Shanghai’s financial future

Shanghai will be the long-term financial centre in China, according to the London Stock Exchange Group (LSEG) chief executive, as Hong Kong Exchanges & Clearing (HKEX) continues its pursuit of the UK exchange group.

By Heather McKenzie

David Schwimmer, CEO of LSEG, told Sibos delegates during a keynote interview on Tuesday that despite Hong Kong’s strong position in the global financial markets, he viewed Shanghai as the long-term hub for markets in China.

“I think if you look at the transformation of China over the past 15 or 20 years, it has been extraordinary,” Schwimmer said. “We view the capital controls around the Chinese market as constantly evolving, and the trend is that they are slowly but surely being removed. We see that as the inevitable path and we’ve invested in this through our relationships with the Shanghai London Stock Connect. We don’t take short-term perspectives… we view Shanghai as the financial centre in China.”

Schwimmer’s comments follow a surprise bid from HKEX to acquire the LSEG for £32 billion earlier this month, which the LSEG board unanimously rejected, stating that it sees no merit in further engagement on the issue.

Don Robert, LSEG chairman, said in a letter to HKEX following the bid that the exchange group’s board was “very surprised and disappointed” that HKEX decided to publish its unsolicited proposal just two days after LSEG received it.

LSEG, which owns clearing house LCH, along with index provider FTSE Russell and multiple trading venues, also highlighted concerns around strategy, deliverability, form of consideration and value, as well as HKEX’s “unusual board structure” and how its “relationship with the Hong Kong Government will complicate matters”.

Immediately after Schwimmer’s interview, HKEX chief executive Charles Li took the stage for an interview, making the case for both exchange groups to explore the merger more seriously. Li told delegates that as the world becomes more polarised between the east and the west, it needs a markets infrastructure that can underpin both of those centres of gravity.

“The idea that China will relax its capital controls will continue to be talked about for the next 20 years,” Li said. “They are great planners of economy and affairs, but have challenges dealing with outsiders because they don’t want to give up their standards.

“[Schwimmer] seems happy with the relationship that LSEG has with Shanghai, but that has only been in place since June. Our idea with this transaction is a simple vision, but a big dream. We would create an infrastructure that is unrivalled across asset classes, across currencies and across time zones. Together, we complete each other.”

The failed offer from HKEX also relied on LSEG pulling out of its own mega-merger with data and trading services provider Refinitiv for $27 billion. LSEG and Refinitiv have agreed on terms for the merger, which Schwimmer has described as being ‘transformational’ for the exchange operator, enhancing its position in data and analytics, as well as opening new doors in foreign exchange trading.