Hong Kong Exchanges and Clearing Ltd

HKEX:388

Earnings Call Transcript 2022-Q1

[Ricky Choi, executive]

Good afternoon, ladies and gentlemen. Welcome to HKEX 2022 Q1 Results Analyst Presentation. Today, we are delighted to have our Chief Executive Officer, Nicolas Aguzin; and our Group CFO, Vanessa Lau. We will first present our key highlights in 2022 Q1 financial performance review, followed by business and strategic updates. Then we are happy to take some of your questions.

Those of you dialing into this call may follow the instruction of the conference call moderator to ask questions later. Meanwhile, those of you joining us through the webcast may send us written questions through the webcast portal, as usual.

Without further ado, over to you, Gucho.

[Nicolas Alejandro Aguzin, executive]

Thank you very much, Ricky, and good evening, everyone. Thank you for joining us today. It is my pleasure to be talking with all of you, investors, analysts, both in Hong Kong and all around the world.

Today, I'm actually presenting from Guangzhou, which is part of a trip that I've done. I've been for the last month in Mainland China to meet with some of our partners and stakeholders. It has been a very fruitful visit so far. I have been in Beijing, Shenzhen, as I'm introducing our new strategy to all of our friends and colleagues in the mainland and sharing ideas on how to develop our capital markets and also how we can further enhance the connectivity.

And today, on behalf of HKEX, I'm pleased to present our financial results for the first 3 months of 2022. I will let Vanessa go into more details on the numbers later, but let me share some key highlights.

In the first quarter of 2022, HKEX continued to deliver robust results despite a very challenging macro backdrop due to the ongoing market volatility and geopolitical fragility. Key financials held steady from the fourth quarter of 2021, but were down from a very strong first quarter of 2021 and reflected a normalization of our long-term growth trend.

Revenues were HKD 4.7 billion, down 1% against Q4 2021 and 21% lower year-on-year. In terms of profit, we remain broadly flat at HKD 2.7 billion when compared with the fourth quarter of last year, but it was down 31% year-on-year when compared with the first quarter.

Our cash and derivatives business and the Connect programs showed resilience despite weak market sentiment impacted by the resurgence of COVID-19 in Hong Kong and Mainland China as well as geopolitical concerns. Our Connect programs continue to perform well against the volatile backdrop. Stock Connect ADT remained resilient with Southbound ADT rising 27% from the previous quarter. Bond Connect ADT reached a record quarterly high.

So after receiving positive responses from a broad spectrum of market stakeholders in January 2022, we published consultation conclusions for Derivatives Holiday Trading, which will commence in May 2022. During the quarter, although Hong Kong's IPO market was impacted by the macro environment, our pipeline is still very healthy and strong with over 150 active applications.

Following the introduction of the listing regime for special-purpose acquisition companies, or SPAC, we welcomed the first SPAC listing in March of this year. And in the same month, I mean, we also -- my management team and myself, we hosted the Corporate Day to update on group strategy, setting out a blueprint to build the Marketplace of the Future. I will expand on some of these areas shortly. But now let me hand over to Vanessa, who will talk through our quarterly results in more detail.

Vanessa, over to you.

[Bik Lau, executive]

Thank you, Gucho. Good evening, everyone. Thank you for joining us. I'm Vanessa Lau. I would now like to share with you our Q1 2022 financial results.

In Q1 2022, we have a challenging year-on-year comparison against the record Q1 of last year. However, HKEX' businesses demonstrated its robustness and resiliency despite the ongoing market volatility and global geopolitical fragility. Our core business revenue, excluding net investment income of corporate funds and HKEX Foundation donation income, was $4.8 billion, up 7% against Q4 and down 16% versus the record Q1 last year.

Our results were impacted by the performance of the external portfolio, which had a loss of $189 million during Q1, in line with global market valuations. As a result, total revenue and other income in Q1 was $4.7 billion, roughly the same level as Q4 2021 and down 21% against last year's record Q1.

Our EBITDA was $3.5 billion, profit after tax at $2.7 billion and earnings per share at $2.11. They were broadly flat against Q4 and down by approximately 30% versus Q1 last year.

Turning to the next page on our detailed financials. Compared with the exceptionally buoyant Q1 2021, both headline ADT and Stock Connect volumes registered a drop, but this was partly offset by a solid growth in trading volumes on the Hong Kong Futures Exchange and the LME. We are particularly pleased to see our newer products like Hang Seng TECH Index Futures launched in November 2020, registering strong growth with Q1 2022 ADV more than 3x higher than the full year of '21. Similarly, with MSCI China A50 Connect Index Futures launched in October last year with ADV in Q1 almost doubling that of Q4.

Next, we'll look at OpEx. This was up 7% year-on-year, mainly driven by higher staff costs from annual payroll adjustments and lower staff costs capitalized and higher marketing expenses on new products. As mentioned earlier, the results were also affected by the losses of the external portfolio. EBITDA was down 28% and profit after tax was down 31%.

Moving on to the next page, where we look at our rolling quarter-on-quarter performance. Q1 2022 revenue was marginally lower than Q1 -- Q4 by 1% as higher volumes in our cash and derivatives markets were more than offset by the losses of the external portfolio. OpEx in Q1 was down 2% against Q4 due to the seasonality increase in OpEx at the year-end. Q1 net profit was, therefore, broadly flat against Q4.

Moving on to look at the trend line. We continue to follow the general upward trend of the last 5 years on both revenue and profit with Q1 results returning to long-term trend levels after the exceptionally buoyant volumes in Q1 last year and affected by investment loss due to market valuation. Despite the weaker market sentiment, HKEX continues to maintain an attractive EBITDA margin.

Next, we take a look at our investment income. Net investment income comprises of internally managed corporate funds, margin and clearing house funds and an actively managed external portfolio. As mentioned earlier, net investment income was affected by the fair value losses of the external portfolio in Q1 and, therefore, fell to $59 million in the quarter.

Net investment income from internally managed funds has rebounded from Q4, up by $58 million, but was down against Q1 by $13 million. As the Federal Reserve started the interest rate hike cycle in March, Hong Kong dollar and U.S. dollar interest rates increased in Q1 this year, but the increase in net investment income will only be fully reflected as the longer tenor deposits mature.

Lastly, let's look at our operating expenses. OpEx was up 7%, reflecting our continued investments in talent, technology, infrastructures and strategic initiatives as well as incentives to attract new customer volumes. Overall, our core business continues to show resilience built upon strong foundations and a clear strategy.

Looking ahead, we believe Stock Connect will continue to be a key revenue driver and the newly launched MSCI Asia derivative contracts will continue to gain popularity and encourage more fund flows. The IPO pipeline remains strong, supported by Chinese companies seeking homecoming listings and the positive market reception on the new listing regime prospects and overseas issuers. We will continue to invest in client, technology, talent and risk management to deliver our vision of building the Marketplace of the Future.

With that, I'll hand back to Gucho for our business and strategic update.

[Nicolas Alejandro Aguzin, executive]

Thank you very much, Vanessa. And our Q1 2022 financial results highlight, we continue to deliver robustness and receiving despite ongoing market volatility and geopolitical fragility, thanks to a consistent strategy, a focused and dedicated team and the resilience of our organization.

The robustness of our core business is reflected not only in the 16% rate rise in our cash markets ADT in Q1 2022 from the preceding quarter despite the resurgence of COVID-19 in Hong Kong and the global geopolitical fragility, but also in the strength of our derivatives markets and our Connect franchise.

In fact, ADT across all our Connect schemes showed resilience with Bond Connect Northbound ADT reaching a record quarterly high of CNY 33.9 billion. Meanwhile, derivative trading volumes benefited from the popularity of newly launched products as well as increased market volatility. The average daily volumes of derivative contracts traded on the Futures Exchange increased by 39% from the fourth quarter of 2021 and up 21% from a year earlier.

Clearly, various macro developments in the region and the continued impact of the global pandemic all contributed to weaker market sentiment and the decline in Hong Kong's benchmark indexes during Q1 2022.

That said, our cash market trading volumes during Q1 2022 still compare favorably with the longer-term historical trends, which show a steady and consistent increase in activity after going through the exceptionally buoyant Q1 2021.

Macro-driven weak market sentiment impacted the Hong Kong IPO market, which slowed in Q1 2022. However, our IPO pipeline remains strong. And as at the end of March, we had over 150 active listing applications, including 10 SPAC applications.

During the period, we proactively undertook new initiatives, which focused on strengthening our position as Asia's leading global marketplace and setting us very solidly on the right course to capture the many opportunities that we have ahead. In the listing space, the high-quality SPAC regime went live with the first SPAC listed in March 2022. We look to reinforce HKEX as Asia's premier trading and risk management hub. We published consultation conclusions for Derivatives Holiday Trading, which will commence in May 2022 with MSCI derivative products being the first products included.

We launched multiple new thematic ETFs, including the first metaverse-themed ETF, the first carbon futures ETF and the first Hong Kong equity ESG ETF. During the period, we also continued to modernize our operations and infrastructure. we initiated an end-to-end review of the operating model of our Hong Kong business aiming for targeted improvements to support our vision to build the Marketplace of the Future. Sustainability sets squarely at the heart of all that we did during the period as a business, as a market operator and as a regulator.

We have seen an increase in the number of green and ESG-related bond listings in our market during all of Q1 2022, while the HKEX Foundation launched the enhanced HKEX Impact Funding Scheme. Our vision is to build the Marketplace of the Future. This vision is supported by 3 strategic imperatives that are built upon our competitive strength and consistent with our purpose: connecting China and the world. That's our first strategic imperative, and that is to build on our unique and existing China strength, a pillar that is anchored on the following priorities: expanding and enhancing the Connect programs, becoming the go-to offshore risk management center for China, becoming China's preferred offshore fundraising center and growing our portfolio of China-related products.

Connecting capital with opportunities. That's our second strategic imperative, which is focused on enhancing market attractiveness, depth vibrancy and liquidity. And the priorities around this imperative will focus on improving our primary market attractiveness, enhancing our market structure.

Expanding our product ecosystem and growing our client base. And finally, connecting today with tomorrow is the third strategic imperative that cause on us to -- the current industry evolution is constant, and we should prepare ourselves for the future and we will do this by modernizing our infrastructure. Evolving from an infrastructure-led model to a client-led model, developing more and more digital capabilities and leveraging our data.

We have identified core -- 4 core execution pillars that will support the 3 strategic imperatives that I just mentioned. One, client centricity. This has been a key pillar and as we evolve from an infrastructure-led model to become a client-led business, we need to place our clients at the center of everything we do. Our international footprint and relevance will continue increasing.

Number two, talent and culture. Talent and culture are critical. They are a critical and second pillar. We will attract, develop and maintain the best talent in the world. We're very focused on building a truly winning collaborative and client-focused culture.

Operational excellence. This is the next execution pillar, and we will continue to focus on modernizing our operations, our infrastructure.

And then risk and control mindset. Embedding the right risk and control mindset is our fourth execution pillar. We need to make sure that we build the right risk and control infrastructure to ensure that we have the proper governance and execution capabilities to really undergo all this transformation that we are talking about.

So looking ahead, the macro backdrop will remain challenging. With trading volumes, they are going to continue to be affected by the macro and geopolitical factors. But we have very strong fundamentals, and we have a clear strategy in place. We're well positioned to embrace and take advantage of the new opportunities ahead.

Geopolitical tensions and weak global market sentiment, pricing volatility, commodities, they will continue to provide some headwinds to our business. But at the same time, the gradual relaxation of pandemic-related social and travel restrictions globally provides us with some cautious optimism. We're committed to building a modern, relevant, competitive and attractive marketplace.

As such, we will make the continued investments in client, technology, talent and risk management and this will underpin our strategy. We're fully focused on delivering our vision to build the Marketplace of the Future.

So with that, I look forward to hopefully meeting all of you face-to-face soon. I'm delighted now to open it up for questions. So back to you, Ricky.

[Ricky Choi, executive]

Thank you, Gucho and Vanessa, for your sharing. And now we will open for questions. Operator, could you please give the audience the instruction again how to raise questions either via webcast or audio? Thank you.

[Operator]

[Operator Instructions]

[Ricky Choi, executive]

Thank you, operator. So now we have the first question from Gary Lam from HSBC.

[Jia Wei Lam, analyst]

Two questions, if I may. Actually, 2 aspects of questions. First, I appreciate Gucho traveling around China interacting with many. Can I tap into your insight there? From your aspiration to enhance the overall product ecosystem, what do you think about the priorities are and the timeline of that? To what extent does the COVID and all this complexity currently may delay some of the plans? And where should we put our focus? Is it some of the stock block tradings through the Connect, the margin financing to the Connect? Or is it an RMB-denominated counter as well as the revision of the pre-revenue advanced technology companies? How should we think about the timing? Should it be sort of like quarter, half yearly, yearly or multi-yearly sort of in terms of the progress?

Secondly, if I may, probably more for Vanessa. We noticed, of course, a sharp increase in the margin funds' AUM. That, of course, also lead to the overall total actual increase in north of 50% quarter-on-quarter. So do we think this AUM is just sort of like one-off short-term increase? Or is it sustainable? And do we expect going forward, this expanded AUM together with rising rates would benefit our investment income?

[Nicolas Alejandro Aguzin, executive]

Thank you very much, Gary. So let me start with the question, and then I'll pass it on to Vanessa to follow up on the second part.

So as to the trip to the Mainland and some of the visits that I had and some of the initiatives that we have around connecting China and the world, as you rightly pointed out, most of the discussions that I had are relating how can we increase the connectivity and do more.

First thing that I would like to say is that there is a broad consensus about all the participants that I met, the stakeholders, partners and all the various parties that I met around the importance of Hong Kong as that super connector that brings together the world with China, especially at a time when some of those face-to-face meetings are not as easy to do or not as convenient given all the requirements and that we have in different parts.

So lots of commitment around making Hong Kong thrive as an international financial center. And there are things that we're working on that have been announced, like for example, ETF Connect. I mean many of those have implementation periods that need to take into account, preparing the market, organizing, make sure that we have all the infrastructure in place, like you mentioned others like the possibility of having renminbi counters and have also been mentioned in the past. And of course, we're always looking for new ways.

So I would say that there are 2 things that we focus on. First of all, is understanding a bit more of like what the interest of the different participants in the Mainland are as it relates to accessing Hong Kong, accessing international markets. And I do see quite a bit of interest of using the special platform that Hong Kong is to accessing new type of opportunities.

And the second one is some of the conversations around new products from the Mainland that may be of interest to international players. And there's also quite a bit of that now that all of that -- these needs to be done in a very cautious manner to make sure that we maintain stability. And I mean, I can't discuss any new initiatives or new products because they will be announced whenever we're ready to present something. But just like my colleagues presented during Corporate Day, you can look at the whole spectrum of assets that exist. And in some of that, then there is already great connectivity.

Now there's more that we can do. So we're focusing on the ones that make more of an impact and trying to see how we can continue progressing that. So I would say, so far, I'm still in the Mainland, I'm still in what Joe at this point. And I would say that so far, the trip has been very fruitful, very productive, and I look forward to maintaining this close contact and communication and something that is a strength for us.

So with that, Vanessa, I'll pass it over to you.

[Bik Lau, executive]

Thank you, Gucho. Gary, thank you for your question. As you rightly pointed out, our investment income from margin funds, it's a function of 2 things: the margin fund size and the level of interest rates. And the dynamics are slightly different between our Hong Kong business and our London business.

So firstly, if you look at our Hong Kong business and look at the margin fund size, clearly, this is dependent on the level of trading volumes and the volatility, whether it's the cash market or the derivatives market. So when it's more volatile, we call more margin. And for interest rates, when you look at HIBOR, say, let's look at 3 months. The Q1 3-month HIBOR rate is 41 basis points versus 18 basis points in Q4 last year. So we'll begin to see this reflected in a rising investment income. The reason why you haven't seen a lot of it so far in the first quarter is because we need to wait for the longer tenor deposits to start maturing. But the new ones are definitely done at the higher rate.

And just to finish off on the London side, the dynamics are slightly different. Clearly, it's also due to the margin fund size, which in the last quarter with the rising metal prices and the volatility, the margin fund size significantly increased. And on the rate side, what happened was that when we call it so much margin, well, first of all, we take a fixed basis point and anything in excess where you pay back to participants. And also, as we called in significant more margin, we had to spread it across the banks because of concentration risk. So that also affected the investment income. So I hope that kind of all makes more sense to you now.

[Ricky Choi, executive]

Thank you, Gucho and Vanessa. Next question, we will have Yafei from Citi. Yafei, over to you.

[Yafei Tian, analyst]

My first question is also to follow up on the investment income to Vanessa. So you did mention that there is a maturity angle to the deposit. So could you please share with us how long should we think about the transmission coming through? And how should we model the interest income going forward? Should we be using 3 months as a reference rate or a longer tenure as a reference rate?

And then in addition to that, are there any rebates that Hong Kong EX offer to clients which might put a cap to how much you can earn from this margin funds? So that is related to that part.

And then secondly is more a broader question around SPAC. And I think with Hong Kong, yes, kicking off SPAC in this quarter, just wanted to learn a little bit more what is the economics behind SPAC from a Hong Kong EX perspective? Obviously, there will be a bit of listing fee. But how is SPAC traded differently to other listings? So when we think about the potential revenue that the SPAC can generate for Hong Kong EX, how should we think about it?

[Bik Lau, executive]

Thank you, Yafei, for your...

[Nicolas Alejandro Aguzin, executive]

Do you want to address the first part of the question? Yes.

[Bik Lau, executive]

Sure. Thank you, Yafei. So on the duration and how to model, I would say that roughly speaking, most of the deposits you can model for 3 to 6 months, some are 12 months. Now clearly, if you're looking at the clearing house, then that's more of the overnight.

In terms of the margin rebates, we -- it's done on a formula, but basically, it's done on the basis of HIBOR 1 month and that's how you should think about it.

Gucho, over to you.

[Nicolas Alejandro Aguzin, executive]

Okay. So yes, I'll address the SPAC question. So the main benefit of SPAC is, as I mentioned, this is an alternative way of accessing the market. So there are some listing fees, as you mentioned, when that happens. And then when there is a de-SPAC transaction, I mean, essentially, this company becomes a publicly traded company.

So [Technical Difficulty] of exchange, I mean, of all the companies that are listed in our market and then trading starts intensifying before the de-SPAC-ing transaction, remember, this is a professional investor only type of environment. So it is not going to see volume and activity until the de-SPAC-ing transaction [Technical Difficulty] impact more of a regular type of listed company. And at that point, it's usually when you would expect to have more liquidity and trading activity.

So the way to think about it is just like as any other additional company that is accessing the market. I don't know if that addressed your question.

[Ricky Choi, executive]

Cool. Thank you, Gucho and Vanessa. Next, we will have Richard from Morgan Stanley. Richard, over to you.

[Richard Xu, analyst]

Sure. Actually, I just have a question regarding hopefully some interesting takeaway from the trip from Gucho, and also any conversation with the policymakers recently in China because some of the initiatives probably does require support from the policymakers in China.

I was just wondering what will be the priority, I guess, through your conversation -- recent conversation with them and essentially will be a priority for Hong Kong Stock Exchange. And at the same time, another question is on the ADV pipeline. It's been sort of pipeline about 150 companies for a while. Any outlook in terms of when the actual issuance will start to pick up?

[Nicolas Alejandro Aguzin, executive]

Yes. Okay. So thank you, Richard. Let me start with the comments around takeaways from what different people are thinking in the Mainland. I mentioned some. There is a strong sense that it is very important to maintain the connectivity. So support overall for maintaining this great connectivity, and there's an awareness of the importance of having a market such as the Hong Kong market that can really become the glue, the super connector of interest of the different regions and with a global infrastructure, a great tax regime, great regulations that make it a really encouraging market. So those things are very, very clear from all the meetings that I've had.

Second part of your question, what was the second?

[Richard Xu, analyst]

About the IPO pipeline, your expectation on when would they...

[Nicolas Alejandro Aguzin, executive]

IPOs. Yes. Actually, yes, Richard, actually, on that one, there is a little bit of movement, I remember, post quarter. So by the end of the quarter, some -- it was around like a little over 150.

If we look at it now, for example, just like on the couple of weeks, after the end of the quarter to today, now I believe it's around 180. I think it was at the -- as of the end of last week, it was something around like 180. So the pipeline is actually growing. What happens is that your application lapses after a while when you have not accessed the market. So -- and then we have some listings that take place. So that is the math.

So being at 180 right now, I feel it's a pretty good number. Now the question that you had of when do we expect that these companies will go out? That's a really tough one to answer. I mean there's obviously factors relating to the markets and the -- some companies can actually defer some listing until the market is a bit more welcome. Others need to raise the capital, and they would just do it at a specific time. So it's company by company. We're still seeing companies. It's in the low double-digit numbers in this quarter. So it was like a very small number of companies that access.

But the names are public. I mean you can go through them. I mean there's like really, really interesting companies in the pipeline. They are waiting for SPAC. And I mean, they think about [Technical Difficulty]. I can't pinpoint exactly the time that when people [Technical Difficulty], but the demand is there.

[Ricky Choi, executive]

Thank you, Gucho. Next, we have Gurpreet from Goldman Sachs. Gurpreet, over to you.

[Gurpreet Sahi, analyst]

I have 2 for Gucho and 1 for Vanessa, and promise it's all very short. For Gucho, maybe just checking that we are nearly 2 months into when we should be expecting the A50 Connect Futures to pay us, so start charging? Is that happening? That's number one.

And second, on LME, all the recent news flow and then today, the news flow regarding Matthew Chamberlain staying for -- to see us through the review process maybe and other things. So can you quantify to us whether there will be an impact on the legal or professional fees from all the discussion with regulators or maybe any legal action from the fund side?

And then for Vanessa, the question is more on cost. All the people changes and the strategic hires being done over the last 6 to 9 months. Is that now reflected in the staff cost run rate at the first quarter?

[Nicolas Alejandro Aguzin, executive]

Thank you, Gurpreet. Let me touch on A50 and then on LME. So A50, we'll evaluate what the right commercial decision is as it relates to A50 and whether to start charging or not. I mean the holiday, as you just pointed, should last into -- in a couple of months, but we're always going to be monitoring what is the right commercial decision, and so we'll be evaluating that over this period.

Now as it relates to the LME and the recent announcement and very, very recent announcement that Matt will remain as CEO of LME, I think this is great. I mean it's -- we're very, very happy, very pleased that he decided to stay. Matt is a person that likes to lead from the front. I mean he -- the way he just handles tough situations is very, very impressive. And I'm sure like the news are going to be very welcomed by all his colleagues, customers and the broader market, who really value Matt's contribution.

So this also means that there will be continuity in terms of like the leadership. He will continue executing the strategies that we've set out around LME to make that market more resilient. And obviously, as it relates to the nickel opportunities, there is a lot of work that is being done around how can we enhance the market, how can we make the market better, more efficient, more sustainable and more attractive for participants. And that is something that if I have to choose someone to do it, I'd love to do it with Matt because he's really great.

Now in terms of like whether we should expect to have more professional costs or costs related to this, I mean, we've disclosed like everything that we have in our reports. And so we feel comfortable with that. And I mean, there's clearly more time that we'll need to be allocated from our people to make sure that we implement some of the things that will be independent reviews, I mean, that we're doing. That has to be paid, of course, I mean, and there will be some costs around that. And that -- those things we've already announced, and we hope to use this opportunity to make the market -- the nickel market a much better market going forward.

Vanessa?

[Bik Lau, executive]

Thank you, Gucho. Thank you, Gurpreet. So as we have talked about at length in our Corporate Day, where it's great that we are continuing to attract a lot of new talent to help us deliver on our strategic initiatives and this is critical for us.

The talent market, especially in Hong Kong and also in London, is still tight. So we will have to offer very competitive remuneration, not only just to our new hires, but also to retain the talent that we have already got in-house. But rest assured, we'll continue to maintain the discipline, which you have seen in our track record.

[Ricky Choi, executive]

Cool. Thank you, Vanessa and Gucho. Next, we have Ethan Wang from CLSA. Ethan, over to you.

[Yushen Wang, analyst]

The first question is for Gucho since Gucho has been in Guangzhou, so I'm sure there may be discussions around the cooperation with Guangzhou Futures Exchange since we kind of stayed in there, especially on the carbon front. So we mentioned the carbon opportunities on our Corporate Day. So we're just wondering how the discussion is going. And is there any specific initiatives that investors should be aware?

And second is on the RMB denominated trade for the Southbound. The news is that Hong Kong government has already done its feasibility analysis, studies and have given the plan to Mainland regulators. So just wondering if Gucho has any discussion with Mainland regulators in regard of that initiative and just wondering how should we see the timeline of this initiative.

[Nicolas Alejandro Aguzin, executive]

Yes. Okay. Ethan, thank you for the questions. I mean you're right, we had that -- we did announce that quite a bit around working with our partners at Guangzhou Futures Exchange, where we hold a 7% stake. And the idea is to explore things that we can do together across listings and potentially explore areas around ESG also to work together.

And then also remember that we also signed an agreement with the China Emissions Exchange. The China Emissions Exchange is based in Guangzhou, actually, and the MOU that we signed is relating to exploring opportunities and to develop the voluntary carbon market.

These things, because you also asked, I mean, how should I think about these things, these things are things that take quite a bit of time. Those markets are not huge markets yet, but they have great potential for the very long term. So I would put this in the box of things that will probably help in creating more products that will be very exciting in the future. It's not one that you will -- where you will see significant impact in the P&L immediately. These are more like longer-dated opportunities that we need to start working because those markets are huge, and there is an interest and a need to connect the Mainland with the world. And through these partnerships, we think that there is many things that we can do. So I would put that more in the category of longer-term initiatives.

In terms of renminbi trends and the announcement by the Hong Kong government around this, it's something that, of course, it was publicly mentioned by the Hong Kong government. And we've done the feasibility analysis, and there is quite a bit of work being done on this.

Today, we can already offer the renminbi counter for shares to be offered in renminbi. What we haven't seen as much is that natural demand for stocks in renminbi. Of course, all that can change if you can allow Southbound Connect to trade directly in renminbi. But that requires quite a bit of work from an organizational point of view, which is precisely why these conversations are ones that we just have to take it with time, make sure that we understand all the possible implications from a risk point of view and then allow the entities, including ourselves, our clearing business, the clearing side on the China side as well, I mean, to make sure that everything is done on a very thoughtful way. So we are working, and we are in constant communication with all the relevant parties and stakeholders. And as soon as we have a clear visibility on when this we'll be able to have completion and announcement launch of this, I mean, you will be informed.

[Ricky Choi, executive]

Thank you, Gucho. I think we have time for the last question. Kelvin from UBS. Kelvin, over to you.

[Kelvin Chu, analyst]

Kelvin Chu from UBS. Two questions from me. The first one is on earnings volatility during the market weakness. We appreciate this is the nature of the industry and Hong Kong Exchange. You do have a strong business serving as a natural hedge. I just wonder whether you have any plans to further reduce earnings volatility for the company.

My second question is just a follow-up on the MSCI A50 Futures. Can you share with us any color on mix of market participants? How can we tell whether the trading has been more driven by investors hedging the Asia exposure versus single-site positioning? And what do you think are the key reasons that some in business are still yet to shift liquidity from Singapore to Hong Kong?

[Nicolas Alejandro Aguzin, executive]

Okay. Thank you, Kelvin. This is an important question. And providing more stability in our revenue stream is very important, not having such a big dependency on market movement. I mean given the products that we have today, we're heavily affected by how the markets move.

We did see over the last few quarters a significant increase in our derivative revenues and that has been led by the introduction of derivative products that actually were very successful with the market, I mean, and I'll just give like a few examples. The Hang Seng TECH Index was incredibly popular and generated a significant amount of activity. The -- you mentioned -- well, Options on Futures was another initiative that was launched just a few months ago and it's working really, really well.

Now you mentioned the A50, which is another product, which we have very, very high hopes. And this one will -- it's a little different because that's, as you know, a very competitive product, number one. Number two, usually at introduction, it's a bit harder for some key participants like active high-frequency traders and logarithmic traders to be very active because they want to see data over a longer period of time so that they can build their high goals and the restructuring. And so it takes a little bit more time to be able to make headway on this.

The ADV has been growing, I mean, consistently. We did notice a bit of a slowdown in the amount of open interest over the last few months. However, as we get to that, those 6 months, some people -- 6, 7 months -- then some people will really have some trading history, records data that they can utilize more efficiently. And so we would expect, at that point, more participation.

So we're still working on making sure that we attract the right type of participants. I think the Holiday Trading initiative is going to be an important element that will help some people that were perhaps on the sidelines assess the benefits of this because, I mean, right now, you're going to be able to trade A50 index programs -- products year-round independently of the holidays. I mean so that is some competitive deficiency that we had at some point, and we've addressed it. I mean, starting May 9, that should be in place. We have all the market makers, market participants representing pretty much 100% of the OI ready to trade the whole suite of MSCI, the 44 products that we have out there.

[Ricky Choi, executive]

Cool. Thank you very much, Gucho. I think this marks the end of today's session. Thank you very much for joining us today, and have a good evening ahead.