Charles Li ,Hong Kong Exchanges & Clearing Limited on Innovation

If there’s a single word that turns up the most in business conversations, panel discussions, speeches and lectures, that word might be “innovation”. Our generation of technological advancements from the internet to smartphones to mobile applications and crypto-currencies is defined by companies and individuals who can innovate to meet needs that customers didn’t even know they had, or find creative, new ways to topple much larger competitors.


While the word tends to be used in conjunction with tech startups, innovation is also a core capability of HKEX. It’s deep in our DNA, and not new or trendy to us. In many ways the Hong Kong financial market is at a disadvantage compared to other global financial centres, because we are a very small territory with an economy almost entirely based on services and logistics. We aren’t known for manufacturing anymore, and have few natural resources. Instead, we need to rely on our own creativity, work ethic, and ability to innovate. We need to outsmart our competitors to stay ahead.


The introduction of the H share regime in 1993 is a great example of innovation that drove our market’s success for 20-plus years, and Stock Connect is a more recent example. Our teams worked for years to overcome what many felt was “mission impossible”: finding a way to open up the Mainland market as much as possible while minimising the risks of an uncontrolled flow of capital. No exchange had ever done anything like Stock Connect before, and it has injected new energy into our market while opening a channel to the Mainland for international investors via Hong Kong.


Innovation is a core part of our company’s culture, and we’re now focused on innovating in three key areas: connectivity, our listing regime and technology.


Connectivity with Mainland China is a defining characteristic of our market, and we’re laser-focused on building on the strong foundation we’ve created. Stock Connect took years to create, because connecting two very different markets, with two different regulatory structures, market operations, and investor bases isn’t easy. The groundbreaking design of the Connect scheme blazed a trail that helped lay the groundwork for the launch of Bond Connect earlier this year. With Stock Connect flourishing, we are working to improve the scheme by adding new products, such as ETFs and listed bonds, and extending it to the primary market so investors on both sides of the border can invest in each other’s IPOs.


Our listing regime is also ripe for innovation. We’ve been seeking comment from the market on plans to allow a broader range of companies to list, provided they can ensure adequate investor safeguards are in place. Those companies could include high-growth companies and those with non-standard share structures, both new elements for our market. We watch economic trends as closely as everyone else, and want to ensure our market is dynamic, diverse, and reflects the exciting, high-growth sectors in our globalised economy. So we need to innovate to build a path for these companies, which give the market more choice while maintaining the high regulatory and governance standards that our market is known for.


Third, we are witnessing tremendous advancements in technology, particularly in Fintech, and we’re continually looking at ways to deploy innovative tech in our market to improve businesses processes, market efficiency and transparency. It’s too early to pin things down or make any announcements, but we are encouraged and inspired by some technologies such as artificial intelligence (AI) and blockchain. AI could potentially be effective in assisting the Listing Department’s review of unstructured data to enhance compliance monitoring, or blockchain might make sense as part of the clearing and settlement process. The cloud is also becoming ubiquitous, and there may be areas for us to utilise the power and capacity of cloud computing to test data and processes. We are first looking at how these technologies might help us on processes that aren’t mission critical to ensure they are secure. Then we can look at their effectiveness before possibly rolling them out on a larger scale.


As you can see, innovation doesn’t happen overnight; it takes time. I’ve heard some say we aren’t moving fast enough, or we aren’t aggressive enough. Others might say we are moving too fast, marginalising those who need more time to adapt.  The reality is the Exchange is unlike other businesses, and innovation for us involves a number of unique considerations.


Imagine a pack of wolves, slowly meandering through trees on the side of a cold and snowy mountain. Wolves move in packs, because it’s the best way for the entire pack to stay safe and find food to survive. There are some similarities to the different functions at HKEX.


At the front of the pack are the young, dynamic wolves that break down barriers and find the best routes. They symbolise our market development efforts. Behind them are more vulnerable wolves that might be older and weaker, or young cubs who need protection. Some are slower and some faster, and some need more help than others to keep up. Following them are the big, strong wolves – the ones tasked with protection, making sure the pack is moving along and doesn’t lose its way. At the back of the pack is the leader, who runs back and forth checking on the pack, making sure nobody is left behind and determining the overall direction.


The Exchange plays multiple roles in the market, just like the different wolves in the pack. On the one hand we are the young wolves in the front, but we are also the rear-guard wolves and leader wolf. We need to determine the direction and lead the pack, but at the same time we need to ensure each member of the wolf pack, or market, can keep up and is comfortable with the pace. The pack won’t be successful unless they work together.


Once we identify the best path, we need to be determined to push forward because it’s vital to our future survival. The Connect scheme is a great example, because it’s a critical piece of market infrastructure that gives us a strong competitive advantage and creates value for Hong Kong, the Mainland and our stakeholders. But on the other hand, when we embark on any controversial reform, like enhancements to the listing regime, we need to consider the interest and pace of all market players. Then we move a little more slowly in order to reach consensus. If that means we lose a big deal in the meantime, that’s the price we pay for keeping the pack together.


These are exciting times, but amid the new opportunities we will not lose sight of our broader responsibility to the market as a whole. We will continue to secure our long-term sustainability, reinforce our standards and ensure sufficient safeguards are in place to protect investors. We have come a long way over the years, and our desire to innovate is as strong as ever. We are well positioned to seize new opportunities, and by moving forward together I’m confident that we will have a bright future.



The above article courtesy of Hong Kong Exchange & Clearing Limited.