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

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A50 Challenges:Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] launched the MSCI China A50 Connect (HK A50). This new product competes with 20% of Singapore Exchange’s (SGX.SP) [SGX] PBT; </li>
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Completely Distracted: On top of weaker equity volumes/fees and the HK A50 launch, SGX has made numerous moves which are more of a distraction than they're worth; and </li>
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Time For Massive Strategic Move: SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.</li>
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A50 Challenges:Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] launched the MSCI China A50 Connect (HK A50). This new product competes with 20% of Singapore Exchange’s (SGX.SP) [SGX] PBT; 

Completely Distracted: On top of weaker equity volumes/fees and the HK A50 launch, SGX has made numerous moves which are more of a distraction than they're worth; and 

Time For Massive Strategic Move: SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.


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

*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

Japan

Japan Exchange Group Inc is the holding company created through the merger of Tokyo Stock Exchange Group, Inc and Osaka Securities Exchange Co., Ltd. The group provides and operates a marketplace for the trading of equities, futures, and options. The Group manages the trading, as well as administers listed stocks and registered members.

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Japan Exchange Group (8697 JP)

Singapore Exchange - Ringing Hollow

SGX: A50 Challenges: HKEx launched the MSCI China A50 Connect, which directly competes with 20% of SGX' PBT. A recent competitor event revealed...

Thomas J. Monaco

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

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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