Euronext and Shenzhen Stock Exchange (SZSE) have signed a memorandum of understanding (MOU) that came as a surprise to many but marks the beginning of a collaboration on joint development, research, marketing and specialised trading technology, and the future launch of co-branded indices and exchange-traded products (ETPs).
“Euronext and Shenzhen share a similar philosophy regarding funding the real economy and capital raising,” said Michael Hodgson, head of information services at Euronext “The MOU aims to promote both exchanges through partnership regarding indices and index related exchange-traded products.”
The previous structured products link-up between a European and Asian exchange – a structured products connect for institutional products – has yet to produce a large flow of product activity, according to a European exchange official, “but maybe will pick up a little … I would see a European/Far East partnership as a natural extension for Euronext and the Shenzhen Stock Exchange. Getting an agreement with China is good, but I suspect making it work will also be a legal headache."
The two exchanges have agreed to enhance the development of ETPs in the Republic of China and the Euronext markets. The co-operation will include the cross-listing of ETPs and indices, such as co-compiling indices based on global or local markets. Both exchanges will also support each party’s licensing of market data on the other party’s market. “We aim to launch joint products in the near future,” said Hodgson. “From a Euronext perspective, we aim to promote our core CAC and AEX brands and also promote key underlying stocks listed on Euronext to the China market. We share common sector interests in lifestyle and pharmaceutical stocks which are of interest to both European and Chinese investors.”
There are 41 ETFs and 10 listed-open-ended-funds (LOFs) listed on the exchange, but no equity derivatives instruments such as options or futures, according to SZSE data. “ETFs for both markets are the initial preferred investment products,” said Hodgson. Euronext is one of the leading exchanges for structured products and ETFs in Europe. As of the end of March there were 48,959 live listings across the four Euronext markets, of which the majority (28,493) were listed at Euronext Paris. The Amsterdam exchange, meanwhile, counted 12,926 live listings, followed by Brussels (5,836) and Lisbon (1,704).
The agreement is a response to the growing demand in China for more ETPs and equity derivatives instruments. SZSE released its first option in February this year, which sits alongside the only three futures available in the exchange. “We need to promote our respective markets to our clients," said Hodgson. "Euronext are already building a portfolio of Renmibi bonds raising over RMB5bn since July 2014. We will start with ETFs but there is no restriction on products longer term.”
Besides improving basic equity products, the Chinese exchange is also enriching the product line and building a more open market to provide more liquidity and risk management tools for domestic and foreign investors, said Liyang Jin, executive vice-president of SZSE, in a statement.
The two exchanges also said, in a statement, they will explore the possibility of future cooperation on other relevant areas such as the development of capital raising facilities for small and medium enterprises, dual listing, fixed-income products and offshore renminbi products.
The MOU follows the launch of a Shenzhen-Hong Kong Stock Connect at the beginning of this year, which was designed to further expand the investment range of instruments including derivatives. The later introduction of a Shenzhen-Hong Kong Stock Connect has been created to allow an expanded range of investment products beyond direct investment in stocks.
Related stories:
Pick-up in Shanghai-Hong Kong Connect heralds call for derivatives equivalent
Euronext trades €1bn on ETFs in one day; launches new equity options