
Hong Kong Exchanges Bids $39B to Take over London Stock Exchange - pseudolus
https://www.reuters.com/article/us-lse-m-a-hong-kong-exchanges/hong-kong-exchanges-bids-39-billion-to-take-over-london-stock-exchange-idUSKCN1VW0YP
======
RavlaAlvar
Random HKer flying by. Dear Brits, please don't let China buy up your country.

To those who thought this has nothing to do with China political agenda,
please check the background of current CEO and president. Also, note that HK
gov appoint half of the board member.

~~~
devoply
Yes it seems the tide is turning on China. If they want to play ball with the
rest of the world they need to reform into a modern democracy and the CPC
needs to go away. Otherwise, we need to limit the authoritarian contagion.
China is pretty much exploiting Capitalist greed to get the Western world to
sell them the rope to hang them with.

~~~
geogra4
China still hasn’t apologized to the world for lying about WMDs in Iraq,
dropping nuclear bombs on Japan or mounting right-wing coups around the globe.
When will it start behaving more like the US?

~~~
simonh
Whataboutism is just plain dumb. One country doing bad things in no way
justifies any other country doing bad things. Especially when there is broad
agreement amongst most people that both things are bad.

~~~
modwest
I think geogra4's tone was of a kind with the post to which he was responding,
which seemed to be asserting that only "modern democracies" (which there
appear to be a scant few of these days) could "play ball," and that therefore
China is, I guess, disqualified from participating in the world economy?

This is deeply subjective obviously: It didn't strike me as "whataboutism,"
but more a refutation of what seemed like a moral-political superiority
complex. Devopyl's comment expressed this old-fashioned view; very reminiscent
of the 80s and 90s, for me, and I think geogra4's balloon-popping was well in
order.

We may have different definitions of "whataboutism" as well :)

------
throwaway13249
I don't understand how HKEX has this much money (or can raise) to buy LSE (or
invertly why LSE is worth this much). Exchanges don't do clearing so
essentially just a glorified piece of matching software running 24/7\. HKEX
has their own data center in the middle of nowhere granted which I've been to
and yeah more impressive than say an Equinix such HK1 but still the figures
don't seem right..

~~~
hn_throwaway_99
> Exchanges don't do clearing so essentially just a glorified piece of
> matching software running 24/7.

You just described Google, and they seem to have plenty of cash in the bank.

~~~
throwaway13249
Exchanges only have a couple of hundred customers afaiu, with the volume
coming through only a couple of dozen, everyone else is through their prime
broker. In other words there is a limit on how much they can pull fees up
before liquidity moves elsewhere. I wouldn't be surprised too if the matching
software was off the shelf.

~~~
derefr
> I wouldn’t be surprised too if the matching software was off the shelf

If there exists a business whose product is “scalable real-time order-book
matching software” as licensed software or SaaS, I’d love to know about it!
I’m in an adjacent space, and I’d love to strike up a partnership with such
folks.

As far as I know, such a business _doesn’t_ exist; all the big exchanges
maintain their own core IP, much like all the big telcos in the 90s maintained
their own core telecom-equipment IP. From what I know of the space, each
player thinks that licensing the IP would just be either inviting a new player
to the table, or more likely inviting _enough_ new players to the table that
other parts of the trading value chain would start to see value in
abstracting-away and commoditizing their part of it.

~~~
pdovy
I'm not quite sure how the terms / licensing for this works, but anecdotally
OSE, SGX, TOCOM, BrokerTec and at least the derivatives business in Hong Kong
all run on some variant of Nasdaq technology.

------
gumby
I’m surprised the LSE is even worth that much. It’s not like exchanges make
that much money. The bid is 15X revenue.

~~~
andy_ppp
Potential future earnings when London becomes the offshore Hong Kong of Europe
will probably be higher.

~~~
jayalpha
Extremely unlikely. They won't even be allowed to clear Euros.

~~~
andy_ppp
It won't matter, people from the rest of Europe will pay handsomely to keep
all of their money hidden in pounds.

~~~
mprovost
Not if the pound continues to devalue against the Euro (and everything else).

~~~
andy_ppp
Why would that continue long term?

~~~
billpg
Brexit.

~~~
tylerhou
The long term effects of Brexit should already be priced in.

~~~
dragonwriter
The expected long-term effects of each anticipated Brexit scenario weighted by
the current perception of the likelihood of each should be, sure.

OTOH, as there is considerable and evolving uncertainty about even the short-
term Brexit prospects (as in, will the UK leave, and if so when and on what
terms), estimates of the likelihood of various long-term scenarios are likely
to also be in considerable flux,even before considering potential evolution in
estimates of the effects of each potential scenario.

“The market knows the future and has already completely priced it in” is
disproved every time the market moves, but people still like to treat it as
some kind of deep wisdom.

~~~
SolarNet
I mean more counter examples are great but any one aware of NP=/=P should be
able to call bullshit on market's predictive ability.

~~~
dragonwriter
> any one aware of NP=/=P

Wait, someone finally proved P ≠ NP?

~~~
SolarNet
No, but it's generally understood to be very unlikely [0]. And if something as
well studied as markets exhibited NP in P behavior we would have exploited it
by now (FWIW, markets appear to be an efficient approximation algorithm like
evolution is; approximation algorithms (like evolution) being something we use
all the time to solve engineering problems).

[0]
[https://www.scottaaronson.com/papers/npcomplete.pdf](https://www.scottaaronson.com/papers/npcomplete.pdf)

------
colechristensen
Isn't financial services like the posterboy of the British economy? Why would
you even think of allowing the central feature of a major portion of your
economy to be sold outside the country?

~~~
Traster
I don't think the British have ever really had a huge problem with foreign
countries owning significant British companies. Is this signficantly different
from Tata motors owning practically all of british steel production? or French
companies owning big chunks of our energy production capacity?

Who owns the company has very little to do with whether it's operating in the
UK.

~~~
ineedasername
> Tata motors

The relationship between India & the UK is quite a bit different than with
China. Also the impact on the economy that foreign owners could have through
an individual company is significantly less than what could be achieved with
the continent's largest exchange. In the past China has had no problem
financially blackmailing a company into submission when they happen to
reference Taiwan as an independent country. It was very much like "Oh, nice
business you have, and lots of it in China! Shame if something were to happen
to it. Shame about your slip up with Taiwan too. Shut it down, your business
in China, for a few weeks. And publicly grovel like a dog begging for a
treat."

I can only imagine what they would do if China owned the LSE and there was any
type of high-profile disagreement with China & the UK or Europe.

------
italophil
Deutsche Boerse tried to buy LSE for years, but the EU blocked it in 2017. I
fail to see how this deal would be any better; financial markets are global so
why does it matter where the acquirer sits.

~~~
swarnie_
What jurisdiction does the EU have over a UK business and its HK buyer in 6
weeks?

~~~
Scoundreller
64% likelihood of continuing EU jurisdiction according to this prediction
market:

[https://www.predictit.org/markets/detail/5429/Will-the-UK-
of...](https://www.predictit.org/markets/detail/5429/Will-the-UK-officially-
exit-the-European-Union-by-Nov-1)

~~~
swarnie_
That's just a prediction. Currently, legally my question still stands.

~~~
Scoundreller
Currently, the law is subject to change. And has been multiple times.

------
ape4
You'd think London (Brexit) and HK (huge demonstrations) would be rather
preoccupied now.

~~~
jdietrich
The London Stock Exchange isn't technically in London - it's in the City of
London, an exceedingly weird semi-autonomous enclave where corporations can
vote in elections.

[https://en.wikipedia.org/wiki/City_of_London](https://en.wikipedia.org/wiki/City_of_London)

~~~
blibble
the misinformation that the City somehow lives outside UK law seems to be
common on the internet

the City is a glorified borough council with a long complicated history, which
has granted it a large bank balance, weird electoral franchise, small police
force, and an observer in Parliament

every business in the City follows the same set of laws as those a 10 miles
away in Croydon, other than local bylaws (laws on things like littering and
dog mess)

~~~
wastedhours
The voting thing is important though, as allowing buildings to vote is very
different legally to outside the City.

Although it's a valid point, most of the dodgy stuff is now done in a weird
off-the-books theoretical location (or downright explicitly in the whole
city).

Still interesting the Queen can't go inside without permission.

------
supermanheng21
I don't think UK will approve this.

~~~
tachyonbeam
We can totally trust UK lawmakers and politicians to do what's in their
population's best interest here, as always.</sarcasm>

~~~
dopamean
Honest question. In what way would this deal going through be against the
interest of UK citizens?

~~~
wastedhours
It'd be a pretty tone deaf political move to allow a foreign power to buy a
well known UK institution given the current little-island campaigning by the
government (even if they try and spin it as the idea we trade with other
countries outside the EU).

Politics aside, there's often the mindset that a foreign company would look to
increase "efficiencies" and then offshore elements. Not many people will cry
tears over lost City jobs, but there'd be an interesting narrative at play.

------
ineedasername
This seems like it would be a bad sale to make. Having one of the world's
largest exchanges seems like it would be a strategic asset for a country that
it wouldn't want to lose. To top it off, the buyer is an authoritarian regime
that has been intent on expanding its influence to all areas of the global
economy at the same time that it threatens or penalized companies that don't
tow it's authoritarian line or propaganda. Messing with the LSE could have a
highly disruptive impact on the UK & greater European region, which isn't
power I'd want any 3rd party to have.

------
gigatexal
Hah I doubt with Brexit happening that they’d let this happen given that in a
few years what is Hong Kong’s will be China’s.

------
benj111
There seems to be a lot of anti Chinese/Hong Kong/Brexit feeling going on
here.

Is there actually a mechanism where this could be a problem for the UK/The
West? Exchanges are pretty well regulated, I don't see how this is going to be
a particular problem.

Edit: Spelling

~~~
hkai
Listed companies will be instructed how they should behave. See Cathay in the
recent news.

Plus, ability to control the market at critical times.

------
lacker
Technically, "Hong Kong Exchanges" aka HKEX is making this offer. But it's
worth asking who ultimately controls HKEX.

The Hong Kong government only owns 6% of HKEX, but they have the right to
appoint 6 of the 13 directors. If they get one of those remaining 7 directors
on their side somehow, the Hong Kong government has total control of HKEX. It
seems like the government would be able to assert control if it really wanted
to.

And as we've seen recently, the Hong Kong government is basically controlled
by the central Chinese government. The Communist party controls all
appointments.

If this bid goes through, it would be pretty ironic, because it would mean the
Chinese Communist Party now controls the London Stock Exchange. In general I
support allowing cross-border purchases but this one seems pretty dangerous.

For example, imagine the Chinese government putting pressure on every company
listed on the LSE to stop supporting the Hong Kong protests, or to stop
referring to Taiwan as its own country.

------
sjg007
Maybe they will monetize some HK-LSE pipeline or something..

~~~
calabin
It becomes a sort of data monopoly - already, consolidation of exchanges has
limited the number of financial data offerings directly from exchanges, and
driven prices up substantially. Further, licenses have become much much more
restrictive with regard to use.

I feel that the more free and accessible public market information is, the
better it is for all forms of investors and other market participants.
Consolidation (in my experience at least), has served to move things in the
opposite direction. I do not view further consolidation as a move that helps
anyone but the executives and shareholders of the two exchange groups.

------
ur-whale
With the ongoing China takeover of the fragrant harbour, is that really a good
idea, I wonder.

------
onetimemanytime
am I correct in thinking that some things you don't sell to outsiders? For
security reasons at least...stock markets are pretty much everything in a
modern economy.

~~~
dagw
Most stock exchanges are owned by some "outsider" publicly traded company. The
London Stock Exchange owns the Milan Stock Exchange for example.

~~~
Scoundreller
As far as stock exchange companies go, they’re fairly well concentrated in the
UK.

Meanwhile the NYSE is owned by ICE with tons of EU operations after buying
Euronext (ie: Paris and Amsterdam to name 2).

Nasdaq owns a bunch of Baltic and Scandinavian exchanges.

The Boursa Italia isn’t exactly a juggernaut in EU/world terms.

And there’s lots of exchanges for Italian companies to list on if they want
good access to their shares (e.g. Ferrari cross listed in NY).

------
myrandomcomment
This is an impossible bid. The HK exchange is mostly owned by the government
of HK, and thus the Chinese government. It will never be approved.

~~~
ETHisso2017
5.4% owned.

~~~
sdinsn
But the Chinese government asserts as much control as they want. Even if they
owned 0%, the reality of authoritarianism is still the same.

------
ngcc_hk
Interesting move. Kind of escape ?

------
papito
It's interesting watching late-stage Capitalism dancing on the minefield it
lay itself.

------
KirkNY
Video of our team's analysis on this subject:
[https://youtu.be/EiGfllHY6xU](https://youtu.be/EiGfllHY6xU)

------
estsauver
It's interesting to think about where capital goes as global financial centers
have turmoil. It's unclear to me whether hong kong or London has larger head
winds in dealing with their instability in the next few years: HK seems to be
likely to come to a clear resolution with respect to china quite quickly, but
the relationship between London and the EU are likely to be in turmoil for
quite some time.

I don't have a lot of cash savings, I'm generally quite LONG on smallholder
African farmers, but I think if I was going to put money anywhere right now it
would be into a mixture of the Nikkei, FTSE (singapore), Dubai, and KOSPI
(korea) indexes. I think all of Japan's problems are understood and priced in.
Japan and Korea have the advantage of both tending towards matrix
organizations (Toyota and Nissan are both unusually resilient to tariffs) and
Singapore and Dubai have the advantage of being financial hubs with nothing
going on.

~~~
arcticfox
> HK seems to be likely to come to a clear resolution with respect to china
> quite quickly

I'm confused by this theory; the only clear resolution I see China accepting
would be a very bad one for HK, which doesn't seem like a positive long-term
situation for their status as a financial center.

~~~
33210throwaway
It could be like Macau. Which has a really high standard of living and quality
of life. Hence no protests there.

