SFC posts HK$178 million loss in the first three quarters

By ZHANG Xilong

The Securities and Futures Commission (SFC), the regulator of Hong Kong’s financial market, posted a net loss of HK$178 million (US$23 million, 160 million yuan) for the first three quarters of this year. In the same period last year, SFC made HK$155 million in profits.

More than half the loss came in Q3. Revenue in this period was HK$325 million, 19 percent lower than in Q2 and almost half of Q3 last year. Quarterly expenses increased 9 percent year over year to HK$530 million, despite an almost flat headcount.

‘Extremely difficult conditions’

Falling fees and investment losses both contributed to the underperformance. SFC made HK$371 million in fees in the first three quarters, down by 40 percent from the same period last year. The average daily trading volume was HK$97 billion, a 24-percent decrease from last year’s. Meanwhile, the number of IPO applications and stock buybacks dropped 50 percent and 21 percent, respectively.

Investment losses were HK$77.3 million, HK$23.7 million more than in the same period last year.

Hong Kong’s stock market has suffered the one-two punch of the Federal Reserve’s interest rate hikes and China’s economic slowdown. The Hang Seng Index dipped below 15,000 at the end of October, the lowest since the 2008 financial crisis. It bounced back in November but is still below 20,000.

Foreign exchange income declined 84.8 percent to HK$17.9 million. The Exchange Fund, which backs the Hong Kong dollar, posted an investment loss of HK$100 billion in Q3, pushing total Q1-Q3 losses to HK$266 billion. Eddie Yue Wai-man, Chief Executive of the Hong Kong Monetary Authority, attributed the loss to “extremely difficult conditions” in the global financial market.

SFC bled HK$273 million and HK$797 million of cash from operating and investing activities from Q1 to Q3. As of September 30, it held HK$261 million in cash, 73 percent less than it did at the same time last year.

From January to November this year, the average daily volumes of north and southbound trading – the trading of mainland-listed stocks from Hong Kong and vice versa – were down by 17 percent and 31 percent year over year. CSRC, China’s financial market regulator, and SFC jointly approved changes to the trading calendar in August to improve the liquidity of the market. It will be implemented in six months.

Virtual recovery?

Hong Kong’s plan to develop a virtual asset market was announced in October. As a first step, it will allow crypto ETFs linked to Chicago-traded bitcoin and ether futures to be bought and sold in Hong Kong.

Since the announcement, two crypto exchanges and eight crypto investment funds have been issued licenses to operate in Hong Kong. But the implosion of FTX as well as Hong Kong’s own AAX has dampened enthusiasm and added uncertainty to Hong Kong’s virtual asset ambitions.

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