Hong Kong Exchanges and Clearing Ltd

HKEX:388

Earnings Call Transcript 2020-Q3

[Unknown Executive]

Good afternoon, ladies and gentlemen's. Welcome to participate HKEX 2020 Q3 Results Analyst Presentation. Today, we are very pleased to have our Chief Executive, Charles Li; our Co-President, Romi Lamba; and our group CFO, Vanessa Lau. Without further ado, Charles, please.

[Xiao Jia Li, executive]

Great. Thank you. Thanks, everybody, for attending this virtual call on our 9 months results. I want to be very, very brief before I turn it over to Vanessa and Romi on some of the details, and I wanted to spend most of the time answering questions that you might have.

As you have seen that this is another record revenue announcement that we have, revenue was up 12% to $14 billion and -- but if you look at the core business, actually, revenue was up 21%. So very, very strong results. Profit was up 16%. This is really largely driven by very strong IPO market as well as extremely strong Connect market. I think IPO market, again, we are globally #3 in terms of IPO funds raised. We raised $211 billion. And -- but the key is 76% of that represent new economy companies, which brings tremendous amount of life and trading activities to our market. And many of those returnees and secondary listings and biotech companies are extremely successful and high-profile companies that has transformed the underlying market of Hong Kong.

Stock Connect, again, a record 9 months, $96 billion in ADT from Connect and $20 billion on Bond Connect. And they are both strong financial contributors. But more importantly, representing much strong prospect of growth. And so we're very, very pleased with this set of results, particularly in light of the pandemic and in light of the difficulties that we are facing in geopolitical environment. And the sluggish underlying economic environment. So it is really a strong market, a resilient market, in a very difficult year. And I think one particular thing that we are very proud is that by the time we started the big reform and launched the reform back in 2018 on the listing regime changes, little that we know then that what happens in 2020, makes that 2 particular reform, 1 on WVR companies, new economy companies, which means that we are able to welcome back so many of the big companies, strong technology companies that have thrived in the pandemics because they were able to deliver disproportionately for what the population needed in fighting and sustaining this pandemic environment. And also on biotech, because of the search for vaccine, and the renewed focus on science -- life sciences. And this really just allowed these 2 sectors to be extraordinarily active. And we start to really harvest the huge amount of investment that we made over a number of years.

With that, I will leave to Vanessa to go over some of the detailed analytics on our numbers. Vanessa?

[Bik Lau, executive]

Thank you, Charles. Good afternoon, everyone. Thank you for joining us. I'm Vanessa Lau, Group CFO, and I would now like to share with you our Q3 financials. On Page 6 of the presentation, you can see that we are very pleased to report record 9-month revenue and profit.

Total revenue and other income comprises of core business revenue and net investment income. In the first 9 months of this year, our core business revenue was up 21% year-on-year, driven by a record headline ADT of $126 billion. Net investment income fell by 31% versus the record investment income in the same period of last year, reflecting the performance of the global equity and fixed income markets and a low interest rate environment.

Overall, our total revenue and other income was up 12% year-on-year to $14.1 billion. EBITDA margin was strong at 77%. Profit after tax was $8.6 billion, up 16%, and EPS was $6.80, up 15%.

Turning on to the next page on our detailed financials. Our core business showed strong growth versus 2019 on both revenue and profit. OpEx was up 11%, mainly driven by higher staff costs, IT costs and professional fees. From July 2020 onwards, donation income from the Stock Code Balloting Charity Scheme and the payment of the Hong Kong Community Chest have been and will be channeled through our new HKEX Foundation, which is consolidated into our financial results. EBITDA margin was maintained at a solid 77%.

Moving on to the next page, where we look at Q3 results versus Q2, we are pleased to report record quarterly results, with Q3 revenue and profit higher than Q2 by 11% and 13%, respectively. This is mainly driven by the record Stock Connect revenue and headline ADT being the third quarterly record high. This was partially offset by the lower fair value gains from the collective investment schemes.

Moving on to look at the 5-year trend line. We have been generally trending up over the last 5 years on both revenue and profit. Q2 and Q3 this year have been significantly above this historical trend line. This reflects both the resiliency of our core business and the foundation slate in the diversification of our business throughout the past few years and our continued commitment to innovation and market enhancement. At the same time, our cost discipline has been strong and has helped us maintain an attractive EBITDA margin.

Next, we look at the year-on-year performance of our operating segments. You can see that all our business segments achieved higher revenue year-on-year. As Charles mentioned, Stock Connect revenue continued to achieve new records with Northbound and Southbound ADT reaching 9-month highs. Stock Connect revenue reached $1.4 billion, contributing to 10% of our group's total revenue and other income in this 9-month period.

Listing fees were up 15% with 104 new listings in year-to-date Q3, and newly listed CBBCs reached a 9-month record high. The commodities segment was up 6% on revenue, mainly from the LME fee increment that was implemented from January this year. Post trade revenue was up 19%, driven mainly by the ADT increase. The technology business saw a 15% increase in revenue, driven by higher demand by both new and existing exchange participants for our network and hosting facilities. Corporate items was down because of net investment income, which I'll share with you more details on the next slide.

Net investment income was $1.5 billion versus $2.2 billion in the corresponding period of 2019. Net investment income comprises of internally managed corporate funds, margin and clearing house funds and a noncore actively managed external portfolio. Net investment income from the internally managed funds was down by approximately $100 million year-on-year due to the lower interest rate environment, and increased rebates to clearing participants from September last year. This was partly offset by higher fund sizes. The external portfolio has fully recovered the Q1 losses and made a year-to-date gain of $71 million. However, when compared with a record gain of $643 million in 2019, the portfolio was down overall by $570 million year-on-year. As expected, income from the portfolio does fluctuate from year-to-year and is primarily driven by the macro investment environment.

Lastly, let's look at our operating expenses. OpEx was up 11%, reflecting our investments in talent and technology, including our acquisition of Pay Connect in June last year. Professional fees increased mainly because of strategic projects, and a review of our HCAS derivatives trading system. Other OpEx increased mainly because of the foundation donations I mentioned earlier and the license fees for the MSCI contracts. Excluding the foundation donations of $57 million, OpEx was up 9%.

So reflecting on this 9-month period, we're very pleased that our core business has performed well. Showing resiliency in a volatile and at times challenging period. We believe Stock Connect will continue to be a key revenue driver and that market sentiment will be boosted by the strong IPO pipeline. We are very well placed to capture future growth opportunities, and we'll continue to focus on managing our costs and risks.

With that, I will hand over to Romi Lamba to share some business highlights.

[Romnesh Lamba, executive]

Thank you, Vanessa. I would just like to touch on a couple of updates and then move to Q&A. If we go to Slide 14, we have talked about already the volumes being up significantly across different products.

Quick update on the MSCI suite. We launched most of -- pretty much all the contracts in July and August. And we have had a couple of rollover periods in September and October, and we'll have more in December.

The first indicator, which is more important in the early days, is the buildup of open interest. And as of the end of October, we are over 90,000 contracts across the suite in open interest, which we feel is a good result so far, and we expect to continue to see that grow. And ADV or the volumes have been a little bit slower. We do face intense competition from SGX. They have more flexibility on their incentive programs. And -- but we have a lot of faith that people will continue to want to trade the MSCI suite. And I think we hope that as time goes on, we will see the results that we hope for.

Second, on the ADT, just want to highlight one statistic which is very timely. Yesterday, the ADT was $235 billion. Today's ADT of $268 billion is the highest in 2020 and the third highest on record in our history. So at least for now, the momentum continues in a very significant manner.

Finally, the 2 slides I'd like to refer you to is Slide 15. As you know, we have started tracking the ADT contribution of Jumbo IPOs. This year alone, we can -- we have had a number of IPOs over USD 1 billion. And now in total, since January 2018, we have had 21 of these jumbo IPOs. And the current contribution year-to-date to ADT is $26 billion or 20.5% of our ADT is coming from these IPOs and 14.5% of our single stock option volumes is also coming from this universe. And not all of these IPOs have issued or we have not issued options on all of them. So there is further upside.

If we go to the next slide, Slide 16, the point here is not just about the IPO and the IPO size. Obviously, for a normal IPO you will see float increase after the 6-month lockup expires and so on. But for the secondary listings, 3 of which are highlighted on this slide, you can see that when Alibaba listed in November of last year, they only issued less than 3% of their float, of their market cap. The Hong Kong float was 3% of their market cap. That number has now grown to 15%. NetEase has shown an increase, not as substantial. And JD has grown by 90% to about 10% of their market cap. So this increased float is another driver for ADT.

We have a few more slides on the usual market structure, technology, product launches and so on. But let me stop there, and we can move to Q&A.

[Unknown Executive]

Thank you. Operator, please move on to the -- yes, operator, please start the Q&A session.

[Operator]

[Operator Instructions] We have the first question on the line of Richard Xu from Morgan Stanley.

[Richard Xu, analyst]

Just have a question on the progress on MSCI China as well as Asia index futures. First of all, on the initiatives to drive more volume to Hong Kong, what are the pricing that the management is doing at the moment? And also, any color update on expenses on the fee-related to the contracts at the moment?

[Xiao Jia Li, executive]

Okay. Quickly, Romi will answer the MSCI question components. Just on the Asia derivatives, we -- this was announced, so it is definitely going to happen. But we are still waiting for some final regulatory clearings from China, and I believe we are very close to it. But I also recognize that we've been saying that for a while. Hopefully, it will come soon enough. But it is -- we are seeing the light at the end of the tunnel. And it's rapidly approaching it. Romi, why don't you quickly cover the MSCI question.

[Romnesh Lamba, executive]

Sure. I think in terms of MSCI, there's a few observations I would make. The first is SGX, as you know, has launched a suite of FTSE-based contracts very similar to the MSCI suite. And is also offering pretty aggressive fee discounts and incentive programs to attract volumes. We have matched most of the fee discounts, but in our market, our incentive programs as I mentioned, we don't have as much flexibility. So we are competing head-to-head.

The second is in terms of the open interest, some of that open interest has migrated to Eurex in Europe, initially as people wanted to see how things would play out between the Hong Kong suite and the new SGX suite, but we are already beginning to see some of that open interest migrate back to HKEX.

The third area where we need to make further changes is more around market structure issues. We have made a few already. But one of them, for example, is a holiday trading model. In Hong Kong, historically, we have traded most of our derivatives are on our own underlying, so when the Hong Kong market is closed, our derivatives are closed. But now as we expand our product suite to Asia and the rest of the world, we are working towards keeping the trading open even when Hong Kong has a public holiday. So there's still work to be done, but I think we are quite optimistic that we will get to where we need to.

[Unknown Executive]

We have next question from Livy from HSBC.

[Yu Lyu, analyst]

[Audio Gap] and probably this would be the last time that Charles is with us for the analyst briefing. So here are my 2 questions for Charles. First one, what are the most important things in the last 10 years that you think are to the development of Hong Kong Exchange? And what are the things that you think still are in a pipeline, and you think it's equally important to them? Anything you'd like to accelerate specifically in the last 2 months during your term?

And the second question is, what is the process for the new CEO candidate search? Any reason you would like to share for retiring 10 months earlier? Or -- and any specific introduction that you would like for our interim CEO, Calvin?

And my third question is mainly on the financial things. And so we see the divided trend between investment return for clearing house funds and margin funds. So why is the margin funds investment return quite stable this year despite the descending trend in the low rate environment? Could you explain a bit on margin funds products?

[Xiao Jia Li, executive]

Thank you, Livy. Let me quickly touch the first 2 and then Vanessa will talk about the last. I think if you think about what I thought was the most important, at least for me, is connecting the water and change the fish. In my mind, I usually have to really translate things into very simple things, in my mind in order for me to keep trying. So essentially, I just thought a market need to have the west and east, the investment, the capital pool needs to be connected. So therefore, Connect is a big deal for me and remain to be a big deal because that, in my mind, is the single or most important transformative things that we can do that will guarantee our long-term future. So that is pretty much -- at least, the initial infrastructure is finally done and it's probably irreversible. So I'm very, very pleased and proud of it.

The second has really change the fish in there because we fundamentally, in the past, entertained a very different set of old school underlying, and that really requires to change. I'm just very pleased and proud that we were able to do it. And do it early enough that even though it took a number of years of efforts, that we finally pushed it through against so much odds in '18. In 2018, we were able to get WVR. We were able to get biotech.

And if you think about the pandemic this year and think about the fact that technology leaders are really the outperformers, are the ones who really bring life to a market, the fact that the U.S. market is so resilient where European and U.K. market is still struggling. And also, our market is so strong where Japan and other Asian markets are struggling, is really about the new technology. The fish in our pond is now fundamentally different. And that obviously cannot be reversed either. So that 2 things, in my mind, are the most important elements of my tenure. So my successor, I simply hope that will continue to build on it.

On Connect, obviously, the big transformative steps to take, which is not going to be easy is really two: one, build Connect from a cash Connect to derivative Connect, easier said than done, but it is a direction that the single market should really trying to aspire to from cash to Connect. And from secondary to primary. Meaning today. you have to be listed in both either China or here in order for that to be included in Connect. Why can we not allow IPOs to be directly sold into Connect. So therefore, from cash to derivative, from secondary to primary are the 2 big next jump that the future leaders will need to hopefully be able to continue to aspire and to deliver and try. It's not easy, but it is certainly something that is doable.

In the remaining days of this year, I hope that I'm able to bring the IPO process reform into some sort of announcement. Hopefully, that is -- something remained to be hopeful for me. And hopefully, the IPO reform that we have will be further sort of expanded to allow certain -- many -- quite a number of companies who are currently still in -- to see whether we can create greater open. Asia derivatives is another big thing. I wanted to see whether I can make some difference before I leave. And I think there's one more thing on my mind, and may come back to me.

I think in terms of the search, I'm not part of it. So -- but I understand it is going well. And I think Calvin is a very strong leader with a long history, a big change. Very experienced and seasoned, so I have every confidence that he will be able to manage our company greatly in the interim process. But we don't know at this point whether the interim period is going to be as short of just a few months, and then we will be able to announce the new leader early in the year. Or this could potentially become a little bit more extended than that. I don't really know. And I think it is active searching and going on.

In terms of leaving earlier. There is never going to be a right time to leave. And I just felt that once I have announced the intention to leave, I think it is very important for the company to begin life without me because it's very difficult for me -- I'm a guy who likes to make decisions, but I don't really think it is right for me to make a lot of more board new decisions now because the new person needs be to have a free hand in terms of directions he or she wants to set, and I shouldn't really be tying those hands. But I'm just kind of a guy, if I don't make decisions, I think my leadership at the company will become very challenging for people. So I think it is healthy for the company to really start to settle into a mode of a real change that has to happen now. And I need then to be able to start to focus on what I wanted to do. Right now, I don't want to divert attention away. But I do think I want to personally begin to contemplate life after the exchange. Thank you for that. And Vanessa, carry on the third question, please.

[Bik Lau, executive]

Thank you, Charles. Livy, clearly, the low interest rate environment impacts our net investment returns. And you can see that the yields for the Clearing House Funds and the margin funds have both fallen year-on-year. The reason why the margin fund net investment return is higher than the Clearing House Funds, it's just a matter of some of the longer tenor deposits that we were able to place earlier on in the year when the interest rates were still slightly higher. And as we look into next year, when some of these longer-term deposits roll off, you will see further impact from the low interest rate environment. Thank you.

[Unknown Executive]

Next question, we have Yafei from Citi.

[Yafei Tian, analyst]

I have 3 questions, if I may. The first is really to follow-up on the corporate WVR consultation that has just been concluded. Just wanting to go to a little bit deeper your thoughts why despite of majority in favor of this reform that Hong Kong EX decided not to proceed? And is this going to put Hong Kong EX in a relatively disadvantaged position compared to other exchanges to attract new economy to list here going forward?

And the second question is around Connect. We hope to see more connect in terms of the secondary listing being included and potentially include the STAR Board as well. Could you give us an update? Is that something on the agenda, and what kind of time line should we be thinking of?

And finally, is a simple one on the OpEx. The growth is relatively higher than in the past at 11% this year. Is this because of investment in technology? Is there going to be a change in terms of OpEx trends going forward?

[Xiao Jia Li, executive]

Thank you, Yafei. I think at WVR, I'm not at liberty to put a specific direction of crisis or a conclusion. I think you read the conclusion the way we read it and the exchange probably would have preferred a slightly different route. But I think it is also important in this decision that would bring all key stakeholders together. And at this point, we [Audio Gap] there are still certain issues in the corporate WVR. That probably requires more spots and more bedding down. So therefore, we have decided not to necessarily take any specific actions on corporate WVR per se, but take a more practical approach by looking at what are the opportunities that we are really potentially looking at it, that really belongs to Hong Kong, so to speak. And what are other things we could do other than setting up a complete new regime on corporate WVR that can allow us to achieve that while waiting for final resolution at corporate WVR. So we believe we have found the landing place where we are able to be practically getting those companies in through grandfathering and other arrangements. But so that we have the space and time to continue contemplating what we're going to do permanently with respect to WVR.

On Connect inclusion, I think that the STAR Connect and also Chapter 18A connect are probably easier issues to resolve, and they probably -- we're probably very, very close to resolving them. Secondary listing, again, we believe it's absolutely right for them to be included. But we need to continue our conversation with the onshore exchanges, and they have their own way of handicapping on this. And it's not -- it's more about competitive pressure, about wanting to potentially use this as a way to improve more companies to consider domestically. So therefore, they may still want to take some time to consider this. But my own judgment is that this is an issue of when, not an issue of whether. But on STAR and 18A, we are talking about reasonably imminent decisions with respect to secondary listings. It's probably going to be a little bit while. But we're not talking about years, hopefully not too many months, but definitely going to be weeks. OpEx, Vanessa?

[Bik Lau, executive]

On the -- yes. So on the OpEx, well we are up 11% year-on-year. But if you exclude the donations made by the HKEX Foundation of $57 million, OpEx is up 9%. So going forward, we will continue to invest in the 2 key areas of talent and infrastructure because these are most important to drive our future growth. And as you can see from our track record, we have been maintaining very attractive EBITDA margins. And we will look to be in control of our costs, especially in a volatile macro environment.

[Unknown Executive]

Next question we have Gurpreet from Goldman Sachs.

[Gurpreet Sahi, analyst]

Congratulations on a strong set of numbers again. My question is on the LME side, so I'm hoping Charles can maybe answer. But I know, I mean, LME is a declining mix within the overall business, but still not insignificant at around 10% of total top line roughly. And volumes there have been declining. I'm wondering whether it is to do with the macro or the fee rate that had been -- fee rate hike that had been put in place by the exchange earlier this year. As I see third quarter chargeable ADV, it was down around 15%. So can you please help us understand what are the initiatives being discussed to raise the volumes there?

[Xiao Jia Li, executive]

Thank you. Romi, why don't I ask you to do this because they just did a deep dive on a number of issues, LME, and Romi will continue after this, be able to -- he's the principal officer of the group in terms of managing remote LME. Romi?

[Romnesh Lamba, executive]

Okay, thanks. I think LME, if we look at the 9 months, the first quarter was actually relatively strong in terms of volumes, and then the volumes have been declining in the most recent months. I think this softness is not just about LME. If you look at the commodities industry, generally, you look at other exchanges volumes and in particular metals. Volumes have been down across the board.

The second point is because of COVID, they have shut down the ring. This in itself is actually not a factor in terms of volumes coming down because the ring pricing has been converted to electronic pricing and the specific volumes that used to be generated from the ring have actually gone up slightly. So I would say that's not one of the causes.

And thirdly, looking forward, I think [Audio Gap] it's really going to be more about macro factors in the near term that could see a recovery in the volumes. There are initiatives that LME is doing, ranging from some market structure changes, not huge ones at this stage. As well as moving to some nonphysical new products and so on that I think will help. But to be very honest, I think for the near term, when I say near term, going -- looking into 2021, we expect relatively flat volumes.

[Unknown Executive]

Next question we have Chi Man from China Galaxy.

[Chi Man Wong, analyst]

I have 2 questions. One is related to the revenue. I'm not sure whether for the 38 MSCI index futures, new products. Any idea about the size of revenue in Q3 or still too early to talk about revenue for these 38 new products?

And the second question is about the operating expenses. If we only look at the expenses in Q3, we see the staff cost increase year-on-year. The percentage increase seems bigger than the situation in Q1 and Q2. I'm not sure whether there may be any one-off items there for the staff cost increase in Q3. Then the other cost -- for the other operating expenses also increased quite a lot year-on-year. Is it mainly because of the Hong Kong EX Foundation charity? If yes, what's the trend going forward? That's all for my questions.

[Xiao Jia Li, executive]

Vanessa?

[Bik Lau, executive]

Yes. So let me comment on the OpEx. So as I mentioned just now, OpEx is definitely including the new donations outlets from the HKEX Foundation. The HKEX Foundation was newly launched in the second half of this year. So we started making donations out to charities and to the community chest, and that was $57 million in this period, which accounts for 2% of the 11% OpEx increase.

The rest of it, as I said, is related to staff costs and talent, and also the infrastructure IT OpEx. So I wouldn't say that there are exceptional items in there. And the only exceptional item I would mention is the start of the MSCI licensing fees, which we started this -- in July.

On the revenue on the MSCI contracts, I agree with your observation that it's too early to tell. We've only just started this journey. And as Romi was commenting on it earlier, encouraging to see the open interest increasing, but it is a long-term initiative for us. So hopefully, we can see more significant revenue results coming in next year.

[Chi Man Wong, analyst]

Just a quick follow-up about the expenses for Hong Kong EX Foundation. So the $57 million going forward, for example, for the next few quarters, should we also expect something like $50 million for each quarter or any guidance for this item?

[Bik Lau, executive]

As I said, this is the launch of the foundation this year. So going forward into 2021, you could definitely assume a full year impact rather than a half year impact for this year. And the level of donations going out and also the level of income coming into the foundation will -- is still being determined because we're -- it's like any startup. We're starting it this year. We're still looking at the business plans and the budget for next year. But what I can say is that both the income side and the donations outlets, you can expect that to be a bigger number than what you can see right now in Q3. But the idea is not that the foundation is going to make a significant surplus or deficit in any particular year because we will run it as a foundation.

[Unknown Executive]

Next question, we have Harsh from JPMorgan.

[Harsh Modi, analyst]

Charles, this question is for you. On Asia futures, what is -- what are the key discussion points which is leading to probably a bit of a delay as expected, versus, let's say, previous a time line?

[Xiao Jia Li, executive]

I'm not really sure it's appropriate for me to say that, even though I am dying to tell you. There's nothing unbecoming. It's sort of tied up with some of the domestic discussions as well. So it has nothing to do with us, nothing to do with whether the government or the regulator is intending to do this or whether there's a change of heart or whether there is any concerns [Audio Gap] that's -- as far as I understand it. [Audio Gap] now, we are beyond those, but [Audio Gap] there are certain regulatory processes that sometimes got tangled with other decisions and without our control.

So maybe that's as much as I would like to share. That is essentially -- we don't have the green light. I'm not concerned at all that we should be getting the green light, and there's no particular [Audio Gap] issues involving us on timing, that is not like [Audio Gap]. And we need to be doing something in order to clear this and there are certain things that need to happen on the other side, that is not necessarily related directly to our issues. But it's, nonetheless, right now, it's sort of have impact of making our decision to be winning around as well.

[Harsh Modi, analyst]

So let's say that you do get [Audio Gap] approval at any point in time from the approval to the actual launch [Audio Gap] what should be the gap?

[Xiao Jia Li, executive]

Romi, do you want to cover that a little bit because we did -- we have a lot of planning.

[Romnesh Lamba, executive]

Yes. I think we'll be talking weeks, maybe maximum a couple of months. But pretty quick.

[Unknown Executive]

We have next question from Scott from Macquarie Capital.

[Scott Russell, analyst]

Vanessa, just wanted to pick up on the OpEx, again, the licensing [Audio Gap] for MSCI another way of -- sorry to [Audio Gap] belabor the point, but another way of cutting the numbers is looking at the OpEx in derivatives, and I think that was up $40 million Q-on-Q, and more than that year-on-year. Is $40 million roughly the run rate? Or is that the licensing fee -- is that a good estimate for the September quarter? And going forward, I'm assuming that that's tied to the ADV on those contracts. Is it truly variable? Or how should we be modeling this out?

[Bik Lau, executive]

Thank you, Scott. I hope you would appreciate that I am not in a position to provide the details of the commercial and contractual arrangements with regards to license fees. But I would say that on the OpEx, there's one more factor this year that's different from last year, which is that we acquired the Connect acquisition back in June last year. So this year, we're seeing the full year impact of the staff costs coming in as well. So hopefully, that helps.

[Romnesh Lamba, executive]

And I think your question -- comment on just derivatives OpEx going up also includes some changes we have made to our incentive programs that were not there in place previously. So it's not just the license fee. There are other components of investment in our derivatives business.

[Scott Russell, analyst]

But it is a variable fee, right? It's not fixed each quarter?

[Bik Lau, executive]

I can't comment on that unfortunately, Scott.

[Unknown Executive]

We had the last question coming from Shujin from Jefferies through our webcast. So the question is, stock on the turnover beats expectation, the major index futures and derivatives remain relatively weak in third quarter. So what is management's expectation for both Stock Connect and derivatives in the fourth quarter considering the impact from new IPOs and MSCI futures?

[Xiao Jia Li, executive]

I don't really think we should be guiding forecast on those issues. So Romi, are you comfortable taking up this question a little bit on some of the elements of what could happen in the fourth quarter but without creating any kind of forecast potential?

[Romnesh Lamba, executive]

Yes. I think my main comment would be that October and November year-to-date, particularly on the cash side, the run rate is probably higher than the first 9 months. As Vanessa mentioned, we will probably see the usual weakness in -- as we approach the holidays in December. But on balance, I think we will see a reasonably strong fourth quarter on cash ADT.

On derivatives, it's harder to say. You are right that this year has been relatively flat in terms of our core derivatives products. We will see contribution from MSCI but as I mentioned, we are offering a number of fee discounts. So in terms of actual revenue contribution, I don't think MSCI, this is going to be the quarter where it starts contributing in a meaningful way.

[Unknown Executive]

Cool. I think that's probably all the questions we received so far. Charles, do you have any final notes for the audience?

[Xiao Jia Li, executive]

No. Other than to say, thank you that you have given me the opportunity to work with all of you for the last many years. Some of you, we have been doing this for a long time. Others are more recent. And I really enjoyed the experience with you. And particularly thankful for your support, for your guidance and criticism, and also the unwavering confidence that we are doing the best we can, our market is doing the best we can. And so for that, I remain to be eternally grateful for all of you. And you are the best bunch, and I will be missing you. But I'm sure paths will cross. This will be my last quarterly earnings call. But I will, hopefully, next time, be invited to participate as a listener, audience next time because I will still be adviser for a while. But I look forward to working with you in a different capacity in the new year. Thank you, and stay safe. Stay in touch.

[Romnesh Lamba, executive]

Thank you.

[Unknown Executive]

Thank you, everyone. That's the end of our meeting today.

[Operator]

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You can disconnect now.