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Major HK stock exchange firm eyeing tech assets in new strategy

According to a recent report, the owner of Hong Kong’s stock exchange, after years of pinning its growth plans to the city’s tighter integration with China, is changing tack and eyeing technology acquisitions, people with knowledge of the matter said.

The Chief Executive of a major group in Hong Kong, one that operates a stock market and futures market in Hong Kong through its wholly owned subsidiaries, will now be considering takeovers in big data, data analytics and blockchain sectors.

The firm has met with at least three investment banks to discuss potential targets, they said, asking not to be named discussing sensitive information.

With the expansion of trading links with Chinese exchanges stalling, the firm’s Chief Executive is looking at the venture capital arms of the firm’s rivals, as possible models, according to the people.

The firm’s officials are also concerned that worsening relations between China and the U.S. could hurt trading volume, one of the people said, jeopardizing the main driver of revenue growth.

A spokesman for the company declined to comment further.

Technology acquisitions were the focus of an internal strategy discussion within the firm with senior managers on 10 September 2018, and a meeting with board members on 12 September 2018, two of the people said. The company’s management is meeting to discuss the outlines of a new three-year strategic plan due to start in 2019. The final plan will likely be announced early next year and may change before then, the people said.

The firm’s high valuation compared to its rivals means the firm needs to look to innovation and technology to help generate growth, said the Chief Executive at the 10 September meeting, and he made the comparison with one of the firm’s rivals, the people said.

The New York-based exchange operator saw about 19 per cent of its 2017 revenue from data products and 13 per cent from market technology, according to data compiled by a privately held financial, software, data, and media company from the US. The firm generated almost all of its 2017 revenue from clearing and trading fees, the data show.

The strategy is in the right direction but it is not easy to achieve the targets, according to the Head of Research at an international investment corporation. The stock exchange firm needs to maintain a momentum of growth by exploring new businesses.

The company may find it hard to convince investors that it can turn itself into an international technology platform, according to one person who spoke to the firm about the new strategy.

The company struggled to integrate a futures exchange with the world’s largest market in options and futures contracts on base and other metals, for which it paid approximately HK$17.2 billion in 2012, and there are industry concerns the company cannot pull off another major deal, a second person advising the firm said.

However, the firm will continue to focus on tech and innovation and identifying new ways to revamp its business model.

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