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Hong Kong Exchanges Bids $39B to Take over London Stock Exchange (reuters.com)
309 points by pseudolus 11 days ago | hide | past | web | favorite | 198 comments





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.


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.

That was the neocon dream of the 90's -- let China into the world economy and the PRC will either fall or be forced to accept democracy. 30 years later it's pretty clear that was foolish.

Is 30 years a lot of time for social change?

It took the British over 70 years to fully pacify the Hong Kong people, culminating in the ‘67 protests that ended with over 50 dead protesters. Heck, it took well over a hundred years after the Civil War before true civil rights.

Maybe we just need more time before the Chinese change?


30 years might not be enough for fundamental social change as you describe, but it’s more than enough for China to become a major economical player.

While I of course admire the idea of the west standing up to China, the reality is that the free market is large, and doesn’t necessarily care.

In the end I think it’s mostly important to get rid of our “addiction” to cheap factories and production in China, as it proves problematic long-term.


I am often frustrated how CCP infiltration is not on the political radar of most Western society.

We in HK witness on first hand the determination and capability of CCP to slowly gobble up our society. If CCP would be allowed to sliently infiltrate Western society and political sphere, in 20yrs........


Case in point: Kiwis have just found out their leader of opposition loves the CCP:

https://www.theguardian.com/world/2019/sep/11/new-zealand-op...


In Australia we just elected a former CCP rep: https://www.abc.net.au/news/2019-09-11/gladys-liu-chinese-fo...

It's happened on both sides of politics: https://www.abc.net.au/news/2017-12-12/sam-dastyari-resigns-...

And even state politics get $100,000 cash donations in aldi bags: https://www.abc.net.au/news/2019-09-06/huang-xiangmo-denies-...


Since when is it alarming to complement another country's progress, especially when you're not enemies? I'm no fan of the CCP (and no Kiwi) but this sounds ridiculous.

Without evoking Godwin's law, just think about it: China is a dictatorship oppressing free speech and many of their citizens that don't share the official views, torturing them, closing them in concentration camps etc. As a politician, you should know better how to express your admiration for progress.

It's alarming to compliment a dictatorship that keeps its people in chains, has millions of minorities in "re-education camps" and kills anyone who becomes too vocal against the party.

Just because Trump has tried to normalise just that (ref: Russia and North Korea) doesn't make it acceptable.


> that keeps its people in chains

The US has the highest incarceration rate in the world, by a large margin, almost 7 times that of China.


That's definitely a huge problem for the USA, on many levels. However, people in the USA don't regularly self-immolate to express how badly their compatriots are treated, and this happens regularly in Tibet. One would think this would give the Western world a good idea of how oppressive the Chinese regime can be.

By buying a stock market ? Let's not over exagerate the evil CCP rhetoric, as it distract from the point.

The more HK is economically hard to kill,the more it can bribe its way out of chinese integration. This is a good move.


Having your country owned by foreigners is rarely a good idea, even if they are a democracy. They put their own interests first.

Yeah, that's not going to happen and the West doesn't really have leverage against China anymore. On the contrary, China has leverage against the West. Some countries like New Zealand are straight up heading to become a Chinese colony in 50 years.

It's so depressing. I just read news today about politicians from New Zealand and Australia being exposed to have tied with CCP.

On this rate, within 20 years, CCP would have major political grip on most major Western societies from within those countries. What a horrifying thought.


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?

I can tolerate the empire that I am a part of because at least I know I can criticize its evil deeds without having them censor every little thing about them... which can potentially convince them to change, not so for the CPC.

So, you prefer the tactics of a Brave New World over 1984.

The outcome is still the same though is it not? You’re not really in control of anything.


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.

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 :)


The GP is calling for consistency. Calling out “whataboutism” does not make that an invalid point.

One of those three doesn't really seem like a thing to apologize for. Do we expect the man being attacked with a sword to apologize for shooting the attacker in response?

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..

It's not hard when you have government gifted statutory monopoly and are also given control of listing and clearing regulations.

The government ban on any competition to HKEX means that their net profit margin was 61% last year.

As activist investor David Web put it:

"On top of that, HKEX doesn’t even do its job well as an exchange, because it has been exempted from the Competition Ordinance and has fees, profit margins and archaic practices that only a monopoly could get away with."[2]

>Exchanges don't do clearing

True, but this is HKEX, which stands for Hong Kong Exchanges and Clearing. They operate 4 clearing houses in HK.

update: 61% was first 9-months. Fully year was 58%[1]

[1] https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Releas...

[2] https://webb-site.com/articles/listing170915.asp


> 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.


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.

> 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.


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.

Second Nasdaq. They lead in this space. Also challenging is Aquis with the technology behind their own venue.

Murex is going “cloud”

It might be state money. Just seeing the transaction flow is gold. And once you have sold an exchange, you might never get an opportunity to buy it back.

They’re not just buying the LSE, but the LSE group, which also owns clearing houses and other stuff.

Control over one of the world's biggest stock exchanges? Access to data? That seems like it's worth a lot of money in today's world.

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

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

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

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

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

Seems likely if it leaves europe with no trade deals.

Why would that continue long term?

Brexit.

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

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.


> “The market knows the future and has already completely priced it in” is disproved every time the market moves

Well at best you can know the future probabilistically. The fair price of flipping a coin and getting $2 on heads is $1, but once the coin is flipped, you have new information, and the fair price is either $2 (if it landed heads) or $0 (if tails).


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.

FWIW, someone took the time to formally state the case: "Markets are efficient if and only if P = NP", https://arxiv.org/abs/1002.2284

> any one aware of NP=/=P

Wait, someone finally proved P ≠ NP?


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


The yo-yo price of the Pound as no-deal Brexit has become more or less likely over the past few weeks demonstrates that Brexit is very much not priced in.

No-deal would be so damaging that the markets don't think it's going to happen, and that props up the Pound. So it takes a lot of political madness to convince the market that the worst is happening, and that's when the Pound starts plumbing historical depths. Then the madness recedes, and the Pound bobs back up again.


No one knows what Brexit actually is though. It's either not happening, kicking the can down the road till the UK manages to square the circle w.r.t. Northern Ireland [0] (i.e. the current deal), or crashing out with no deal causing days long waits at the ports of entry as inspections take place.

How do you price in all those disparate outcomes into the same price?

[0] UKs own requirements for Brexit are mutually exclusive 1) No customs union, 2) No Northern Ireland border, and 3) No border inside the UK. These three can't exist in the same deal. The only real way to properly Brexit would be to cut Northern Ireland lose or risk reigniting the Troubles by violating the Good Friday Agreement.


> No one knows what Brexit actually is though.

Then you can't make the claim that the pound will continue to devalue. The pound is volatile, but you can't make predictions about the long term value with certainty.


> The pound is volatile, but you can't make predictions about the long term value with certainty.

Something being priced in requires there to be at least some certainty about what will happen.


You can't price the future in. Only probabilities.

Stock options do the same, with a very flawed mathematics (assuming a random walk while having a fat tail distribution). Good luck.


Theoretically, the long term effects of everything ever should be priced in.

Brexit is a whole great big seething can of uncertainty. Just look at the last few years.


Look at the volatility of the pound. It's not moving with news about the long term effects of Brexit, it's moving with the short-term political news. The range of uncertainty is incredibly large: when, how, and whether Brexit happens is still up in the air.

Conditioned on Brexit actually happening, a prediction of a weaker pound is reasonable.


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

Why on earth would that be when it has not come to pass yet?


Not so easy as the outcome is very hard to predict. Hard, soft or no brexit? Still up in the air.

How will the UK be doing that? Against OECD rules? The EU would shoot them a second asshole.

You can also hide money in Switzerland, Liechtenstein or other offshore centers. But if you know the market, you know that it has gotten a little bit tricky, especially since last year.


That need not stop them. London was the pioneer of the Eurodollar market in the 70s, and the US treasury at the time tried to stop that.

The Euro didn't exist and the 70's started under the Bretton Wood's agreement. It wasn't until '76 that countries agreed to a floating currency. I don't think London's ability to influence a basket of mediocre pegged currency's gives us any insight into their ability to influence the Euro.

I don't think you understand what EuroDollar means...

https://www.investopedia.com/terms/e/eurodollar.asp


No, I know what the eurodollar is. The power of London over the "eurodollar" at the time was that the businesses and banks in Europe were doing business locally in their domestic currencies (eg Italian Liras) which did not have any international clout. These businesses and banks were effectively forced to go through London Eurodollars to operate internationally to minimize risk. With the introduction of the Euro, none of that matters anymore and London has no power.

how exactly do they plan to do that?

the EU can ban EU firms from using LCH, but they can't stop firms outside the EU using Euros

it'll just end up in a situation like the eurodollar



Will Euros even exist when such a business plan is already hedging against the EU?

Well, the UK joined the EU (or the Precursor, the EC) when it was the sick man of Europe. They did three things

1. Joining the EU

2. Making reforms (Thatcher)

3. Found oil in the Northern Sea.

The oil is gone and they leave the EU. Lets see how that goes.

Please also take this into consideration: https://hbr.org/2019/08/did-austerity-in-the-uk-lead-to-the-...


  3. Found oil in the Northern Sea.
Interesting. No one mentions this aspect much although its known that UK has oil assets.

Could you elaborate on this or add a link to an article that explores this under-mentioned reason as one of the contributing factors for the UK's decision to pull out of the EU?

Were the oil revenues very significant in the previous decades? Have they tapered off due to the U.S. shale boom?[1] Did the UK see this development coming? [2]

[1] Shale gas in the United States

https://en.wikipedia.org/wiki/Shale_gas_in_the_United_States

[2] How The Shale Boom Turned The World Upside Down

https://www.forbes.com/sites/rrapier/2017/04/21/how-the-shal...


"Could you elaborate on this or add a link to an article that explores this under-mentioned reason as one of the contributing factors for the UK's decision to pull out of the EU?"

I did not make this statement. But

1. I once saw a graph that showed that the re-rise of the UK strongly correlated with oil production. The correlation does not imply causation but it was quite stunning. I looked several times for the article but did not find it again. But it made me always doubt that it was only Thatchers reforms the reinvented the UK.

2. I did not say that the UK is pulling out of the EU because of sinking oil revenues. But please consider the article that I already posted: https://hbr.org/2019/08/did-austerity-in-the-uk-lead-to-the-...

UK Oil production: https://en.wikipedia.org/wiki/Oil_and_gas_industry_in_the_Un...

So there may be a connection (less social services, less income from oil, frustrated people). London voted to stay, it was poor areas that voted "leave".


A great article, thanks!

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

Being outside the EU financial system will somehow make it the HK of Europe?


Europe (and HK) already have Luxembourg for that.

I assumed this meant outside the EU, similar to HK’s status compared to mainland China.

No, it’s about where money flows to avoid taxes. The comment suggested money will flow into the UK from Europe after Brexit to avoid tax, however Europe already has Luxembourg.

Isn’t Luxembourg an EU capital city? How would that help avoid EU tax?

Edit: I see you are referring to country specific taxes. Where does Hong Kong play into this then—why not just say tax haven?


It is when you count in influence, "the old boys club", prestige, and "being a financial center" . I have no doubt that over the long haul that would be cheap. One more nail in the West's coffin from the point of view of Asia.

This amount doesn't include refinitiv, the value after the refinitiv deal brings it towards 50b

As roeal_v pointed out this deal requires that that transaction not go through. And again, Revinitiv is being purchased for only 4X earnings (which are themselves 3X the LSE's).

Fundamentally though I don't see why an exchange is worth much. Yes it sees all the deal flow, but it can sell info, it can't trade on it (else, apart from getting in trouble with regulators, it would lose all its customers).


Exchanges can have something that looks like Monopoly power when you need access to their data. Yes, certain instruments trade everywhere and on different exchanges, but when LSE/NYM/ICE etc is considered THE benchmark for XYZ contract, you have to buy their feed to get the best pricing data.

Whys Refinitiv so cheap?

That's a pretty good multiple for their sector.

"The proposed 31.6 billion pounds cash-and-share transaction would only go ahead if the LSE’s takeover of Refinitiv does not proceed, HKEX said."

Last month LSE agreed to buy Refinitiv for $27b, so reasonable to assume the bulk of the value in LSE is that purchase.

Not at all: acquisitions can be funded by debt i.e. LSE could have borrowed $27b to buy their strategic asset.

It is a "cash-and-share" transaction, the cash is borrowed. If it were shares only, you take ownership and you give $27b of newly minted shares to the previous owners (as a very crude approximation).

Of course, there's a lot more going on than just the above!


It looks like this deal is actually conditional on LSE dropping the Refinitiv deal.

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?

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.


> 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.


Tata also owns Jaguar/Land Rover

> Isn't financial services ike the posterboy of the British economy?

pre-brexit it was, anyway :) Moving forward remains to be seen...


This concept also suggests that brexit is a colossally stupid idea, yet here we are...

It's called 'free market economy'

China doesn't have a free market economy

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.

The EU blocked the deal because it would have created a monopoly on some services, at least within the EU.

It seems unlikely that this deal would create a monopoly.


It's also unclear whether the UK will still be part of the EU by the time this deal would go through.

Not where, who. HKEX owned by HK gov, that is, China.

This is incorrect.

HKEX (which wholly owns the Stock Exchange of Hong Kong) is a publicly listed company. The HK Governeent owns 5.4%[1].

[1] https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0319/...


we both know that china plays the long game and in the long game there's one china - and in one china, government owns whatever it wants to own.

Their percentage ownership is irrelevant. The Chinese government, being abusive and authoritarian, asserts as much control as they would like.

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

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

https://www.predictit.org/markets/detail/5429/Will-the-UK-of...


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

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

It doesn't look like Brexit is going to happen as of now.

Also relevant I think, what jurisdiction will China have over HK in 6 years?

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

Except this doesn't really have anything to do with London or Hong Kong the cities/countries. It's one publicly traded company bidding to take over another. They both just happen to have a city name in their company name.

May be not on the London side but article says "HKEX, whose main shareholder is the Hong Kong government, .... ". With Hong Kong now being part of China, I am not sure if this would have some political implications.

Well Hong Kong is basically owned and run by real estate billionaires. And it looks like they are doing a little hedging before China tightens some scews. Few weeks back they bought UK's largest pub operator.

And Brexit driven weakness in the pound makes it a great time to invest.

So arguably both the political factors are actually encouraging these moves.


Is there a reason to assume the pound will rebound any time soon?

Why wouldn't you when the £ is 15% lower than a year ago. Bargain.

I wonder, would HK owning the LSE make it more or less likely for China to send in the stormtroopers? My first thought was that this was a move to make HK more of an untouchable, international city. But HK billionaires simply investing offshore sounds more likely--presuming they have a direct stake in the exchange.

And 25 years ago they bought Vancouver.

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


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)


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.


I used to live in the City of London. I was invited to one of their resident's association meetings.

They some senior people in the City of London government was clear that they had to balance the desires of the residents with those of employers/employees. Otherwise residents (<10,000) would have significant sway over employees (>300,000).

Its not some weird dystopian future. It simply makes sense to listen to those who live and work in the City.


You're conflating employers and employees here, but it's employers who get the votes, not employees.

this isn't true, employers are granted the ability to nominate a number of employees based on the number of people they employ in the City

the employer is instructed to allocate such that "voters nominated should reflect the whole diversity of an organisation's employees, including gender, ethnicity and seniority"

the employees nominated can then can vote however they want (secret ballot and all)

the employer itself can't vote

the firms I've worked for in the City handed asked for volunteers each year, and then selected people at random from those volunteers

(and there simply aren't enough upper management per votes allocated to stack the ballot that way)


> 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.

The City of London is part of Greater London and subject to the jurisidiction of the Greater London government. ("Greater London" being the entity that most people are thinking of when they refer to "London"). The London Stock Exchange is in the City of London, which means that it's also in London (Greater London) as well.


The City of London Corporation (note not council) is indeed within Greater London, but still has some weird hangovers from the medieval era, including the Temples and a strange and unique electoral system. It's the Corporation that is the main body administering the region.

It is organised differently to anywhere else in the UK, and distinctly odd. The rest of the UK got rid of those few last remnants of the Middle Ages in the 50s through 70s, though nowhere had kept around as many as the City.

https://en.wikipedia.org/wiki/City_of_London#Governance


Preoccupy Wall Street.

I'm sorry. This is neither the place nor the time. I'll clear my desk within 15 minutes.


"Buy when there's blood in the streets"

even when it's your own

I don't think UK will approve this.

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

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

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.


The imagined scenario is economic warfare by the Chinese government forcing HKEX to just stop trading on the British stock market. Given how important the stock market is to a modern economy it'd be a powerful hit even if it only stayed off for a few days.

For what reason?

The current situation in Hong Kong? Selling something like the LSE, only to risk it being controlled by China in the near future should automatically result in the UK government blocking the sale even before it's consider any further.

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.

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.

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


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

Plus, ability to control the market at critical times.


Video of our team's analysis on this subject: https://youtu.be/EiGfllHY6xU

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.


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

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.


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

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.

In the UK even nuclear powerstations are outsourced to French and Chinese state owned companies

Only French state owned.

There are 8 nuclear powerstations currently operating in the UK, and they are all owned and managed by EDF Energy, the UK subsidiary of the French state owned EDF.

Obviously there is a large difference between French and Chinese state owned companies


One would assume that after having fought 2 world wars on the same side, despite the banter, France and the UK should be seen as allies and friends.

If you look at the history of the London Stock Exchange Group it's far from being British already - https://en.wikipedia.org/wiki/London_Stock_Exchange_Group

Nasdaq runs/operates something like over 70 exchanges world wide selling "exchange technology" to nation states.

Countries have bespoke rules as to how they utilize outside help, everything from merely purchasing the source code and running & operating themselves to fully outsourcing everything.

Outside of US equities, most other worldwide markets are pretty tiny as far as transaction volume goes.


It's Brexit Britain, everything is up for sale.

It's not for sale: "The unsolicited approach".

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

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).


more precisely, I think, the London Stock Exchange Group born of the fusion of Milan (28%) and London(72%) owns the London Stock Exchange, and Milan Stock Exchange.

that ship sailed in the thatcher era

Absolutely, Thatcher taught us that any money is good regardless of its origin. Long term consequences be dammed.

Exchanges are largely publicly traded and thus owned by large swaths of individuals, not nation states (though Hong Kong & China are different).

For euro based exchanges the ship has largely sailed even with where their corporate parents are based with giant impactful exchanges like Liffe being owned by external companies.


That is true for most countries, but as you realize that there a limitations to your capacity, self-imposed or otherwise, you are bound to send production to another country, often an 'ally' nation.

True, I should have said major countries. A small country has no chance, they best hope to chose the least worst partner /patron. But USA, UK, Germany, France etc can handle stock exchanges just fine without any HK (Chinese?) money /influence.

Not at all, it's par for the course for a country's government to review such a deal, some pass and some don't.

Recently (2016) in the UK SoftBank's acquisition of Arm was at least somewhat controversially approved; it was by no means a done deal just because SB offered and shareholders agreed.


HKEX bought Londom Commodities Exchange a couple of years ago.

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.

5.4% owned.

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

Interesting move. Kind of escape ?

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

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Can you point to someone who is pro-Brexit who has also publicly said they favor the LSE being sold to Hong Kong?

It's a direct result of their shortsighted, nationalistic decision. The article says it's motivated by a hope of remaining a global economic power, after...breaking existing ties with a global economic power.

You say short sighted. Brexiteers say it is long sighted, so long sighted in fact that Remainers struggle to see any sense in it. Which is where all the "populist" "nationalistic" "racist" "they didn't understand what they were voting for" labels came from.

You realise this is just one publicly listed company (not a territory of China) bidding for another publicly listed company?

HKEX's largest shareholder is the Hong Kong government. They have 6 of the company's 13 board seats and HKEX's current Chairperson was appointed by the government about 18 months ago.

Press release on the "government appointment" of Cha to the board here: https://www.hkex.com.hk/News/News-Release/2018/180212news?sc...


> HKEX's largest shareholder is the Hong Kong government.

Is this true?

According to the bloomberg terminal 388 HK is owned 79% by funds( investment advisors) and only 13.78% by the Government.

Additionally 53% of shares are held by US entities and only 18% by Hong Kong entities

> HKEX's largest shareholder is the Hong Kong government

That just seems like a weird lie to tell when its so easily disproved.


Being the largest shareholder of HKEX does not mean they're the majority shareholder. Every ownership percentage you've quoted from Bloomberg is an aggregate across multiple investors except the 13.78% owned by the government.

I suspect you assumed largest meant majority because of the number of board seats the government controls. Interestingly, it appears that's unrelated to the government's financial stake in the entity. Securities laws in Hong Kong permit the Financial Secretary (a member of the Executive Council) to appoint up to eight board members. The government's authority over HKEX board appointments is outlined in Section 77[1] of the Securities Futures Ordinance.

[1] https://www.elegislation.gov.hk/hk/cap571?xpid=ID_1438403466...


I don't think it's a lie, you've just misunderstood "Largest" to mean "Majority". The government is probably the largest individual shareholder, unless Reuters made a mistake.

Just look at Alibaba. The government likely owns even more shares through proxies or threatening of families.

You apparently have a bloomberg terminal in front of you (They are rather expensive) but you dont seem to understand what "Largest Shareholder" means? Then you say it is a lie?

Can you use your bloomberg to find ownership by individual firms and see if any single holder exceeds the 13.78% the government holds according to your post?


Nothing of what you said is incompatible with the HK government being the largest shareholder.

Hong Kong's long term independence is uncertain at best. A company cannot just be "publicly listed" if in the PRC.

Britain is no island of stability either.

I would argue it is an island of stability in that it only requires a small perturbation to become unstable.

HKEX’s majority shareholder is the Hong Kong government. I would therefore say that HKEX buying LSE is, in fact, a little problematic.

It's part of the plan - weak pound makes many struggling companies rich pickings.

"Struggling companies" ?

LSE's gross profit for the last four years:

2015 - 1,293,100

2016 - 1,854,000

2017 - 2,391,000

2018 - 2,715,000

Could you detail how this company is struggling?


Brexiters: We want to be open and trade freely with the whole world, not just the EU

The EU is in a large round negotiations of commerce treaties around the world right now. The UK, not so much.

The UK is not permitted to conduct trade negotiations with third countries while it remains a member of the EU.

Because the EU is still, 3 years after the vote, blocking us from conducting such negotiations for ourselves.

How is the EU blocking UK from doing whatever they want? Are they going to kick UK out of EU If they don't comply?

By the way Switzerland and UK have already negotiated part of their relationship after Brexit, so I suppose that the blocking is not that hard....


By law, so courts and fines and stuff?

Obviously it only has meaning because we subscribe to its meaning, but we do, and ceasing to do so would be monumental.


The UK is in the EU.

We’re not participating in the trade negotiations though.

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.


> 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.


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

A report on Bloomberg yesterday suggested that the Aramco float will be going to the Tokyo stock exchange due to instability in London and Hong Kong.

I understand the reasoning from Aramco's side, but still I'd imagine that would be a bit of a gut punch to Singapore. They've been working hard to position themselves as "Hong Kong, but stable and independent" for some time now.

Singapore exchange is pretty small, they don't even make the top 10, while Tokyo is top 3 (by company market cap), so makes sense Japan instead of Singapore

Interesting strategy. Recently I was having a look at the price of Gold and it seems there is a recession brewing. However, I feel I already lost that train and so I was thinking about buying Swiss currency / Indexes as it is very stable and generally speaking a safe bet when the rest of the world is economical turmoil.



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