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2007 Annual Results Announcement Records Posted, Set for Challenges Paul Chow Chief Executive, HKEx & Archie Tsim Chief Financial Officer, HKEx 5 March.

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Presentation on theme: "2007 Annual Results Announcement Records Posted, Set for Challenges Paul Chow Chief Executive, HKEx & Archie Tsim Chief Financial Officer, HKEx 5 March."— Presentation transcript:

1 2007 Annual Results Announcement Records Posted, Set for Challenges Paul Chow Chief Executive, HKEx & Archie Tsim Chief Financial Officer, HKEx 5 March 2008

2 2 Agenda  2007 Annual Results Overview  Financial Review  Business Review  Q&A

3 Annual Results Overview - Business  $20.7 trillion market capitalisation as of 31 Dec 2007 – up 55% from 31 Dec 2006  $88.1 billion average daily turnover – up 160% from 2006  359,125 options & futures contracts traded daily on average – up 105% from 2006  Open Interest of 5,780,898 contracts on 31 Dec 2007 – up 91% from 31 Dec 2006  Successful implementation of numerous initiatives under Strategic Plan :  Mainland positioning  Business expansion  Service improvement  100% up-time for all IT systems despite substantial increase in volume

4 4  Among global exchanges…  #1 in derivative warrants trading  #1 in stock options trading market in Asia  #2 in ETF volume in Asia after Japan  #5 in capital funds raised  #7 in market capitalisation  #10 in equity turnover 4 Hong Kong – A Leading International Financial Centre Source: World Federation of Exchanges website (Dec 2007)

5 5 Awards and Recognition in 2007  2007 HKMA Best Annual Reports Awards Gold Prize (General Category)  HKMA Citation for Achievement in Corporate Governance Disclosure (General Category)  HKICPA Best Corporate Governance Disclosure Awards Gold Award in Hang Seng Index Category  One of the best companies in Hong Kong in terms of corporate governance by The Asset magazine  Asia Risk’s Derivatives Exchange of the Year 2007  Hong Kong ICT Awards 2007: Best Business Grand Award for HKEx’s Electronic Disclosure System

6 66 Market Capitalisation and Turnover Ranking Equity Turnover Ranking and Growth Rate of Major World Exchanges Source: World Federation of Exchanges website RankExchanges 2007 (US$ bn) CAGR NYSE Group29,21023% 2Nasdaq15,32016% 3London SE10,32421% 4Tokyo SE Group6,47633% 5Euronext5,64823% 6Deutsche Börse4,32429% 7Shanghai SE4,07081% : 10HKEx2,13962% 11Shenzhen SE2,10272% : 15TSX Group1,64932% 16Australian SE1,37936% : 23Singapore38243% Market Capitalisation Ranking and Growth Rate of Major World Exchanges RankExchanges 2007 (US$ bn) CAGR NYSE Group15,65112% 2Tokyo SE Group4,33116% 3Euronext4,22322% 4Nasdaq4,01415% 5London SE3,85216% 6Shanghai SE3,69465% 7HKEx2,65442% 8TSX Group2,18731% 9Deutsche Börse2,10525% : 20Shenzhen SE78538% : 22Singapore53940%

7 7 HKEx is Among the Fastest-Growing Derivatives Exchanges in Asia Pacific Source: FIA Futures and Options Monthly Volume Results 7 Total Volume (Contracts in mn) RankExchanges in Asia PacificJan-Dec 2006Jan-Dec 2007Change YoY 1Korea Exchange2,4752,7099% 2National Stock Exchange of India % 3Dalian Commodity Exchange % 4Taiwan Futures Exchange115 0% 5Osaka Securities Exchange % 6Zhengzhou Commodity Exchange % 7Sydney Futures Exchange789117% 8HKEx % 9Shanghai Futures Exchange588648% 10Multi Commodity Exchange of India466950% Derivatives Market Turnover Ranking of Major Asia Pacific Exchanges

8 8 Income Operating Expenses Profit Before Taxation Profit attributable to shareholders +106%+17%+145%+143% 2007 Annual Results Overview - Financial 8 *Percentages are calculated based on actual results rounded to the nearest thousand dollars. **Includes one-off gain on disposal of an associate of $206 million in 2007 and share of profits of associates in both years Source: 2007 HKEx Annual Report Basic EPS Dividend Per Share +144% In $mil ** In $

9 9 Results Since Merger 9 Source: HKEx Annual Reports In $mil Year Income (Note)2,3121,9981,8132,0292,4072,7124,1748,602 Expenses1,3311,1791,1651,2241,1561,1451,2101,411 Profit attributable to shareholders ,0571,3402,5196,169 Note : Includes gain on disposal of an associate and share of profits of associates 8,602 2,4072,312 1,998 4,174 2,712 1,813 2,029 1,156 1,331 1,179 1,165 1,224 1,145 1,210 1, ,057 1,340 2,519 6, ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9, Income Expenses Profit attributable to shareholders In $mil

10 10 Key Performance Indicators 10 Source: HKEx Annual Reports In $mil Year Income (Note)2,3121,9981,8132,0292,4072,7124,1748,602 Expenses1,3311,1791,1651,2241,1561,1451,2101,411 Note : Includes gain on disposal of an associate and share of profits of associates

11 11 Agenda  2007 Annual Results Overview  Financial Review  Business Review  Q&A

12 12 Financial Highlights

13 13 Breakdown of Income Change $ mil Trading fees and trading tariff 3,086 1, % Stock Exchange listing fees % Clearing & settlement fees 1, % Depository, custody and nominee services fees % Income from sale of information % Net investment income 1, % Other income % Total 8,390 4, % Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.

14 14 Net Investment Income

15 15 Breakdown of Expenses Change $ mil Staff costs and related expenses % Information technology and computer maintenance expenses Costs consumed by the Group % Costs directly consumed by Participants % % Premises expenses % Product marketing and promotion expenses % Legal and professional fees % Depreciation % Other operating expenses % Total 1,411 1,210+17% Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.

16 16 Second & First Half-year Comparison H H1 2007Change $ mil Results Income 5,233 3,157 66% Operating expenses % Operating profit 4,488 2,491 80% Gain on disposal of an associate % Share of profit of an associate % Profit before taxation 4,488 2,703 66% Taxation (649) (373) 74% Profit attributable to shareholders 3,839 2,330 65% Note : Percentages are calculated based on actual results rounded to the nearest thousand dollars.

17 17 Agenda  2007 Annual Results Overview  Financial Review  Business Review  Q&A

18 18 HKEx Strategic Focus and Initiatives of Primary market development  Attract Mainland and overseas issuers  Review and enhance listing regimes  Review and automate listing processes Secondary market development  Remove trading barriers  Facilitate participation of intermediaries  Support growth in market volume Product development  Facilitate product development infrastructure  Develop new products in cash and derivatives markets Service enhancement  Streamline and automate operations  Improve service quality and increase service offerings Market quality enhancement  Enhance market and issuer information transparency  Improve corporate governance standard of issuers System enhancement Business Expansion Mainland Positioning Service Improvement Focus of 2007/08 Strategic Theme

19 19 Market Capitalisation and Funds Raised 19  Rise in market capitalisation from increase in the number of listed companies, and growth of their businesses  1,241 companies were listed in Hong Kong as of 31 Dec 2007  Total funds raised in 2007 exceeded 2006, even with 2006 mega-IPOs Source: HKEx statistics CAGR 27% IPO & Post-IPO Funds Raised ( ) Market Capitalisation ( ) CAGR 39%

20 20 Cash Market Trading  Average daily turnover in 2007 up 160% YoY  Average daily turnover of derivative warrants (DWs) in 2007 up 164% YoY  In 2007, Hong Kong ranked #1 among world exchanges in DW trading  DW makes up over 21% of overall trading value Source: HKEx statistics CAGR 70% Average Daily Turnover (Overall) Average Daily Turnover (DW) CAGR 106%

21 21  Derivatives market trading up 105% YoY  Hong Kong surpassed Australia as the most active stock options market in Asia  Derivatives market turnover in Hong Kong surpassed Singapore in 2006 and 2007 Derivatives Market Trading Avg. daily # of contracts traded ('000): Jan-Dec 2006 Jan-Dec 2007Growth* Options contracts % Futures contracts % Major derivative products Stock options % HSI futures517037% HHI futures % * Based on average daily number of contracts traded Source: HKEx statistics, World Federation of Exchanges website CAGR 68% CAGR 57% Period End Open PositionAverage Daily Volume

22 22 Major Achievements – Primary Market Development  Issued joint policy statement with SFC regarding the listing of overseas companies  Published a second board model proposal for GEM  Signed MOUs with Abu Dhabi Securities Market, Moscow Interbank Currency Exchange, Hochiminh Stock Exchange and Mongolian Stock Exchange  Delivered over 140 presentations and training sessions; met with more than 580 potential listing applicants in the Mainland and overseas, including Vietnam, Thailand, Malaysia, Kazakhstan, Russia, South Korea, India, Singapore, Taiwan, Japan and Mongolia (in addition to participation in roadshows in the US, UK and Europe)

23 23 Major Achievements – Secondary Market Development  Revised market maker regime for futures and options  Worked with SFC to relax position limits for HSI and H-shares Index futures and options in Mar & Dec 2007  Admitted 24 new SEHK participants and 7 new HKFE participants  Introduced Third Party Clearing

24 24 Major Achievements – Product Development  Launched additional stock option classes with Mainland-related stocks as underlyings  Rolled out a third calendar quarter expiry month in selected stock option classes  Introduced new Mainland-related products such as: Hang Seng China H- Financial Index Futures, WISE CSI 300 China Tracker ETF and HSBC China Dragon Fund  Reduced CBBC listing fees by 70%  Facilitated listing of Market Access Products (MAPs) on foreign, regional and global stocks and indices, and commodities

25 25 Major Achievements – Market Quality Enhancement  Harmonised risk management measures  Implemented Phases 1 and 2 of the Electronic Disclosure Project  Conducted review of issuers’ effectiveness of the Code on Corporate Governance Practices  Published a Consultation Paper on Periodic Financial Reporting  Launched pilot programme for publication of web proof information packs (1 Jan 2008)  Published a Combined Consultation Paper on Proposed Changes to the Listing Rules (11 Jan 2008)

26 26 Major Achievements – Service Enhancement  Introduced a tender service for trading rights  Provided training and seminars on the Hong Kong securities market and its products  Enhanced the Stock Segregated Account with Statement Service  Improved CCASS Nominee Services  Increased immobilisation rate of CCASS holdings  Reduced delay time of market data on HKEx website to 15 minutes  Improved Issuer Information Feed Service (IIS) and fee reduction  Enhanced news alert service of Investment Service Centre on HKEx website  Launched designated website for issuer news (4 Feb 2008)www.hkexnews.hk

27 27 Major Achievements – System Development  Fully consolidated all cash and derivatives systems communication network to SDNet for higher efficiency and lower operational costs  Upgraded AMS OG/MWS hardware and system software  Upgraded AMS and MDF capacity to support 5 million daily trades (28 Jan 2008)  Replaced and upgraded CCASS mainframe and middle-tier systems  Upgraded HKATS and DCASS hardware and capacity  Upgraded PRS to deliver 900 messages per second  Rolled out the Electronic Disclosure System

28 Major Initiatives – Primary Market Development  Launch depositary receipts regime3Q2008  Launch enhanced GEM regime3Q2008  Coordinate activities with initiatives undertaken by the Government, market practitioners, industry groups and trade associations to promote the Hong Kong securities market Ongoing

29 Major Initiatives – Secondary Market Development  Roll out 5-digit stock codes7 Apr 2008  Introduce closing auction session26 May 2008  Discuss with SFC on suspension of tick rule for short selling2Q2008  Discuss with interested parties to cooperate in establishing a trading platform in emissions-related products Ongoing  Work with SFC on feasibility of admitting remote participantsOngoing  Discuss with HKSAR Government on abolition of stamp duty or broadening exemption Ongoing

30 Major Initiatives – Product Development  Launch Mini H-share index futures31 Mar 2008  Re-launch gold futures3Q2008  Enrich product offerings through listing of new MAPs on underlying assets such as individual securities; single market, regional, thematic, proprietary and Islamic indices; and commodities and various financial derivatives Ongoing  Explore the listing of emissions-related and gold-related structured products and ETFs Ongoing

31 Major Initiatives – Market Quality Enhancement  Publish Consultation Conclusions on Periodic Financial Reporting  Publish second review of issuers’ compliance with Code on Corporate Governance Practices 2Q Feb 2008  Implement changes to the suspension policy10 Mar 2008  Implement Phase 3 of Electronic Disclosure Project25 Jun 2008  Publish Consultation Conclusions on Combined Consultation Paper on Proposed Changes to the Listing Rules 3Q2008  Commence review of CG Code and corporate governance disclosure requirements 3Q2008  Enhance market making services3Q2008

32 Major Initiatives – Service Enhancement  Start Project LISA, Listing Information Support System1Q2008  Develop information business in the Mainland1Q2008  Introduce shareholding disclosure service2Q2008  Streamline participants admission and registration function2Q2008  Improve two-way communication channel with participants4Q2008  Revamp HKEx website4Q2008

33 Major Initiatives – System Development  Upgrade SMART system1Q2008  Upgrade HKATS/DCASS software to release Mar 2008  Upgrade CCASS capacity to support 5 million daily trades22 Mar 2008  Work with SFC to facilitate electronic submission of Disclosure of Interest notices 2Q2008  Upgrade PRS to deliver 2,200 messages per second2Q2008  Upgrade CCASS middle tier technologyAug 2008  Upgrade AMS and MDF to support 7.5 million daily trades4Q2008  Upgrade DCASS to support 2 million daily trades4Q2008  Upgrade capacity of HKEx website and Investment Service Centre 4Q2008  Conduct review of IT governance and core market systems

34 Major Initiatives – Corporate  Identify external consultant to conduct green audit1Q2008  Consolidate offices and data centres  Ongoing fee review

35 35 Agenda  2007 Annual Results Overview  Financial Review  Business Review  Q&A

36 Thank You


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