by HKEx’ marginally positive operating jaws, as recurring revenue improved HKD 550 mn (12.1%) while overall operating expenses declined nominally (under 0.1%) to HKD 1.5 mn over the period; and*A50, A New Avenue Of Growth: On October 18, 2021, HKEx successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering.

*Strong Revenue, Controlled Costs: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] reported a strong set of 3Q21 earnings at HKD 3.3 bn, improving HKD 481 mn (17.4%) linked quarter. Results were highlighted by HKEx’ marginally positive operating jaws, as recurring revenue improved HKD 550 mn (12.1%) while overall operating expenses declined nominally (under 0.1%) to HKD 1.5 mn over the period; and*A50, A New Avenue Of Growth: On October 18, 2021, HKEx successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering. 

Hong Kong Exchanges & Clearing – Solid Result Even Prior To A50

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT.  HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT.  HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term. 

Hong Kong Exchanges & Clearing – Hollowing Out Of SGX Starts

External broker reports(aggregated public sources), HDFC Securities

HDFC Securities

External broker reports(aggregated public sources)

NSE and BSE volumes were soft in July-21 but gradually recovered in Aug and Sep-21. BSE's cash/derivative markets for Q2FY22 stood at 8.0/4.1%, +80/-238bps QoQ. StAR MF continued to register strong growth, while INX declined 4% QoQ. BSE is expected to report 2.3% QoQ growth in revenue and an EBITDA margin of 32% (-32 bps QoQ). We maintain our core target multiple at 20x, which is still at a ~50% discount to peers. Our target price of INR 1,580 is based on 20x core Dec-23 PAT + net cash + CDSL stake.<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

NSE and BSE volumes were soft in July-21 but gradually recovered in Aug and Sep-21. BSE's cash/derivative markets for Q2FY22 stood at 8.0/4.1%, +80/-238bps QoQ. StAR MF continued to register strong growth, while INX declined 4% QoQ. BSE is expected to report 2.3% QoQ growth in revenue and an EBITDA margin of 32% (-32 bps QoQ). We maintain our core target multiple at 20x, which is still at a ~50% discount to peers. Our target price of INR 1,580 is based on 20x core Dec-23 PAT + net cash + CDSL stake.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Exchanges, Staffing and Internet (Q2FY22E Results Preview): Mixed bag; visibility improving

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] is set to launch a derivative product (China A50 contract), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT - not to mention 53% of its equity derivatives volume. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] is set to launch a derivative product (China A50 contract), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT - not to mention 53% of its equity derivatives volume. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.

Singapore Exchange – 50 Hits To Bottom-Line

*New Product Line: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] has published a consultation paper seeking feedback on offering Special Purpose Acquisition Companies (SPAC) by October 31, 2021; and    *Not A Panacea: We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream. Further, the US Securities and Exchange Commission (SEC) issued accounting guidance for SPACs, calling warrant issuance by SPACs liabilities rather than equity instruments. This could disrupt new SPAC filings, and certainly throw a wrench into HKEX’s SPAC plans.

*New Product Line: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] has published a consultation paper seeking feedback on offering Special Purpose Acquisition Companies (SPAC) by October 31, 2021; and    *Not A Panacea: We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream. Further, the US Securities and Exchange Commission (SEC) issued accounting guidance for SPACs, calling warrant issuance by SPACs liabilities rather than equity instruments. This could disrupt new SPAC filings, and certainly throw a wrench into HKEX’s SPAC plans.

Hong Kong Exchanges & Clearing – SPAC Time

India

BSE Ltd. is Asia's oldest stock exchange, providing a transparent market for trading in equities, debt instruments, derivatives, mutual funds, and other securities. It offers services including listing, trading, clearing, settlement, and data services, and operates platforms for SMEs and mutual fund distribution. The company is headquartered in Mumbai, India, and was founded in 1875.

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BSE (BSE IN)

Hong Kong Exchanges & Clearing – Solid Result Even Prior To A50

HKEX: HKEx reported a strong QOQ 3Q21 earnings growth of 17.4%, and highlighted by marginally positive operating jaws, as recurring revenue...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Hollowing Out Of SGX Starts

HKEX: On October 18, 2021, HKEx launched MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new...

Thomas J. Monaco

Exchanges, Staffing and Internet (Q2FY22E Results Preview): Mixed bag; visibility improving

NSE and BSE volumes were soft in July-21 but gradually recovered in Aug and Sep-21. BSE's cash/derivative markets for Q2FY22 stood at 8.0/4.1%, +80...

HDFC Securities

Singapore Exchange – 50 Hits To Bottom-Line

SGX: On October 18th HKEx is set to launch its own China A50 contract, which will be in direct competition with SGX FTSE A50 contract. SGX's A50...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – SPAC Time

HKEX: HKEX is seeking feedback on offering SPACs. We do not believe that SPACs are the panacea which will resolve HKEX’s weakened revenue stream.

Thomas J. Monaco

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