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Hong Kong Exchanges and Clearing's surprise bid for the London Stock Exchange highlights two significant changes afoot: consolidation in the world's stock markets and the tougher challenge Hong Kong faces in selling itself as the needed gateway to China, as increasingly violent protests ratchet up questions about its future.
HKEX's US$36.6 billion takeover bid " which it continues to push despite the London exchange's quick and sharply worded rejection " would be one for the history books. If it came to be, it would make 2019 by far the biggest year ever in the amount of money spent on M&A deals by the world's stock exchanges.
Adding in the HKEX proposal, 2019 has seen a record US$66.08 billion in such proposed or successful deals, according to data company Refinitiv, which is itself a target of an acquisition pitch by the London exchange. That is 25 times more than the value of deals last year " US$2.45 billion " and almost three times the amount in 2006, which at US$24.98 billion has held the record as the top year of M&A activity at exchanges.
"Consolidation has been, and will continue to be, the trend for global exchanges worldwide to achieve their future growth of businesses," said Xavier Rolet, former chief executive of LSE in a telephone interview with the South China Morning Post.
"Eventually, there may be only about three to six major global players that survive, with at least one anchored with the Shanghai Stock Exchange and the other with US," he added.
In addition to gaining data and technology, exchanges are hungry for benefits from consolidation in risk management and settlement, as well as initial public offerings and other capital formation, Rolet said.
As part of its offer made on Wednesday, HKEX said the London bourse would have to drop its acquisition offer of Refinitiv, which was only made on August 1.
The London bourse wants Refinitiv to make it stronger in data and technology. And it says the deal is on.
For HKEX, a successful deal would mean geographical expansion, marrying one of the biggest stocks markets in Asia (Tokyo is the largest by market capitalisation, followed by Shanghai) with Europe's second-largest stock market (Euronext is larger).
As HKEX chief executive Charles Li Xiaojia said in a teleconference on Wednesday about the bid, "It is time to bring in one of the largest exchanges in Asia and in Europe together for a marriage to create a global exchange."