Hong Kong Exchanges and Clearing : 2020 Annual Report

March 15, 2021 at 04:27 am

Our vision is to be the

Global Markets Leader in the Asian Time Zone - Connecting China, Connecting the World.

As the leading market for investing into and out of Mainland China, we are focused on further increasing our international and regional relevance, serving as the venue of choice for investors and issuers in the Asian time zone and beyond. Resiliency, sustainability and innovation are the cornerstones of our business.

Contents

Overview

4 Strategic and Financial Highlights
11 Chairman's Statement
15 Chief Executive's Review

Organisation

24 Board and Committees
26 Board of Directors and Senior Management
41 Management Committee

Management Discussion and Analysis

44 Business Review
72 Financial Review
77 10-Year Financial Statistics

Governance

80 Corporate Governance Report
96 Nomination and Governance Committee Report
99 Audit Committee Report
102 Risk Committee Report
106 Remuneration Committee Report
113 Corporate Social Responsibility Committee Report
115 Directors' Report

Financials

122 Auditor's Report
127 Consolidated Income Statement
128 Consolidated Statement of Comprehensive Income
129 Consolidated Statement of Financial Position
130 Consolidated Statement of Changes in Equity
131 Consolidated Statement of Cash Flows
132 Notes to the Consolidated Financial Statements

Others

215 Shareholder Information
218 Glossary

Financial figures in this Annual Report are expressed in HKD unless otherwise stated

Overview

Interim Chief Executive

"HKEX had a strong year in 2020, despite the challenging macroeconomic environment. Revenue and other income, and profit both reached record highs for the third consecutive year. Cash Market turnover, Stock Connect and Bond Connect volumes all achieved new highs, and together with a buoyant IPO market, offset the impact of the low interest rate environment on investment income.

We continue to execute and deliver on our Strategic Plan, capturing new growth opportunities and we remain fully focused on managing both costs and risks. With robust trading volumes, a strong IPO pipeline, and an expanding product portfolio, I am confident that HKEX will continue to play a vital role connecting investors, corporates and markets around the world, delivering on its vision to be the Global Markets Leader in the Asian Time Zone."

Calvin Tai

Strategic Highlights

Corporate

Mar

Introduced innovative virtual IPO ceremonies to welcome new listings

May

Signed a licensing agreement with MSCI to launch Asia and emerging markets futures and options

Jun

20th Anniversary of HKEX as a listed company

Jul

3rd Anniversary of Bond Connect

Nov

6th Anniversary of Stock Connect

Regulation

Mar

HKEX and SFC jointly released guidance on the publication of annual reports in light of the Covid-19 pandemic

Apr

SFC, HKEX and FSR jointly released consultation conclusions on the introduction of an Uncertificated Securities Market

Apr

Updated guidance materials for pre-revenue biotech companies

Aug

Published a consultation paper on review of disciplinary powers and sanctions

Oct

Published consultation conclusions on corporate weighted voting rights

Nov

Published a consultation paper on Main Board profit requirement

Dec

Published consultation conclusions on paperless listing and subscription regime

Corporate Social Responsibility

Mar

Published guidance materials on ESG reporting

Jun

Officially launched HKEX Foundation and Charity Partnership Programme

Dec

Launched STAGE, HKEX's Sustainable and Green Exchange

Dec

LME moved ahead on sustainability strategy and LMEpassport roll-out

Dec

Awarded as the Financial Education Champion by the Investor and Financial Education Council

Market Operations

Feb

Nov

New rules on optimising its warehouse network introduced by LME

May

Nov

Implemented the first phase enhancements of Volatility Control Mechanism

Jun

Nov

OTC Clear completed the first trade via client clearing

Jul

Nov

LME commenced publishing off-warrant stocks data to deliver increased transparency of global metal availability

Jul

Structured product listing cycle shortened to three trading days

Oct

Launched a range of enhancements to the Pre-Opening Session

Published a concept paper on FINI, a proposal to digitalise Hong Kong's IPO settlement process

Introduced Synapse, a settlement acceleration platform for Stock Connect, to be launched in 2022

QME launched a natural gas trading platform in Mainland China

SEHK, SSE and SZSE agreed to include

Hong Kong-listed pre-revenue biotech companies and A-shares listed on Shanghai's STAR Market in Stock Connect trading

Products and Services

Mar

HKEX welcomed the first Iron Ore Futures ETF

Jun

Introduced new spread tables and continuous quoting market making obligations for ETPs

Jun

HKEX welcomed the listing of the first commodity L&I product

Jun

Launched USD and CNH Silver Futures

Jul

Launched the first tranche of MSCI Futures

Jul

OTC Clear launched clearing services for HONIA-based interest rate products

Jul

Launched Master SPSA service to enhance Stock Connect

Jul

HKEX welcomed the first Hong Kong-listed A share L&I products

Oct

HKEX welcomed the first Hong Kong/Mainland ETF cross-listing

Nov

Launched Hang Seng TECH Index Futures

Dec

QME launched its first on-exchange cement contract

Financial Highlights

Record financial results for the third consecutive year.

Revenue and Other IncomeOperating Expenses

2020 revenue and other income was up 18 per cent against 2019:

• Core business revenue was up 24 per cent compared with 2019, reflecting higher trading and clearing fees driven by record headline ADT.
• Stock Connect revenue and other income reached a record high of $1,926 million, up 91 per cent against 2019.

Net investment income dropped 18 per cent against 2019, due to the lower fair value gains on collective investment schemes and lower interest income.

2020 EBITDA 2

Operating expenses were 11 per cent higher than 2019. Excluding HKEX Foundation charitable donations1, operating expenses were up 8 per cent, attributable to annual payroll adjustments and increased headcount arising from the acquisition of BayConnect in June 2019, and higher IT costs and professional fees.

Profit Attributable to Shareholders

EBITDA was 19 per cent higher than 2019, with EBITDA margin2 at 77 per cent, 2 per cent higher than 2019.

Profit attributable to shareholders rose by 23 per cent, to a record high of $11,505 million.

1 HKEX Foundation was established to deepen HKEX's connectivity and long-standing commitment to our communities. From 2H 2020 onwards, the donation income from the Stock Code Balloting Charity Scheme were received by HKEX Foundation, and the amounts previously paid by the issuers directly to the Hong Kong Community Chest were paid by HKEX Foundation. As a result, HKEX recorded donation income of $106 million, under revenue and other income, and HKEX Foundation charitable donations of $112 million, under operating expenses in 2020.
2 For the purposes of this Annual Report, EBITDA is defined as earnings before interest expenses and other finance costs, taxation, depreciation and amortisation. It excludes the Group's share of results of the joint ventures and other non-recurring costs arising from the proposed combination with LSEG. EBITDA margin is calculated based on EBITDA divided by revenue and other income less transaction-related expenses.

Key Financials

2020	2019
$m	$m	Change
Revenue and other income
Core business revenue	16,856	13,582	24%
HKEX Foundation donation income 1	106	-	N/A
Net investment income	2,228	2,729	(18%)
19,190	16,311	18%
Operating expenses 1	4,439	3,997	11%
EBITDA	14,641	12,263	19%
Profit attributable to shareholders	11,505	9,391	23%
Basic earnings per share	$9.11	$7.49	22%
First interim dividend per share	$3.71	$3.72	(0%)
Second interim dividend per share	$4.46	$2.99	49%
$8.17	$6.71	22%
Dividend payout ratio	90%	90%	-
Key Market Statistics
2020	2019	Change
ADT of equity products traded
on the Stock Exchange 3 ($bn)	110.9 *	69.2	60%
ADT of DWs, CBBCs and warrants traded
on the Stock Exchange ($bn)	18.6	18.0	3%
ADT traded on the Stock Exchange 3, 4
(Headline ADT) ($bn)	129.5 *	87.2	49%
ADT of Northbound Trading of Stock
Connect 3 (RMBbn)	91.3 *	41.7	119%
ADT of Southbound Trading of Stock
Connect 3, 4 ($bn)	24.4 *	10.8	126%
ADV of derivatives contracts traded on the
Futures Exchange ('000 contracts)	607	626	(3%)
ADV of stock options contracts traded
on the Stock Exchange ('000 contracts)	526 *	442	19%
Chargeable ADV5 of metals contracts traded
on the LME ('000 lots)	571	617	(7%)
ADT of Bond Connect (RMBbn)	19.8 *	10.7	85%

* New record highs in 2020
3 Includes buy and sell trades under Stock Connect
4 ADT of Southbound Trading is included within Headline ADT.
5 Chargeable ADV excludes administrative trades (Admin Trades) and other non-chargeable trades. Admin Trades were introduced in 2017 to meet requirements resulting from MiFID II.

Revenue and Other Income	EBITDA
$19,190 million	$14,641 million
+18%	+19%
($m)	($m)

19,190

2016

14,641

12,263

11,757

9,614

7,661

2017

2018

2019

2020

2016

2017

2018

2019

2020

Profit Attributable to Shareholders

$11,505 million +23%

Basic Earnings Per Share

$9.11

+22%

($m)

($)

11,505

9.11

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

Chairman's Statement

"2020 was a milestone year for HKEX, marked by the 20th anniversary of our own listing, and record trading activity on our markets. Throughout, HKEX demonstrated its resilience and strength, providing fully functioning, well-regulated markets, deftly adapting to change, innovating and reinforcing its relevance at the heart of the global financial community."

2020 was a milestone year for HKEX, marked by the 20th anniversary of our own listing, and record trading activity on our markets. The year will be one that will be remembered for the many challenges arising from the Covid-19 global pandemic, escalating geopolitical tensions, and economic fragility. Throughout, HKEX demonstrated its resilience and strength, providing fully functioning, well-regulated markets, deftly adapting to change, innovating and reinforcing its relevance at the heart of the global financial community. This ensured that despite the prevailing macro environment, HKEX had a productive and successful year, and that the business enters 2021 well-placed for capitalising on the opportunities ahead.

$11,505

million

Record profit attributable to shareholders

Our Performance

Total revenue and other income of the Group for the year ended 31 December 2020 reached a record high of $19.2 billion, up 18 per cent from 2019, resulting in a record profit attributable to shareholders of $11,505 million, up 23 per cent.

The Group's strong financial performance reflected the resilience and adaptability of our businesses during a challenging year. Our securities market in Hong Kong set new trading activity records in 2020, and trading volumes on both Stock Connect and Bond Connect reached new highs. Driven by the strong growth momentum in biotech and new economy company fundraisings, HKEX ranked second globally for IPO fundraisings in 2020, raising a total of $400.2 billion, the highest amount since 2010.

Since March 2020, for only the second time in its 140 year history, the LME has conducted its markets and pricing electronically, seamlessly responding to the challenges of the global pandemic. Whilst the chargeable average daily volume of metals contracts traded on the LME fell by 7 per cent from 2019, the trading fees for 2020 increased by 5 per cent, driven by the fee tariff increment effective 1 January 2020.

Dividend

The Board declared payment of a second interim dividend of $4.46 per share, wholly in cash, which, together with the first interim dividend of $3.71 per share paid in September 2020, results in a record full-year dividend of $8.17 per share.

Strategic Update

Against a challenging backdrop, we made significant progress in delivering on our stated strategy to be China Anchored, Globally Connected and Technology Empowered. Our efforts to enhance the competitiveness and attractiveness of our markets have further strengthened our ability to capture future growth opportunities and sustain our success. Of particular note for 2020 was our agreement with MSCI to strengthen our derivatives franchise, with the introduction of MSCI Asia and Emerging Markets Index futures and options to Hong Kong's markets; the announcement of the launch of HKEX Synapse, a new integrated settlement platform; our proposals to streamline the Hong Kong's IPO settlement cycle through the introduction of FINI; and our efforts to support the global strength of our IPO market, especially for biotech and new economy companies.

We recently became a minority shareholder of Guangzhou Futures Exchange Co., Ltd., a newly established futures exchange in the Guangdong-Hong Kong-Macao Greater Bay Area, which will focus on serving the real economy and green development initiatives.

Further details on these initiatives and a range of other strategic developments, market and product initiatives are set out in the Chief Executive's Review and Business Review sections of this Annual Report.

Market Quality

Market quality and sustainability are central to our role as a leading global exchange group. Through the promotion of market integrity, efficiency and resilience we support the health of our markets and we know that this is pivotal to ensuring the broader long-term success of Hong Kong as an international financial centre.

In 2020, we continued to improve our market microstructure. This included enhancements to our Pre-Opening Session and Volatility Control mechanisms in our Hong Kong securities market; and a shortened structured products listing cycle to three trading days. Following a thorough review of the Hong Kong derivatives market trading suspension on 5 September 2019, we also introduced a number of new measures and enhancements to our systems and processes to provide better risk management, oversight and communication in the event of any future major market incidents.

Underscoring our strong commitment to sustainability, in December we launched HKEX's Sustainable and Green Exchange (STAGE), Asia's first multi-asset sustainable investment product platform which has been very well received by the market. STAGE, by providing greater information, access and transparency on a wide range of sustainable-themed products in Asia, has positioned us strongly at the forefront of the development of sustainable and green finance market in Hong Kong and the region. Our commitment to championing sustainability extends to all areas of our business. As part of its strategy, the LME announced a number of sustainable initiatives, including launch plans for a digital credential register, LMEpassport, to provide greater visibility on sustainability criteria including emissions.

During the year, we issued market consultations on proposals to enhance the Exchange's disciplinary regime and the profit requirement for Main Board listings. After carefully considering market feedback, the Exchange also published conclusions to its consultation on Corporate Weighted Voting Rights (WVR) beneficiaries, and introduced new grandfathering arrangements to enable qualifying issuers with Corporate WVR to seek secondary listings in Hong Kong. We also announced amendments to the Listing Rules for the implementation of a paperless listing and subscription regime.

Specific details of the Group's performance, achievements, and market initiatives in 2020 are set out in the Chief Executive's Review and Business Review sections of this Annual Report.

Corporate Responsibility

At HKEX, we recognise that our responsibilities go beyond our status as a stock exchange group. Our commitment to being a responsible corporate leader and our role in the community are integral parts of our business, our strategy and of our future.

In 2020, we conducted internal evaluations of the performance of the boards of HKEX and its subsidiaries, OTC Clear, the LME and LME Clear. The evaluations concluded that all four boards operate effectively, and identified areas for enhancement.

In June, we were proud to launch the HKEX Foundation, and its flagship HKEX Charity Partnership Programme deepening our commitment and connectivity with our communities and anchoring our purpose as an organisation: "Supporting the prosperity of all".

Chairman's Statement

The HKEX Foundation has raised more than $100 million since its launch.

>$100

million

The HKEX Foundation has raised more than $100 million since its launch, and the monies raised were distributed to community projects that address some of the most pressing needs in our society. Our inaugural $20 million commitment to HKEX's Charity Partnership Programme, in celebration of HKEX's 20th anniversary of its own listing, will support 10 community projects, focusing on financial literacy, diversity and inclusion, poverty relief, and environmental sustainability, aiming to deliver positive and sustainable impact on local communities. During 2020, the HKEX Foundation also made emergency relief donations of $10 million in response to the Covid-19 pandemic; made awards in Hong Kong, Mainland China and the UK; introduced a new Hong Kong university scholarship programme; and made direct donations to a number of important projects, campaigns and charities. The LME also continued to promote gender diversity and inclusion across the markets and communities, through a wide range of advocacy and training programmes. Details can be found in our 2020 CSR Report, which is available on the HKEX Group website together with this Annual Report.

Outlook

Looking ahead, global financial markets will continue to be shaped by the impact of the Covid-19 pandemic, ongoing geopolitical tensions, US-China trade relations and the anticipated economic recovery. This backdrop presents HKEX with both considerable opportunities, as well as challenges.

Set against this, our role will continue to be ever more relevant in international markets and future global economic prosperity. Our resilience, our ability to connect investors around the world, our unique position as both destination market and gateway to China and our commitment to sustainability make us very well positioned to benefit from future growth opportunities.

On behalf of the Board, I would like to express gratitude to our International Advisory Council members for their insight and guidance during the year, and also to Ms Anita Fung, Mr Chan Tze Ching, Dr Fred Hu and Mr John Williamson, who will retire after the conclusion of the 2021 AGM, for their invaluable contributions to HKEX during their tenures of service. I also thank my fellow Board members for their support and commitment throughout 2020.

I would also like to convey the Company's deep thanks to Mr Charles Li, who retired as HKEX Chief Executive on 31 December 2020, following more than a decade of outstanding contribution and leadership to the Company and to Hong Kong's financial markets. During Mr Li's tenure as Chief Executive, HKEX successfully transformed from a regional stock exchange into one of the world's premier market infrastructure groups.

We welcomed Mr Calvin Tai to his new role as the Interim Chief Executive of HKEX on 1 January 2021. The Group will benefit from Mr Tai's broad knowledge of global markets, his thorough understanding of our businesses and his commitment to the success of Hong Kong's financial community.

I also take this opportunity to offer the Board's heartfelt appreciation to our dedicated staff for their hard work, commitment and professionalism during this most challenging of years, ensuring the full functioning of our markets and the continued success of our business. Our appreciation also extends to our Shareholders and other valued stakeholders for their ongoing support, trust and confidence in us.

Laura M CHA Chairman

Hong Kong, 24 February 2021

Chief Executive's Review

"The year 2020 was a challenging but productive one for HKEX. We remained focused on our unique ability to connect East with West, providing access to capital, utilising technology and driving innovation. This has made our markets and our business more competitive, reinforcing our leading position as the go-to international financial market in Asia."

The year 2020 was a challenging but productive one for HKEX. We reported record financial results and record trading volumes, and launched an array of new initiatives and products. This was despite the market turbulence brought about by the global pandemic that challenged every community around the world, one that continues to influence the way we live and work today. However, strong HKEX foundations, a clear strategy and robust operations and processes ensured that we made good progress on the delivery of our Strategic Plan against all three strategic pillars: China Anchored, Globally Connected, and Technology Empowered. We remained focused on our unique ability to connect East with West, providing access to capital, utilising technology and driving innovation. This has made our markets and our business more competitive, reinforcing our leading position as the go-to international financial market in Asia.

Outstanding Market Performance

Market Highlights in 2020

• Stock Connect Northbound and Southbound reached record turnovers of RMB21,088.6 billion and $5,508.1 billion respectively, and record ADT of RMB91.3 billion and $24.4 billion respectively for the year.
• Bond Connect turnover also saw record-high with ADT reaching RMB19.8 billion, increasing 85 per cent from 2019.
• Our IPO market ranked second globally, with total IPO funds reaching $400.2 billion (64 per cent from 50 New Economy companies).
• Hong Kong now ranks as the second largest fundraising market for biotech companies, which together with WVR and secondary listings, raised a total of $164.9 billion in 2020.
• Hong Kong again took the crown as the world's largest structured products market, for the 14th consecutive year.

Our primary market had another excellent year. Hong Kong ranked second in the world's IPO fundraising league table in 2020: 154 company listings1 raised $400.2 billion in total, a 27 per cent increase on 2019 and the highest amount raised in a single year since 2010. Of these listings, 64 per cent of funds raised were from 50 New Economy companies, including 22 Weighted Voting Rights (WVR), biotech and/or secondary-listed companies which raised IPO funds of $164.9 billion (2019: $117.3 billion raised by 10 companies). Hong Kong was thesecond-largest biotech fundraising centre in the world, achieving this accolade in only 2 years since the launch of our new listing regime in 20182. The Group welcomed some of the world's biggest IPOs of the year, including the secondary listings of JD.com and NetEase in June, raising $35 billion and $24 billion respectively. The IPO pipeline remains very strong going into 2021.

HKEX announced a number of Listing Rule amendments during the year, enhancing the attractiveness and

1 Includes 8 transfers of listings from GEM to Main Board and listing by introduction; and excludes investment vehicle(s) pursuant to Chapters 20 and 21 of the Main Board Listing Rules and very substantial acquisition(s)
2 Refers to the Main Board Listing Rules Chapters 8A, 18A and 19C

efficiency of the Hong Kong markets whilst at the same time ensuring appropriate investor protections. These amendments included the extension of the current WVR regime to accommodate secondary listings by issuers with corporate WVR structures that meet certain requirements, enhancements to the Chapter 37 Professional Debt Regime, and the implementation of a paperless listing and subscription regime, among others. During the year, we released several market consultations including proposals to increase profit requirements for Main Board Listings, and enhancements to the existing disciplinary regime.

Our secondary markets remained very strong in 2020. The full-year 2020 ADT for the Cash Market reached $129.5 billion, an increase of 49 per cent compared with 2019, recording many days with turnover in excess of $200 billion. Total market turnover in 2020 reached $32,110.1 billion, a newrecord and a 50 per cent increase on 2019. The market capitalisation of the securities market reached $47,523.0 billion at the end of December 2020, marking an increase of 25 per cent compared with the end of December 2019.

Hong Kong again took the crown as the world's largest structured products market, for the 14th consecutive year, with total securitised derivatives (DWs, CBBCs and Inline Warrants) turnover of $4,597.3 billion, an increase of 4 per cent compared with 2019; derivatives turnover in the year set a new high of 282,225,200 contracts. Contract volumes of many structured products set new records in 2020, including but not limited to mini HSI Futures, and weekly HSI and HSCEI options. The newly launched Hang Seng TECH Index Futures and Options gained strong traction, providing investors with new risk management tools for Hong Kong-listed technology companies.

Average Daily Turnover on Cash Market

Full Year

Average Daily Number of Contracts Traded on Derivatives Market

Full Year

$bn

Options Contracts ('000)

Futures Contracts ('000)

Full Year

Strategic Development Review

China Anchored

The internationalisation of the RMB continues apace, and the gradual opening-up of China offers significant opportunities for global investors. Hong Kong, as the largest offshore RMB centre, is uniquely placed to act as a global connector between international and Mainland Chinese markets. During 2020, HKEX played an active role in support of Mainland outbound portfolio diversification, as well as enabling global access to Mainland securities investments through two-way cross-border facilitation.

We celebrated the sixth anniversary of Shanghai-Hong Kong Stock Connect and the fourth anniversary of Shenzhen-Hong Kong Stock Connect in 2020, both of which have fundamentally changed and enhanced regional capital markets. As at the end of 2020, total cumulative turnover on Northbound and Southbound Stock Connect were over RMB40 trillion and $14 trillion respectively, having recorded many record volumes throughout the year. The success of the programme is evidenced by a significant increase in quantity of cross-border holdings: as at 31 December 2020, Hong Kong and international investors held a total of RMB2.3 trillion in A-shares, compared with RMB86.5 billion as at 31 December 2014, the year Stock Connect was first introduced. Meanwhile, Mainland investors held HK$2.1 trillion worth of Hong Kong-listed shares, up from HK$13.1 billion as at 31 December 2014.

Working closely with regulators and onshore exchanges, we are committed to continuing to add breadth and depth to our landmark Mutual Market Access programme. Eligible pre-revenue biotech companies listed in Hong Kong and A-shares listed on the Shanghai Stock Exchange's Sci-Tech Innovation Board (STAR Market) were included in the Southbound and Northbound trading of Stock Connect in December 2020 and February 2021 respectively. Starting in January 2021 and subject to certain conditions, Mainland annuity funds were also given the green light to invest in Hong Kong market via Stock Connect. We signed a Memorandum of Understanding (MOU) with the Shenzhen Stock Exchange (SZSE) in relation to an ETF Cross-Listing Scheme, and welcomed two ETFs listed each on the SEHK and SZSE to our markets in October 2020.

Bond Connect demonstrated excellent momentum during 2020, with daily and monthly turnover setting multiple new records throughout the year. A number of enhancements were introduced, including fee reductions, trading hour extensions and the expansion in the number of foreign exchange settlement banks. Bond Connect's successful operations were one of the key factors leading to the inclusion of Mainland bonds in major global indices, including FTSE Russell's scheduled inclusion of Chinese sovereign bonds in its benchmark bond index in 2021. Throughout the year, Bond Connect has continued to be embraced by international investors; as at the end of 2020, 2,352 global institutional investors across 34 jurisdictions had been on-boarded, compared with 1,601 across 31 jurisdictions at the end of 2019. Total net inflows as at end-2020 reached RMB1.2 trillion, compared with RMB133.4 billion at end-2017, the year it was launched.

In response to structural shifts in the investment management industry and evolving investment trends, we have provided enhanced product offerings to cater to the different trading strategies of our broad client base. We also introduced a large number of microstructure enhancements to drive market efficiency and reduce market friction. From July to September, we launched 38 MSCI Asia and Emerging Market Index Futures, representing a major step forward in the expansion of HKEX's derivatives product offering, strongly supported by new trading hours arrangements and enhanced incentives for liquidity providers and proprietary traders. Other new launched products include the first listings of Iron Ore Futures ETF, Commodity L&I products, A share L&I products, and Hang Seng TECH Index Futures and Options.

In 2020, Qianhai Mercantile Exchange (QME) launched the Mainland's third natural gas spot trading platform and first on-exchange cement contracts, actively expanding product offerings beyond base metals. Driven by this series of new initiatives, as well as expanded pipeline transportation and warehousing capacity, total trading volume in 2020 reached RMB13.2 billion, compared with RMB1.6 billion in 2019. We are also pleased to announce that HKEX recently became one of the founding shareholders of the newly set up Guangzhou Futures Exchange, marking another milestone in our commitment to the Greater Bay Area.

Globally Connected

OTC Clear became the first clearing house to offer clearing services for interest rate products benchmarked to the Hong Kong Dollar Overnight Index Average (HONIA). Notional amount cleared was US$149.0 billion, 25 per cent lower than 2019.

Despite having to move to electronic trading in the wake of the pandemic, the LME continued to operate robust and efficient markets, with deep liquidity, for participants from the metals and financial trading communities around the world. Of note during 2020, was the introduction of cash-settled contracts, the launch of Silver Futures, the expansion of a new ferrous suite of contracts, greater engagement with the battery materials and electric vehicle industries and a commitment to develop a transparent lithium pricing solution. As part of our efforts to make metals a cornerstone of a sustainable future, a new digital credentials register, LMEpassport, is gradually being rolled out across the LME's physically settled metals, requiring certificates of analysis (CoAs), starting in 2021.

Technology Empowered

We have continued to focus on capturing the benefits of the accelerating pace of technological innovation in our industry. Throughout an extremely challenging year, we were able to maintain robustness and stability in all of our major trading, clearing, settlement and market data dissemination systems despite notable market volatility, and deploying flexible working arrangements for HKEX staff. Utilising various digital channels, we expanded outreach and engagement to issuers and market participants, including a selection of new e-Forms in place of physical submissions and the design and launch of an innovative "virtual listing ceremony" for new issuers.

A number of key initiatives were also announced or launched during the year:

• We launched a concept paper on FINI (Fast Interface for New Issuance),
to reduce the time between IPO pricing, and trading, by as much as 80 per cent, from its current average of more than five business days, to as little as one business day, deploying technology to drive efficiency, alleviate funding lock-ups and digitalise Hong Kong's IPO franchise.

• We announced HKEX Synapse, a settlement acceleration platform for Northbound Stock Connect, which will utilise smart contract technology to automate and streamline post trade processes. With target implementation in 2022, we hope to encourage more Stock Connect trading through offering increased post trade automation and enhanced risk management for investors.
• We announced the adoption of a pioneering paperless listing and subscription regime, and online display of certain documents, to be rolled out in 2021.
• The LME suspended Ring trading to safeguard the wellbeing of members and adhere to social distancing guidelines in 2020. Reflecting the smooth transition experience to electronic pricing as a result, in January 2021, the LME published proposals to permanently move towards becoming an electronic venue (including the Ring and the inter-office market). It also plans to fully rebuild its electronic trading platform, LMEselect, to refresh trading infrastructure and add an all-new onscreen options market.
• The market-wide soft launch of the Orion Risk Platform (previously known as NextGen Risk Management) in January 2021 will significantly consolidate and improve the robustness of our post trade risk management measures. The platform creates a single risk engine for risk monitoring and risk exposure calculation across all markets, together with a centralised Report Access Platform for convenient data retrieval.

Our Innovation Lab applied innovative technologies to core business functions, including deployment of Robotic Process Automation (RPA) across the business, and the application of artificial intelligence to support regulatory reviews and market surveillance. Internally across all offices, during the year we utilised an enhanced range of digital tools to deliver operational efficiency and flexibility in our working environment.

Pandemic Response

As well as enhancing our technological capabilities, this year we rolled out a number of programmes to support our stakeholders and communities during the pandemic. Working closely with the SFC, we provided guidance for listed issuers on disclosure of results announcements during the early phase of the Covid-19 outbreak, and subsequently released guidance in relation to exemptions to general meetings in April in accordance with local pandemic development.

During a year of many challenges, HKEX was fully committed to supporting our communities and being a responsible corporate leader. We made emergency relief donations of $10 million in Hong Kong, Mainland China and the UK.

We also offered $10,000 invoice credits as relief measure to each of the eligible Exchange Participants (EPs) in August, with an option to donate to the HKEX Foundation, HKEX's charitable and philanthropic entity.

In December 2020 we were pleased to launch our new GO BEYOND graduate internship programme, which will provide up to 50 recent graduates with a unique six-month internship at the heart of Asian capital markets. The programme seeks to support young talent in a difficult market and to develop and strengthen Hong Kong's competitiveness, as one of the region's major financial services employers.

Strategic Outlook

2021 looks to be another year of uncertainty. However, the availability of a portfolio of vaccines, China's faster than expected economic rebound and a global commitment to far reaching sustainability goals, all give cause for optimism.

2021 will be the third and final year of the current Strategic Plan. Alongside strong risk management, and a resolute focus on costs, as always, we will remain ardently focused on the successful execution of the plan to capture further growth opportunities in the region and beyond, helping realise our vision to be the "Global Markets Leader in the Asian Time Zone".

Appreciation

The Group has demonstrated extraordinary resilience in 2020. This would not have been possible without our HKEX Group staff, who have worked tirelessly during a year of many challenges, not only supporting our business, but the broader communities in which we operate. My sincere thanks to each of them for their contributions.

I would like to express our gratitude to the senior executives who have recently left the Company, including former Chief Executive Mr Charles Li, for their contribution and service throughout the years. We too, are pleased to have welcomed a number of new executives to HKEX, including Mr Richard Wise, new Group Chief Risk Officer, and Ms Glenda So, new Head of Post Trade to the Group.

I would also like to thank the SFC, the Hong Kong Monetary Authority, market participants, our partners, friends and stakeholders for their unending support. Finally, I would like to thank my fellow members of the Board for their trust and unwavering support. We are well placed to meet the opportunities and challenges ahead.

TAI Chi Kin, Calvin

Director and Interim Chief Executive Co-President & Chief Operating Officer

Hong Kong, 24 February 2021

Organisation

Board and Committees

Board

INEDs

Laura May-Lung CHA * 1 GBM, GBS, JP (Chairman) Apurv BAGRI

CHAN Tze Ching, Ignatius BBS, JP CHEAH Cheng Hye 2

CHOW WOO Mo Fong, Susan * 3 FUNG Yuen Mei, Anita * BBS, JP Rafael GIL-TIENDA *

HU Zuliu, Fred

HUNG Pi Cheng, Benjamin * 4 BBS, JP LEUNG Pak Hon, Hugo 2

John Mackay McCulloch WILLIAMSON YIU Kin Wah, Stephen *

Executive Director

TAI Chi Kin, Calvin 5 (Interim Chief Executive)

LI Xiaojia, Charles 6 SBS (ex-Chief Executive)

Group Company Secretary

FU Yat Hung, David 7

MAU Kam Shing, Joseph 8

Committees

Audit Committee

YIU Kin Wah, Stephen (Chairman) CHAN Tze Ching, Ignatius

FUNG Yuen Mei, Anita LEUNG Pak Hon, Hugo 9

John Mackay McCulloch WILLIAMSON

Board Executive Committee 10

(formerly known as Executive Committee)

Laura May-Lung CHA 11 (Chairman) CHEAH Cheng Hye 9

LEUNG Pak Hon, Hugo 9

LI Xiaojia, Charles 6

TAI Chi Kin, Calvin 5

John Mackay McCulloch WILLIAMSON

Corporate Social Responsibility Committee

Laura May-Lung CHA 11 (Chairman)

HU Zuliu, Fred 12

LEUNG Pak Hon, Hugo 13

LI Xiaojia, Charles 6

TAI Chi Kin, Calvin 5

John Mackay McCulloch WILLIAMSON YIU Kin Wah, Stephen

Government Appointed Director

** Appointed by the Financial Secretary
Δ Established under Section 65 of the SFO
1 Re-appointed as Director and Chairman effective 7 and 19 May
2020 respectively until the conclusion of the AGM to be held in
2022
2 Re-elected as Director from 7 May 2020 until the conclusion of the AGM to be held in 2023
3 Appointed as Director from 7 May 2020 until the conclusion of the AGM to be held in 2022
4 Re-appointed as Director from 7 May 2020 until the conclusion of the AGM to be held in 2022
5 Appointment effective 1 January 2021
6 Retired on 31 December 2020
7 Appointment effective 1 April 2020
8 Retired on 31 March 2020
9 Re-appointment effective 7 May 2020
10 Change of name effective 3 February 2020

Committees (Continued)

Investment Committee

CHEAH Cheng Hye 9 (Chairman) FUNG Yuen Mei, Anita

HU Zuliu, Fred

HUNG Pi Cheng, Benjamin 9 LEUNG Pak Hon, Hugo 9

Nomination and Governance Committee

Laura May-Lung CHA 11 (Chairman)

Apurv BAGRI

CHAN Tze Ching, Ignatius CHEAH Cheng Hye 9 Rafael GIL-TIENDA

HUNG Pi Cheng, Benjamin 12

Panel Member Selection Committee

CHAN Tze Ching, Ignatius (Chairman) CHEAH Cheng Hye 9

FUNG Yuen Mei, Anita Rafael GIL-TIENDA LEUNG Pak Hon, Hugo 9

Remuneration Committee

Rafael GIL-TIENDA (Chairman) Laura May-Lung CHA 9 CHEAH Cheng Hye 9

CHOW WOO Mo Fong, Susan 12 HU Zuliu, Fred

John Mackay McCulloch WILLIAMSON

Risk Committee

John Mackay McCulloch WILLIAMSON 14 (Chairman) Laura May-Lung CHA 9, 15 (ex-Chairman)

CHAN Tze Ching, Ignatius

CHOW WOO Mo Fong, Susan 12 LEUNG Pak Hon, Hugo 9

YIU Kin Wah, Stephen

Risk Management Committee (statutory) Δ

Laura May-Lung CHA 11 (Chairman)

CHAN Ka Chai, Clara ** 16

CHAN Tze Ching, Ignatius 13

CHEUNG Wai Hing, Daisy ** 17

CHOW WOO Mo Fong, Susan 12

GAO Yingxin ** 18

LAM Yuk Kun, Lawrence **

LAU Chung Kin, Clement ** 19

LEUNG Chung Yin, Rico ** 20 Barbara SHIU **

John Mackay McCulloch WILLIAMSON 14

11 Re-appointment by virtue of being HKEX's Chairman effective

19 May 2020
12 Appointment effective 7 May 2020
13 Appointment ceased on 7 May 2020
14 Appointment effective 2 January 2020
15 Redesignation from Chairman to member effective
2 January 2020
16 Appointment by virtue of being Executive Director (Monetary Management) of the Hong Kong Monetary Authority effective
17 October 2020
17 Appointment by virtue of being the Chairman of Hong Kong
Interbank Clearing Limited effective 1 January 2020
18 Appointment by virtue of being the Chairman of Hong Kong Interbank Clearing Limited ceased on 1 January 2020
19 Appointment by virtue of being Executive Director (Monetary Management) of the Hong Kong Monetary Authority ceased on 17 October 2020
20 Member by virtue of being Executive Director (Supervision of Markets) of the SFC

Board and Committees

Board of Directors and Senior Management

Board of Directors

Laura May-Lung CHA

GBM, GBS, JP

Chairman, INED

Aged 71

Director since 25 April 2018 Chairman since 4 May 2018

Term of office: 7 May 2020 (re-appointed) to 2022 AGM

Other positions held with the Group

HKEX - chairman of Board Executive Committee, Corporate Social Responsibility Committee, Nomination and Governance Committee,

Risk Management Committee (statutory) and International Advisory Council, and member of Remuneration Committee and Risk Committee

SEHK - chairman of Listing Appeals Committee and member of Listing Nominating Committee

LME - independent non-executive director and member of Nomination Committee

LMEH - independent non-executive director HKEX Foundation - chairman and director

Other major offices

The Hongkong and Shanghai Banking Corporation Limited

- chairman (2019~) and independent non-executive director (2004~)

World Federation of Exchanges - director (2018~)

Unilever NV (listed on Euronext Amsterdam) - non-executive director

(2013~)

Unilever PLC (listed on London Stock Exchange) - non-executive director

(2013~)

HSBC Holdings plc * - independent non-executive director (2011~)

Past offices

The Hongkong and Shanghai Banking Corporation Limited

- deputy chairman (2007-2019)

China Telecom Corporation Limited * - independent non-executive director

(2008-2018)

HKEX - independent non-executive director (2006-2012)

China Securities Regulatory Commission - vice-chairman (2001-2004)

SFC - deputy chairman (1998-2001), executive director (1994-2001),

senior director (1993-1994) and assistant director (1991-1993)

Coudert Brothers - lawyer (1985-1990)

Pillsbury, Madison & Sutro - lawyer (1982-1985)

Public service

Listing Policy Panel - member (2018~)

Financial Leaders Forum - member (2017~)

Executive Council of the HKSAR - non-official member (2004~)

China Securities Regulatory Commission - vice-chairman of International

Advisory Council (2004~)

Qualifications

Bachelor of Arts (University of Wisconsin, US)

Juris Doctor (Santa Clara University, US)

State Bar of California (US)

Honorary Fellow (Hong Kong Securities and Investment Institute)

Honorary Doctorate (The Hong Kong Polytechnic University)

* Listed on the Stock Exchange

TAI Chi Kin, Calvin

Executive Director, Interim Chief Executive, Co-President, and Chief Operating Officer

Aged 58

Joined in July 1998

Interim Chief Executive since 1 January 2021

Ex-officio member of the Board

Term of office: 1 January 2021 until the new Chief Executive is appointed

Apurv BAGRI

INED

Aged 61

Director since 28 April 2016

Term of office: 24 April 2019 (re-elected) to 2022 AGM

Other positions held with the Group

HKEX - member of Board Executive Committee and Corporate Social Responsibility Committee

HKFE and SEHK - chief executive HKCC - chairman

HKSCC - chief executive and member of Risk Management Committee SEHK - ex-officio member of Listing Committee of the Main Board and GEM OTC Clear - chief executive and chairman of User Committee

HKEX's certain subsidiaries - director

Past offices

China Exchanges Services Company Limited - director (2012-2021)

HKEX - Head of Clearing (2016-2019), Joint Chief Operating Officer (2017-2018), Head of Global Clearing (Asia) (2014-2015), Co-head of Equities and FIC Business (2013-2014), Head of Trading Division (2010-2013), and Head of

Derivatives Market Development and Operations (2003-2010)

HKFE - head of products (1998-2000)

ABN-Amro Bank NV - senior vice president of treasury division (1995-1998)

Royal Bank of Canada - head of treasury department (1994-1995)

The Hongkong and Shanghai Banking Corporation Limited - various

positions in general banking and treasury (1984-1994)

Public service

Listing Policy Panel - member (2021~)

Qualifications

Bachelor of Social Sciences (The University of Hong Kong)

Other positions held with the Group

HKEX - member of Nomination and Governance Committee

Other major offices

International Wrought Copper Council - director (2013~)

Metdist Group of Companies, London - president and chief executive officer (1980~)

Public service

London Business School - chairman of governing body (2014~)

Dubai Financial Services Authority - director (2004~)

Crown Estate Paving Commission, England - commissioner (1996~)

Qualifications

Bachelor of Science in Business Administration (Cass Business School, City University London, UK)

Doctor of Science (Honoris Cause) (City University London, UK)

CHAN Tze Ching, Ignatius

BBS, JP

INED

Aged 64

Director since 23 April 2009

Term of office: 25 April 2018 (re-elected) to 2021 AGM

Other positions held with the Group

HKEX - chairman of Panel Member Selection Committee, member of Audit Committee, Nomination and Governance Committee, and Risk Committee, and chairman of Clearing Consultative Panel

HKCC and SEOCH - chairman of Participant Admission Appeals Committee HKSCC - chairman of Disciplinary Appeals Committee and Participant Admission Appeals Committee

Other major offices

AFFIN Bank Berhad (listed on Bursa Malaysia) - non-executive director

(2017~)

CVC Capital Partners Limited - senior adviser (2010~)

Mongolian Mining Corporation * - independent non-executive director

(2010~)

The Bank of East Asia Limited * - senior adviser (2009~)

Past offices

Rizal Commercial Banking Corporation (listed on Philippine

Stock Exchange) - non-executive director (2011-2019) AFFIN Holdings Berhad (formerly listed on Bursa Malaysia)

- non-executive director (2013-2018)

Bank of China (Hong Kong) Limited - deputy chief executive (2008)

Citigroup (1980-2007):

Citigroup country officer for Hong Kong and head of corporate and

investment banking business for Greater China (2005-2007),

chief operating officer for Greater China (2004-2005),

and Citigroup country officer for Taiwan (2003-2005)

Public service 1

Standing Committee on Judicial Salaries and Conditions of Service - member (2017~)

Qualifications

Bachelor of Business Administration and Master of Business Administration (University of Hawaii, US)

Certified Public Accountant (American Institute of Certified Public Accountants)

* Listed on the Stock Exchange

1 Ceased to be a member of the Financial Reporting Council effective 1 October 2020

CHEAH Cheng Hye

Darjah Gemilang Pangkuan Negeri

INED

Aged 66

Director since 26 April 2017

Term of office: 7 May 2020 (re-elected) to 2023 AGM

Other positions held with the Group

HKEX - chairman of Investment Committee, member of Board Executive Committee, Nomination and Governance Committee, Panel Member Selection Committee and Remuneration Committee, and chairman of Cash Market Consultative Panel

SEHK - chairman of Disciplinary Appeals Committee and Exchange Participant Admission Appeals Committee

Other major offices

Value Partners Group * - co-chairman and co-chief investment officer (2019~), and executive director (1993~)

Past offices

Value Partners Group * - co-chief investment officer (2010-2019), chairman (2000-2019) and chief investment officer (1993-2010)

Morgan Grenfell Group, Hong Kong - executive director, head of research and proprietary trader (1989-1993)

The Asian Wall Street Journal, Far Eastern Economic Review, Asiaweek, Hong Kong Standard and The Star (Malaysia) - editor and financial journalist (1971-1989)

Public service

HKTDC Belt and Road & Greater Bay Area Committee - member (2019~)

Listing Policy Panel - member (2018~)

Qualifications

Honorary Fellow (The Hong Kong University of Science and Technology)

* The holding company of the group, namely Value Partners Group Limited, has been listed on the Stock Exchange since 2007.

WOO Mo Fong, Susan

(alias CHOW WOO Mo Fong, Susan)

INED

Aged 67

Director since 7 May 2020

Term of office: 7 May 2020 (appointed) to 2022 AGM

Other positions held with the Group

HKEX - member of Remuneration Committee, Risk Committee and Risk Management Committee (statutory)

Other major offices

Hutchison Telecommunications (Australia) Limited (listed on Australian Securities Exchange) - non-executive director (2019~)

CK Hutchison Holdings Limited * - non-executive director (2017~)

HK Electric Investments Manager Limited (trustee-manager of HK Electric Investments *) and HK Electric Investments Limited * - alternate director (2014~)

CK Infrastructure Holdings Limited * - alternate director (2006~)

Past offices

CK Hutchison Holdings Limited * - senior advisor (2016), and executive

director and group deputy managing director (2015-2016)

Hutchison Whampoa Limited (formerly listed on the Stock Exchange)

- director (2015-2016), deputy group managing director (1998-2015),

and executive director (1993-2015)

Woo Kwan Lee & Lo - partner (1985-1993)

Qualifications

Bachelor of Science (Business Administration) (The University of Bath, UK)

Solicitor (Hong Kong, and England & Wales)

* Listed on the Stock Exchange

FUNG Yuen Mei, Anita

BBS, JP

INED

Aged 60

Director since 29 April 2015

Term of office: 24 April 2019 (re-appointed) to 2021 AGM

Other positions held with the Group

HKEX - member of Audit Committee, Investment Committee and Panel Member Selection Committee, and chairman of Derivatives Market Consultative Panel

SEHK - member of Listing Nominating Committee

HKFE - chairman of Disciplinary Appeals Committee and Exchange Participant Admission Appeals Committee

Other major offices

China Construction Bank Corporation * - independent non-executive director (2016~)

Hang Lung Properties Limited * - independent non-executive director (2015~)

Past offices

Westpac Banking Corporation (listed on Australian Securities Exchange) - independent non-executive director (2018-2020)

HSBC Holdings plc * - group general manager (2008-2015)

The Hongkong and Shanghai Banking Corporation Limited (1996-2015): chief executive officer Hong Kong (2011-2015), head of global banking and markets, Asia Pacific (2010-2011), and treasurer and head of global markets, Asia Pacific (2005-2010)

Public service

Judicial Officers Recommendation Commission - member (2017~)

Museum Advisory Committee - member (2016~)

The Hong Kong Mortgage Corporation Limited - director (2016~)

Qualifications

Bachelor of Social Science (The University of Hong Kong)

Master of Applied Finance (Macquarie University, Australia)

* Listed on the Stock Exchange

Rafael GIL-TIENDA

INED

Aged 68

Director since 29 April 2015

Term of office: 24 April 2019 (re-appointed) to 2021 AGM

Other positions held with the Group

HKEX - chairman of Remuneration Committee, member of Nomination and Governance Committee and Panel Member Selection Committee, and deputy chairman of Cash Market Consultative Panel and Clearing Consultative Panel

SEHK and HKSCC - member of Disciplinary Appeals Committee

OTC Clear - chairman, independent non-executive director and chairman of Risk Management Committee

Other major offices

JPMorgan Chase Bank (China) Company Limited - independent non-executive director (2018~)

JP Morgan Securities (Asia Pacific) Limited - independent non-executive director (2017~)

Past offices

Oliver Wyman - chairman of Asia Pacific region (2012-2017) Marsh & McLennan Companies - chairman of Asia Pacific region (2003-2011)

Standard Chartered Bank - head of Asian wholesale banking business (2001-2003), and head of corporate and institutional banking business, Greater China (1998-2001)

Citibank (1977-1998):

country manager of Citibank for Spain (1992-1998), for Malaysia (1988-1992) and for China (1984-1988)

Qualifications

Bachelor of Arts (Philosophy, Politics and Economics)

(University of Oxford, UK)

Master of Business Administration (University of California, Berkeley, US)

HU Zuliu, Fred

INED

Aged 57

Director since 10 November 2014

Term of office: 25 April 2018 (re-elected) to 2021 AGM

Other positions held with the Group

HKEX - member of Corporate Social Responsibility Committee, Investment Committee and Remuneration Committee

HKEX Foundation - director

Other major offices

Industrial and Commercial Bank of China Limited * - independent non-executive director (2019~)

UBS Group AG (listed on SIX Swiss Exchange and New York Stock Exchange) - director (2018~)

Yum China Holdings, Inc * 1 (also listed on New York Stock Exchange) - non-executive chairman (2016~)

Primavera Capital Limited - founder and chairman (2011~)

Tsinghua University - professor and co-director of National Center for Economic Research (1996~)

Past offices

Hang Seng Bank Limited * - independent non-executive director

(2011-2018)

Goldman Sachs Group Inc (1997-2010):

chairman of Greater China (2008-2010) and managing director (2000-2010)

International Monetary Fund, Washington DC - economist (1991-1996)

Qualifications

Master and Doctor of Philosophy (Economics) (Harvard University, US)

Master of Science (Engineering Science) (Tsinghua University, China)

* Listed on the Stock Exchange

1 Being secondary listed on the Stock Exchange effective 10 September 2020

HUNG Pi Cheng, Benjamin

BBS, JP

INED

Aged 56

Director since 25 April 2018

Term of office: 7 May 2020 (re-appointed) to 2022 AGM

Other positions held with the Group

HKEX - member of Investment Committee, and Nomination and Governance Committee

SEHK - member of Listing Nominating Committee

Other major offices

Standard Chartered Bank - chief executive officer, Asia (2021~) 1

Standard Chartered Bank (Hong Kong) Limited - executive director (2019~)

Standard Chartered Bank (China) Limited - chairman (2015~)

Past offices

Standard Chartered Bank (2015-2020):

chief executive officer of wealth management (2018-2020) 2 and retail banking (2017-2020) 2, and regional chief executive officer, Greater China &

North Asia (2015-2020) 2

Standard Chartered Bank (Hong Kong) Limited (1992-2019):

chairman (2014-2019), chief executive officer, Greater China (2014-2015)

and chief executive officer and executive director, Hong Kong (2008-2014)

HKEX - member of Risk Management Committee (statutory) (2008-2010

and 2014)

Public service

Chief Executive's Council of Advisers on Innovation and Strategic

Development - non-official member (2018~)

Hong Kong-United States Business Council - member (2016~)

Hong Kong Institute for Monetary and Financial Research - director (2011~)

Exchange Fund Advisory Committee - member (2009~)

Qualifications

Bachelor of Arts (Business Administration) (University of Washington, US)

Master of Business Administration (University of Toronto, Canada)

1 Appointment effective 1 January 2021
2 Appointment ceased effective 1 January 2021

LEUNG Pak Hon, Hugo

INED

Aged 52

Director since 26 April 2017

Term of office: 7 May 2020 (re-elected) to 2023 AGM

Other positions held with the Group

HKEX - member of Audit Committee, Board Executive Committee, Investment Committee, Panel Member Selection Committee and Risk Committee, and deputy chairman of Derivatives Market Consultative Panel HKFE - member of Disciplinary Appeals Committee

Other major offices

BNP Paribas - chief executive officer, Hong Kong (2019~)

BNP Paribas Securities (Asia) Limited - chief executive officer (2015~)

Past offices

BNP Paribas - head of global markets, Hong Kong (2015-2019), head of global equities and commodity derivatives, Greater China (2013-2015) BNP Paribas Securities (Asia) Limited - deputy chief executive officer (2012-2015), head of equity syndicate and corporate equity (2010-2012), head of equity brokerage (2007-2010), head of Asia (ex-Greater China) product (2004-2007), product sales head for Taiwan (2003-2004) and deputy managing director (2000-2003)

Qualifications

Bachelor of Arts (Economics) (Simon Fraser University, Canada)

John Mackay McCulloch WILLIAMSON

INED

Aged 62

Director since 18 June 2008

Term of office: 25 April 2018 (re-elected) to 2021 AGM

Other positions held with the Group

HKEX - chairman of Risk Committee, and member of Audit Committee, Board Executive Committee, Corporate Social Responsibility Committee, Remuneration Committee and Risk Management Committee (statutory) SEHK - deputy chairman of Listing Appeals Committee

HKEX Foundation - director

Other major offices

Provident Acquisition Corp (listed on NASDAQ) - independent director (2021~) 1

Pacific Basin Shipping Limited * - independent non-executive director (2020~) 2

UK Tote Group Limited - non-executive chairman (2020~) 3

Past offices

Search Investment Group Limited - senior managing director (2012-2018),

chief financial officer (2007-2018), and managing director (2007-2011)

SAIL Advisors Limited - chief executive officer (2011-2018)

HKEX - member of Clearing Consultative Panel (2000-2007)

Morgan Stanley Dean Witter Asia Limited - managing director, and head of

infrastructure and operational risk (1998-2007)

NatWest Securities Asia Holdings Limited - chief operating officer

(1994-1998)

NatWest Investment Services, London - managing director (1992-1994)

Qualifications

Bachelor of Arts (Accountancy & Computer Science) (Heriot-Watt University, UK)

Chartered Accountant (The Institute of Chartered Accountants of Scotland) Fellow (Chartered Institute for Securities and Investment, UK)

Senior Fellow (Hong Kong Securities and Investment Institute)

* Listed on the Stock Exchange

1 Appointment effective 7 January 2021
2 Appointment effective 2 November 2020
3 Appointment effective 1 September 2020

YIU Kin Wah, Stephen

INED

Aged 60

Director since 26 April 2017

Term of office: 24 April 2019 (re-appointed) to 2021 AGM

Other positions held with the Group

HKEX - chairman of Audit Committee, and member of Corporate Social Responsibility Committee and Risk Committee

LME - independent non-executive director, and chairman of Audit and Risk Committee

LME Clear - independent non-executive director, chairman of Audit Committee, and member of Nomination Committee and Remuneration Committee

Other major offices

ANTA Sports Products Limited * - independent non-executive director (2018~)

China Mobile Limited * - independent non-executive director (2017~)

Past offices

KPMG International - member of executive committee and board

(2011-2015)

KPMG Asia Pacific - member of board (2011-2015) and executive committee

(2009-2015)

KPMG China (including Hong Kong) (1983-2015):

chairman and chief executive officer (2011-2015), deputy chairman (2010-

2011), audit partner-in-charge (2007-2010), and partner (1994-2015)

Public service

Independent Commission Against Corruption Complaints Committee - member (2019~)

Exchange Fund Advisory Committee - member (2018~) Insurance Authority - non-executive director (2015~)

Qualifications

Professional Diploma in Accountancy (The Hong Kong Polytechnic University)

Master in Business Administration (Warwick University, UK)

Fellow (Association of Chartered Certified Accountants, Hong Kong Institute of Certified Public Accountants, and The Institute of Chartered Accountants in England & Wales)

* Listed on the Stock Exchange

Group Company Secretary

Other major offices

The Hong Kong Institute of Chartered Secretaries - ex-officio member of council as past president (2020~)

Past offices

Standing Committee on Company Law Reform - member (2017-2020) SFC - member of Takeovers and Mergers Panel and Takeovers Appeal

Committee (2015-2020)

Swire Properties Limited * - company secretary (2010-2020)

Cathay Pacific Airways Limited *, John Swire & Sons (HK) Limited and

FU Yat Hung, David

Swire Pacific Limited * - company secretary (2006-2020)

The Hong Kong Institute of Chartered Secretaries - president (2018-2019)

Group Company Secretary and Head of Secretarial Services

Public service

HKTDC Professional Services Advisory Committee - member (2018~)

Aged 56

Qualifications

Joined in January 2020

Bachelor of Arts (Engineering, Economics and Management) and Master of Arts (University of Oxford, UK)

Fellow (The Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute)

* Listed on the Stock Exchange

Senior Management

Matthew James CHAMBERLAIN

Other positions held with the Group

LME - chairman of Executive Committee, vice chairman of Aluminium Committee, and member of Charity Committee, Enforcement Committee and User Committee

LME Clear - member of Executive Committee

Past offices

LME - chief operating officer (2016-2017), head of business development (2013-2016), and head of strategy and implementation (2012-2013) UBS - head of European financial technology coverage (2010-2012)Perella Weinberg Partners - founding member of the financial institutions coverage team (2006-2010)

Citibank - analyst of financial institutions group (2004-2006)

LME Chief Executive

Qualifications

Aged 39

Master of Arts (Computer Science) (Trinity College, University of Cambridge, UK)

Joined in November 2012

CHAN Yiting, Bonnie

Head of Listing

Aged 51

Joined in January 2020

Past offices

Davis Polk & Wardwell LLP - partner (2010-2019)

HKEX - Head of IPO Transactions (2007-2010)

Public service

Standing Committee on Company Law Reform - ex-officio member (2020~) Board of Inland Revenue of the Government of the HKSAR - member (2017~)

Qualifications

Bachelor of Laws (The University of Hong Kong)

Master of Laws (Harvard University, US)

Romnesh LAMBA

Co-President

Aged 57

Joined in February 2010

Other positions held with the Group

HKFE, SEHK, HKSCC and SEOCH - chairman LME - member of Audit and Risk Committee

LME Clear - member of Audit Committee and Nomination Committee

Past offices

HKEX - Co-head of Market Development (2016-2019), Co-head of Global Markets (2013-2015), and Head of Market Development (2010-2013) HKFE and SEHK - chief executive (2013-2016)

JP Morgan (Hong Kong) - senior adviser, Asia ex-Japan corporate finance and capital markets business (2008-2010)

Merrill Lynch (Asia Pacific) (2000-2008):

managing director, investment banking, and chief operating officer of China origination business (2006-2008), and head of Asia energy and power team (2003-2006)

Indosuez WI Carr Securities (Hong Kong) - head of equity capital markets and director, investment banking (1997-2000)

Qualifications

Bachelor of Science in Economics (Magna Cum Laude) and Master of Business Administration (Distinction)

(The Wharton School, University of Pennsylvania, US)

LAU Bik Yun, Vanessa

Group Chief Financial Officer

(effective 5 February 2020)

Aged 48

Joined in October 2015

Past offices

HKEX - Chief Financial Officer, Hong Kong (2017-2020) and Deputy Chief Financial Officer (2015-2017)

Sanford C Bernstein (Hong Kong) Limited - vice president and senior research analyst (2011-2015)

Alcoa Inc - group chief financial officer, global rolled products group (2007-2011)

McKinsey & Company Inc (2001-2007):

various professional positions including associate principal, Hong Kong (2005-2007)

PricewaterhouseCoopers (UK) (1994-2000):

various professional positions including senior tax manager, mergers and acquisitions tax group (1999-2000)

Qualifications

Bachelor of Arts (Mathematics and Computation) and Master of Arts (University of Oxford, UK)

Associate (The Institute of Chartered Accountants in England & Wales)

SO Ying Ying, Glenda

Head of Post Trade

Aged 51

Joined in February 2020

Past offices

Allianz Global Investors - managing director and Asia Pacific head of operations (December 2019 - February 2020)

Sun Hung Kai & Co Limited - chief operating officer, principal investment division (2018-2019)

Graticule Asset Management Asia (Singapore) - managing director and regional chief operating officer (2014-2018)

Goldman Sachs (Asia) LLC (Hong Kong) and Goldman Sachs & Co LLC (New York) (1991-2014): managing director (2004-2014)

Qualifications

Bachelor of Business Administration (Finance) (Baruch College, The City University of New York, US)

YIU Ka Yan, Wilfred

Head of Markets

Aged 51

Joined in April 2019

Other positions held with the Group

SEHK - chairman of Compensation Committee and Disciplinary Committee

Past offices

Qian Kun Futures Co Ltd - chairman (2012-2019)

Beijing Gao Hua Securities Company Limited - deputy chief executive

officer and chief operating officer (2010-2019)

Goldman Sachs (Hong Kong) (2000-2010):

managing director, fixed income, currency and commodities (2007-2010) Credit Suisse First Boston (New York) - assistant vice president

(1994-1999)

Public service

SFC - member of Securities Compensation Fund Committee (2020~)

Qualifications

Bachelor of Science (Computer Science) and Bachelor of Business Administration (University of Washington, US)

Master of Business Administration (Stern School of Business, New York University, US)

Master of Science (Computer Science) (Stanford University, US)

Matthew Chamberlain, Romnesh Lamba, Vanessa Lau, Glenda So, and Wilfred Yiu also act as directors in certain HKEX's subsidiaries.

Management Committee

* Members of the Executive Committee

Management Discussion and Analysis

Business Review

Overview

Monthly ADT on the Stock Exchange ($bn)

Monthly ADV of derivatives contracts traded on the Futures Exchange ('000 contracts)

Monthly chargeable ADV1 of metals contracts traded ('000 lots) Monthly ADV of stock options contracts traded ('000 contracts)

Fig. 1 - Market activity and Group's revenue and other income

Quarterly core business revenue 20192 ($m) Quarterly net investment income 2019 ($m) Quarterly core business revenue 20202 ($m) Quarterly net investment income/(loss) 2020 ($m) Quarterly HKEX Foundation donation income 20204 ($m) EBITDA margin

2020 was a strong year for HKEX. Revenue and other income, and profit, reached record highs for the third consecutive year, despite the challenging geopolitical and macroeconomic backdrop and unprecedented impact caused by Covid-19. Headline ADT3 reached a record high of $129.5 billion, 49 per cent above 2019, and 21 per cent above the previous high of 2018. Stock Connect trading volumes also saw record highs with Northbound and Southbound ADT being 119 per cent and 126 per cent higher than 2019 respectively. The Hong Kong IPO market continued to be buoyant, with HKEX ranked second globally by IPO funds raised in 2020, boosted by a number of sizable secondary listings of US-listed Chinese companies, as well as an influx of new economy and biotech companies to our markets.

Revenue and other income reached a record high of $19.2 billion, up 18 per cent against 2019. The increase in trading and clearing fees was partly offset by lower net investment income, arising from lower interest income and lower fair value gains on collective investment schemes (2020: $487 million; 2019: record gains of $789 million). Operatingexpenses increased by 11 per cent compared with 2019. Excluding HKEX Foundation charitable donations4 of $112 million, operating expenses were up 8 per cent, mainly due to higher staff costs from annual payroll adjustments and increased headcount arising from the acquisition of BayConnect in June 2019, higher IT and computer maintenance expenses for new IT systems and upgraded networks, and higher professional fees incurred for strategic projects and other business initiatives.

Looking ahead, there are positive signs of early economic recovery, especially in China, and this together with the roll-out of Covid-19 vaccinations globally and continued policy support by the world's major central banks provides cause for optimism. However uncertainty remains, and the road to full economic recovery will not be straightforward. The Group will continue its focus on executing and delivering upon its Strategic Plan 2019-2021, whilst adopting a prudent approach to cost control and risk management, seeking growth opportunities and ensuring the continued resilience and robustness of its markets.

1 Chargeable ADV excludes administrative trades (Admin Trades) and other non-chargeable trades. Admin Trades were introduced in 2017 to meet requirements resulting from MiFID II.
2 Revenue and other income, excluding net investment income and HKEX Foundation donation income
3 ADT of equity products, DWs, CBBCs and warrants traded on the Stock Exchange
4 HKEX Foundation was established to deepen HKEX's connectivity and long-standing commitment to our communities. From 2H 2020 onwards, the donation income from the Stock Code Balloting Charity Scheme were received by HKEX Foundation, and the amounts previously paid by the issuers directly to the Hong Kong Community Chest were paid by HKEX Foundation. As a result, HKEX recorded donation income of $106 million, under revenue and other income, and HKEX Foundation charitable donations of $112 million, under operating expenses in 2020.

Business Update and Analysis of Results by Operating Segment

Analysis of Revenue and Other Income by Segment ($m)

Equity & Financial

Cash

2020

Derivatives Commodities Post Trade

2020

2019

2020

2019

2020

2019

Trading fees and trading tariffs Stock Exchange listing feesClearing and settlement fees

Depository, custody and nominee services fees

*Total revenue and other income is not presented in the same scale as segmental results, but is proportionately resized.

Analysis of EBITDA and EBITDA Margin by Segment ($m)*

Technology

2020

Market data fees Other revenue and sundry income

Equity & FinancialCash

2019

Derivatives

Commodities1

Post Trade1

762	731	606	551
2020	2019	2020	2019	2020	2019	2020	2019	2020	2019

%% EBITDA margin = EBITDA divided by revenue and other income less transaction-related expenses

Corporate

Items

2019

2020

2019

Net investment income HKEX Foundation donation income

TechnologyTotal*

2020

Group Total

(incl. Corporate Items)

* Further details of the results by segment are set out in note 4 to the Consolidated Financial Statements of this Annual Report. 1 LME Clear EBITDA is reflected in the Post Trade segment

2020

Business Review

2019

2020 marked the second year of the Group's Strategic Plan 2019-2021. Our vision to be the Global Markets Leader in the Asian Time Zone - Connecting China, Connecting the World remains the central cornerstone of our strategy, focused on the three pillars of being China Anchored, Globally Connected, and

Technology Empowered.

Progress made, up to the date of this Annual Report, is set out in the table below and further elaborated upon in the Business Update section in each of the operating segments:

China Anchored

• Enhance Stock Connect - Inclusion of biotech companies into Southbound eligible securities list; inclusion of eligible A shares listed on Shanghai's STAR Market and their corresponding H shares into Stock Connect; launch of the investor identification regime for Southbound Trading; new Master Special Segregated Account service to support Northbound Trading; announced the proposed launch of Synapse in Q1 2022 to automate and streamline post trade workflow for Northbound Stock Connect
• Enhance Bond Connect - Enhancements to settlement cycles (special settlement cycles and recycling settlement, longer settlement cycle available on Tradeweb and Bloomberg); extension of trading hours; access to defaulted bond market; fee reduction; increase in foreign exchange settlement banks; launch of electronic bond issuance system
• Extend our onshore capabilities in the Mainland - Launch of natural gas and cement products on the QME; HKEX is investing in a minority stake in the newly-established Guangzhou Futures Exchange Co. Ltd. (GFE), which provides HKEX with the opportunity to help build and promote the development of China's derivatives market

Technology Empowered

• Modernise our systems - Relocation of the secondary data centre to a Tier 3 data centre and kick-off of the hardware obsolescence replacement for various trading and clearing systems
• Leverage new technology - Continued deployment of new technologies across HKEX businesses, led by HKEX Innovation Lab including deployment of Artificial Intelligence (AI) to assist in annual report compliance review, scaling up of Robotics, proposed launch of Synapse, proposed deployment of intelligent technology for FINI, and proposed digital transformation to deliver paperless IPO applications and issuer disclosures

Globally Connected

• Develop a listing and capital raising hub for major global and regional companies - Listing of new economy and healthcare companies, including NetEase, JD.com and JD Health; homecoming listing of nine secondary listed companies
• Enhance structure of our IPO regime - New grandfather arrangements to enable qualifying issuers with corporate WVR to seek secondary listings in Hong Kong; shortening of the structured product listing cycle from five to three trading days; publication of the FINI concept paper for shortening of IPO settlement cycle; paperless listing & subscription regime to be effective in July 2021
• Enhance our product ecosystem across asset classes - Launch of MSCI Asia and Emerging Markets Index Futures, Hang Seng TECH Index Futures and Options, USD and CNH denominated Silver Futures in Hong Kong; official launch of STAGE with 34 sustainable-themed products displayed

• Become the ETF issuance and trading hub for the Asia Pacific time zone - New listing of the first Iron Ore Futures ETF, the first commodity-based L&I Product, the first active equity ETF, the first ETF under master-feeder structure, the first ESG China A shares ETF, the first batch of A share L&I Products, the first four Hang Seng TECH Index ETFs, the first two Hang Seng TECH Index L&I Products; introduction of a new spread table and continuous quoting market making obligations; waiver of stamp duty on stock transfers for ETP market makers; launch of the Hong Kong-Mainland ETF Cross-listing Scheme with the first two products listed on SZSE and HKEX respectively
• Improve our market microstructure - Enhancement to Volatility Control Mechanism (VCM) and Pre-Opening Session; enhancement to third party clearing arrangement; automation of Large Open Position (LOP) Reporting and roll out of a new surveillance system for LOP and Position Limit; enhancement to the buy-in exemption clauses and capital-based position limit policy; continued to implement new rules and disclosures to optimise the LME's warehouse network

Cash Segment

Key Market Indicators

2020	2019	Change
ADT of equity products traded on the Stock Exchange 1, 2 ($bn)	110.9 4	69.2	60%
ADT of Northbound Trading - Shanghai-Hong Kong
Stock Connect 2 (RMBbn)	39.1 4	21.3	84%
ADT of Northbound Trading - Shenzhen-Hong Kong
Stock Connect 2 (RMBbn)	52.2 4	20.4	156%
ADT of Southbound Trading - Shanghai-Hong Kong
Stock Connect 1, 2 ($bn)	13.1 4	6.8	93%
ADT of Southbound Trading - Shenzhen-Hong Kong
Stock Connect 1, 2 ($bn)	11.3 4	4.0	183%
ADT of Bond Connect (RMBbn)	19.8 4	10.7	85%
Average daily number of trades of equity products traded
on the Stock Exchange 1, 2 ('000)	1,618 4	1,157	40%
Number of newly listed companies on Main Board 3	146	168	(13%)
Number of newly listed companies on GEM	8	15	(47%)
Number of companies listed on Main Board at 31 Dec	2,170	2,071	5%
Number of companies listed on GEM at 31 Dec	368	378	(3%)
Total	2,538	2,449	4%
Market capitalisation of companies listed
on Main Board at 31 Dec ($bn)	47,392	38,058	25%
Market capitalisation of companies listed on GEM at 31 Dec ($bn)	131	107	22%

1 Excludes $18.6 billion (2019: $18.0 billion) of ADT of DWs, CBBCs and warrants (which are included under the Equity and Financial Derivatives segment) and includes ADT of Southbound Trading under Stock Connect
2 Includes buy and sell trades under Stock Connect
3 Includes 8 transfers from GEM (2019: 20)

4 New record highs in 2020

2020	2019
$bn	$bn	Change
Total equity funds raised on Main Board
- IPOs	399.6	313.2	28%
- Post-IPO	343.8	136.7	151%
Total equity funds raised on GEM
- IPOs	0.6	1.0	(40%)
- Post-IPO	3.0	3.3	(9%)
Total	747.0	454.2	64%
Stock Connect - New Record Highs in 2020
2020	2019	Change
Northbound Trading value (RMBbn)	21,089	9,757	116%
Southbound Trading value ($bn)	5,508	2,841	94%
Total revenue and other income 1 ($m)	1,926	1,009	91%
Business Review

1 $1,485 million of which arose from trading and clearing activities (2019: $699 million)

Analysis of Results

Summary

2020	2019
$m	$m	Change
Trading fees and trading tariffs 1	3,409	2,100	62%
Stock Exchange listing fees 1	930	954	(3%)
Market data fees 1	565	508	11%
Other revenue	87	84	4%
Total revenue	4,991	3,646	37%
Operating expenses 2	(595)	(603)	(1%)
EBITDA	4,396	3,043	44%
EBITDA margin	88%	83%	5%

1 Excludes DWs, CBBCs and warrants (which are included under the Equity and Financial Derivatives segment)
2 Includes Listing Division costs apportioned to equity products traded on the Stock Exchange

Trading Fees and Trading Tariffs

$m 3,500

$110.9 bn

3,409

$69.2 bn

3,030 3,000

2,500

2,100

2,000

1,828

1,500

1,000

1,618 1,157

500

379

272

Trading fees

Trading tari s

Total

2020 2019

ADT of equity products traded on the Stock Exchange1

Average daily number of trades of equity products traded on the Stock Exchange ('000)1

Excludes DWs, CBBCs and warrants (which are included under the Equity and Financial Derivatives segment)

Trading fees increased by $1,202 million (66 per cent), more than the 60 per cent increase in equity products ADT. This was primarily due to record fees from Stock Connect Northbound Trading of $457 million (2019: $213 million). Trading tariffs increased by 39 per cent, in line with the increase in number of trades of equity products.

Stock Exchange Listing Fees

Annual listing fees

Initial and subsequent issue listing fees Others

Total

Annual Listing Fees

Initial and Subsequent Issue Listing Fees

Fees

$m 1,000

2,538

2,449

Number 2,500

$m 240

183

Number 200

800

768

760

2,000

200

154

185

600

160 1,500

154

160

120

400

1,000

200

500

80 40

147

179 40

2020

2019

2020

2019

Annual listing fees

Total number of listed companies at 31 Dec

Initial listing fees Subsequent issue listing fees

Total number of newly listed companies

Annual listing fees increased by 1 per cent, less	Initial and subsequent issue listing fees
than the increase in total number of listed	decreased by 17 per cent mainly due to a
companies, as the average listing fee of the	decrease in forfeitures.
newly listed companies in 2020 were lower
than that at 31 December 2019.
EBITDA

Operating expenses decreased by 1 per cent due to lower allocated costs of the Listing Division to this segment. This reflects the decrease in listing fees from equities, compared with the increase in listing fees from DWs and CBBCs, which are under the Equity and Financial Derivatives segment. EBITDA margin rose from 83 per cent to 88 per cent due to the increase in revenue.

Business Review

Business Update

The Hong Kong Cash Market performed resiliently in 2020. On 31 December 2020, market capitalisation of listed companies on the market reached a record high of $47,523 billion. Trading activities were strong during the year with record headline ADT of $129.5 billion, up 49 per cent from 2019. On 11 November 2020, trading turnover reached the third record high at $268 billion.

Stock Connect

Stock Connect experienced strong flows in both Southbound and Northbound Trading in 2020. Northbound ADT reached a record high of RMB91.3 billion, 119 per cent higher than 2019, and Southbound ADT reached a record high of $24.4 billion, 126 per cent higher than 2019. In addition, daily record highs were set for Northbound Trading (RMB191.2 billion on 7 July 2020) and Southbound Trading ($60.2 billion on 6 July 2020). As a result, Stock Connect generated record high revenue and other income for the fourth consecutive year at $1,926 million in 2020, and accounted for 10 per cent of the Group's total revenue and other income.

Stock Connect was enhanced during the year, with expansion in the scope of eligible stocks for both Northbound and Southbound Trading. Subsequent to the inclusion of biotech stocks (listed under Chapter 18A of the Main Board Listing Rules with the "B" marker removed) into the Southbound eligible securities list, effective from September 2020, HKEX, SSE and SZSE further jointly announced on 27 November 2020 Stock Connect inclusion arrangements for pre-revenue biotech companies (listed under Chapter 18A with the "B" marker), effective on 28 December 2020, as well as for eligible A shares listed on the SSE's STAR Market and their corresponding H shares into Stock Connect, effective on 1 February 2021.

On 13 January 2020, the investor identification regime for Southbound Trading was successfully launched, facilitating enhanced market surveillance and orderly operation of Stock Connect.

Market Structure Development

HKEX continues to focus on enhancing its market microstructure for the benefit of all market participants. The VCM in the securities market was enhanced in two phases to further strengthen the stock level safeguards during extreme price volatility,and to reflect changes in international practice and regulatory guidance. The first phase, which includes further securities coverage expansion and tiered triggering thresholds, was successfully implemented on 11 May 2020. As of 31 December 2020, 19 VCM triggers were recorded and market operations to date have been smooth. The second phase, which further allows multiple triggers per VCM security in the Continuous Trading Session, is planned to be introduced in Q1 2021.

Effective 19 October 2020, the Pre-opening Session adopted a number of features from the Closing Auction Session, including a two-stage price limit, allowing short selling, allowing at-auction limit orders and random commencement of auction matching. These enhancements aim to increase the Hong Kong securities market's competitiveness by introducing a more robust and stable opening auction to improve price discovery and trading liquidity before the market opens.

Issuer Business

During 2020, HKEX welcomed 154 listed companies, raising a total of $400.2 billion, ranking second globally5 by funds raised and fourth globally5 by number of IPOs.

IPOs in 2020 featured new economy listings such as NetEase and JD.com; healthcare issuers such as JD Health; 14 biotech issuers listed under Chapter 18A; along with notable traditional economy companies such as Nongfu Spring. Furthermore, there was a growth in homecoming listings and HKEX attracted a total of nine secondary listed companies in 2020.

As of 31 December 2020, companies listed under the New Chapters of the Main Board Listing Rules (Chapters 8A, 18A and 19C) since their introduction in April 2018 have raised $376 billion. In 2020, IPOs under the New Chapters represented 41 per cent of total IPO funds raised of the year. The market capitalisation of these companies represented 23 per cent of the total market capitalisation of the Hong Kong Cash Market at 31 December 2020, and the trading turnover of these companies represented 16 per cent of the total turnover of equity products traded on the Stock Exchange in 2020. The Hong Kong market continues to be an attractive market for new economy listings due to its robust and established regulatory framework, its connectivity and its global investor base.

Source: Dealogic

In response to Covid-19 social distancing measures, HKEX provided virtual support to the IPO market by conducting a number of events and conferences online, providing remote communication and services to issuers, and conducting virtual listing ceremonies. In September 2020, HKEX organised its first ever online "HKEX Biotech Summit 2020" which gathered scientists, biotech entrepreneurs, investors, technology experts and policymakers to share industry insights and trends on the biotech industry and capital markets.

HKEX also focused on expanding its outreach and engagement overseas, particularly in Southeast Asia, including organising its first Southeast Asia Forum,

Key initiatives of ETPs introduced during 2020

conducted online. Looking forward, HKEX will continue to focus on enhancing Hong Kong's competitiveness as a premier listing location for companies across the globe.

ETF Market Development

ADT of ETPs, which includes ETFs and L&I Products, increased 28 per cent to $6.4 billion in 2020 (2019: $5.0 billion). In particular, L&I Products saw a strong uptick in investor interest, with ADT more than doubling from $0.6 billion in 2019 to $1.5 billion in 2020. On 22 May 2020, the turnover of L&I Products reached a daily record high of $5.1 billion.

• HKEX expanded its product suite, welcoming the first Iron Ore Futures ETF, the first commodity-based L&I Product, the first active equity ETF, the first ETF under master-feeder structure, the first ESG China A shares ETF, the first batch of A share L&I Products, the first four Hang Seng TECH Index ETFs, and the first two Hang Seng TECH Index L&I Products. On 28 August 2020, the first Hang Seng TECH Index ETF achieved a record high first trading day ETF turnover of $3.0 billion
• On 1 June 2020, HKEX introduced a new spread table and continuous quoting market making obligations to enhance the liquidity of ETPs. In the first seven months following launch, the median spreads of ETPs listed in Hong Kong decreased by more than 30 per cent while the top 10 most actively traded ETPs saw their median spreads compressed by more than 50 per cent, significantly reducing the cost for investors to trade ETPs
• From 1 August 2020, the Government waived the stamp duty on stock transfers for ETP market makers when creating and redeeming ETP units. This lowers the transaction cost of ETP activities in the primary market and supports the liquidity growth in the ETF underlying Hong Kong stocks
• On 23 October 2020, the first two products under the Hong Kong-Mainland ETF Cross-listing Scheme were listed on SZSE and HKEX respectively. Through the new scheme, ETF issuers are able to list feeder funds that are built on master funds listed across the border. By the end of 2020, the four cross-listed ETFs accounted for $860 billion of assets under management (AUM)

In 2020, Bond Connect continued to gain strong recognition from international investors, with robust growth in trading volume, net inflows, foreign holdings, as well as the number of new registered investors.

Bond Connect

Chinese government bonds were included in the JPMorgan Government Bond Index-Emerging Markets indices on 28 February 2020, driving new overseas index trackers to Bond Connect. Furthermore, on 24 September 2020, FTSE Russell announced that Chinese government bonds would be included in the FTSE World Government Bond Index (WGBI), with inclusion scheduled to start with the October 2021 profiles. This will mark the third entry of Chinese bonds into a major global bond index.

ADT of Bond Connect has been setting record high every year since its launch in 2017, reaching RMB19.8 billion in 2020, up 85 per cent compared with 2019. Trading volume in November 2020 reached a monthly record high of RMB485 billion, while single-day trading volume recorded an all-time high of RMB36.9 billion on 16 December 2020. Net inflows amounted to RMB535 billion in 2020, with a monthly record high of RMB75.5 billion in July. As of 31 December 2020, the overall foreign investor holdings of domestic debt securities in the China Interbank Bond Market rose to RMB3,255 billion, up 49 per cent from RMB2,188 billion as of 31 December 2019.

Market participation in Bond Connect continued to grow steadily throughout 2020. As at 31 December 2020, a total of 2,352 institutional investors from 34 jurisdictions globally have been admitted to Bond Connect, up 47 per cent from 1,601 institutional investors as at 31 December 2019.

Business Review

Key initiatives implemented in 2020 to enhance connectivity and market infrastructure

• On 30 March 2020, Bond Connect started to support special settlement cycles (settle T+4 and beyond) via paper submission and recycling settlement (settle failed trades within three business days). Starting from Q4 2020, Bond Connect investors were able to select settlement cycles up to T+10 via Tradeweb and Bloomberg, without the need for paper submission
• On 6 April 2020, trading and settlement services were expanded to support Bond Connect investors to access the defaulted bond market in China
• On 1 July 2020, Bond Connect service fee was reduced by 20 per cent and 33 per cent for bonds with short and long tenor respectively
• On 21 September 2020, Bond Connect trading hours were extended to 20:00 from 16:30 (China Standard Time) for transactions settling T+1 and beyond
• On 24 September 2020, Bond Connect investors were able to select up to three foreign exchange (FX) settlement banks to conduct their currency conversion and for FX risk management needs
• On 20 October 2020, ePrime, an international electronic bond issuance system for book building, pricing, and allocation of offshore securities, was launched. Subsequently, Agricultural Development Bank of China and China Development Bank completed their offshore RMB bond issuance via ePrime and successfully raised RMB5.7 billion and RMB6.5 billion in October and November 2020 respectively

Listed Bond Market Development

In 2020, there were 430 new listings of debt securities on the Stock Exchange, with a total issuance amount of $1,529 billion. Moreover, total turnover value of debt securities reached $66 billion (including $3 billion turnover of iBond), an increase of 8 per cent compared with 2019.

As part of the ongoing development of the bond market in Hong Kong, HKEX enhanced the listing regime for debt issues to professional investors in November 2020. The enhancement seeks to balance the need to safeguard investors whilst maintaining an effective listing platform, by promoting disclosure quality and consistency in the market.

Market Data Business

Regular seminars were hosted to provide a communication platform for market participants including EPs, information vendors and application software providers to learn more about the latest market data developments and share their ideas and feedback. Two live webinars were held on 24 November 2020, with registrants from over 200 companies.

Sustainable Finance

On 1 December 2020, HKEX announced the launch of the Sustainable and Green Exchange (STAGE). At launch a total of 34 sustainable-themed products from leading Asian corporates were displayed on STAGE including sustainability, green, and transition bonds from issuers across different sectors as well as ESG-related ETPs. The resources library on STAGE provides case studies, webcasts, videos, guidance materials, research papers and other publications aimed at helping market participants enrich their understanding of sustainable finance, green products, ESG integration and sustainable investing. HKEX is working closely with local, regional and international partners to further expand the contents on STAGE.

Listing Regulation

In 2020, the Stock Exchange issued various proposals and conclusions on Listing Rules amendments as set out in the following table. Details of the consultations and other main policy issues arising in 2020, as well as the proposals under review in 2021 and beyond, are set out in the 2020 Listing Committee Report.

Key Proposals and Conclusions in 2020

• Codification of General Waivers and Principles relating to IPOs and Listed Issuers and Minor Rule Amendments
• Review of Chapter 37 - Debt Issues to Professional Investors only
• Corporate WVR Beneficiaries
• Proposals to Introduce a Paperless Listing & Subscription Regime, Online Display of Documents and Reduction of the Types of Documents on Display
• Review of Listing Rules relating to Disciplinary Powers and Sanctions
• The Main Board Profit Requirement

1 All the consultation papers and conclusions are available under the News Centre (Market Consultations) section of the HKEX Market website.
2 The changes relate to an addition to grandfathering arrangements for issuers controlled by corporate WVR beneficiaries that seek a secondary listing under Chapter 19C of the Listing Rules and that are primary listed on certain exchanges on or before publication of the consultation conclusions.
3 Listing Rule amendments relating to the Paperless Listing and Subscription Regime will take effect on 5 July 2021 and Listing Rule amendments relating to the Online Display of Documents and the Reduction of Documents on Display will take effect on 4 October 2021.

Key Initiatives by the Stock Exchange to Promote Issuers' Self-compliance with the Listing Rules

• Issued joint statements with the SFC in relation to (i) listed issuers' results announcements and (ii) general meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation
• Issued series of listing decisions on interpretation of the Listing Rules, including (i) the minimum market capitalisation requirement under Main Board Listing Rule 8.09(2) after a proposed spin-off and (ii) guidance on why the Stock Exchange rejected and returned certain listing applications
• Published new guidance letters on (i) disclosure in listing documents for biotech companies; (ii) experience and qualification requirements of a company secretary; and (iii) guidance on continuing obligations of authorised collective investment schemes listed under Chapter 20 of the Main Board Listing Rules
• Published semi-annual (i) Listing Division Newsletter; (ii) Listed Issuer Regulation Newsletter; and (iii) Enforcement Bulletin
• Published (i) ESG guidance materials including an e-training course, a new guide for board and directors and the step-by-step ESG reporting guidance and (ii) corporate governance materials including Analysis of 2019 Corporate Governance Practice Disclosure and Making Inroads into Good Corporate Governance and ESG Management - Perspectives from Industry Practitioners
• Launched two e-Learning modules on (i) Connected Transaction Rules and (ii) Notifiable Transaction Rules as part of the new e-learning series on ongoing compliance requirements under the Listing Rules

Business Review

IPO Processing, Compliance and Monitoring

The following tables illustrate the work of the Stock Exchange in processing new listings and monitoring issuers' compliance for the purposes of maintaining an orderly, informed, and fair market under Section 21 of the SFO.

Stock Exchange's IPO Work

2020	2019
•	Number of listing applications vetted 1	357	467
•	Number of applications brought to the Listing Committees (or their delegates)
for decisions 2	154	221
- within 120 calendar days	52	117
- between 121 to 180 calendar days	39	67
- after more than 180 calendar days	63	37
•	Number of applications for which approval was granted in principle 3	179	209
•	Number of requests for guidance from listing applicants or their advisers seeking
clarifications of listing matters	181	127
- Average response time (in business days)	10	10
•	Number of listing applications for transfer of listing from GEM to Main Board
accepted	12	27
•	Applications listed 4	181	197
•	New listing applications rejected 5	1	26
•	New listing applications withdrawn	6	21
•	New listing applications returned	-	4
•	Application in process at year-end	92	126
1
2
3
4
5

Comprises 231 (2019: 300) new applications and 126 (2019: 167) existing applications brought forward from previous year Refers to listing applications heard by the Listing Committees (or their delegates) for the first time and excludes Chapter 20 listing applications

At the end of 2020, 20 (2019: 33) approved applications had not yet been listed, and 4 (2019: 5) approved applications had lapsed during the year.

Includes 27 investment vehicles listed on Main Board and deemed new listings (2019: 14) No rejection decision in 2020 (2019: 7) was subsequently reversed upon review.

Number of Compliance and Monitoring Actions
2020	2019
• Announcements of issuers vetted	68,522	62,977
• Circulars of issuers vetted	2,696	2,350
• Share price and trading volume monitoring actions undertaken 1	10,535	7,939
• Complaints handled	475	438
• Cases (including complaints) referred to Listing Enforcement Department
for investigation	78	74

In 2020, monitoring actions undertaken included 360 enquiries (2019: 677) on unusual share price and trading volume movements, and the actions undertaken led to 19 resumption announcements (2019: 29) on trading suspensions.

Long Suspension
Status of Long Suspended Companies	2019
Resumption of trading of securities during
the year	4
Cancellation of listing after expiry of prescribed
remedial periods during the year	2
Cancellation of listing under grandfathered
provisions during the year (Main Board Rule
6.01A(2)(a) or (c) or GEM Rule 9.14A(2)(b))	4
Voluntary withdrawal of listing during the year	-
Companies suspended for 3 months or more
at year-end	15

Main Board

GEM

2020

2019

2020

12 15

8 -

22 7

6 1

3 7

1 -

Updates of the work on listed companies' compliance, and insights and observations that may assist listed companies in compliance can be found in the semi-annual "Listed Issuer Regulation Newsletter".

Listing Enforcement

The enforcement statistics set out below represent a high level overview of the enforcement work undertaken in 2020 by the Stock Exchange.

Further details and information relating to enforcement work (including the Stock Exchange's general approach, disciplinary procedures and recent cases) can be found at the HKEX Market website and in the semi-annual "Enforcement Bulletin", and are set out in the 2020 Listing Committee Report.

Enforcement Statistics

2020	2019
Investigations 1, 2, 3	128	112
Public sanctions 4	13	13
Regulatory letters 5	9	15

1 Figures cover all cases which were investigated in 2020 (both concluded cases and ongoing investigations at year-end).
2 At the end of 2020, there were 54 ongoing investigations (2019: 28).
3 In 2020, 4 enforcement cases (2019: 4) originating from complaints were subject to enforcement investigation.
4 The number of investigation cases that resulted in a public sanction. Actions taken at a lower level in the same case, eg, private reprimand, are not included.
5 The number of cases involving issuance of at least one regulatory letter (ie, a warning or guidance letter) where, following investigation, disciplinary proceedings before the Listing Committee were not considered appropriate against any party. These letters are recorded as part of the compliance history for the relevant party.

Costs of the Listing Function

The costs of the front line regulation of listed issuers, performed by the Listing Committee and the Listing Division, are absorbed by the Cash and Equity and Financial Derivatives segments in proportion to the listing fee income of the two segments.

Business Review

Equity and Financial Derivatives Segment

Key Market Indicators

ADT of DWs, CBBCs and warrants traded on the Stock Exchange ($bn)

Average daily number of trades of DWs, CBBCs and warrants traded on the Stock Exchange ('000)

ADV of derivatives contracts traded on the Futures Exchange 1

('000 contracts)

ADV of stock options contracts traded on the Stock Exchange

('000 contracts)

Number of newly listed DWs Number of newly listed CBBCs Number of newly listed Inline Warrants

ADV of contracts traded during After-Hours Trading 1

('000 contracts)

Open interest of futures and options 1 ('000 contracts)

2019

18.0 3%

296 16%

624 (3%)

442 19%

8,939 36%

24,732 54%

923 (15%)

At 31 Dec 2019

9,695

1 Excludes London Metal Mini Futures, Gold Futures, Silver Futures and Iron Ore Futures contracts (which are included under the Commodities segment)
2 New record highs in 2020

Analysis of Results Summary

Trading fees and trading tariffs 1 Stock Exchange listing fees Market data fees 1

Other revenue Total revenue

Less: Transaction-related expenses

Total revenue less transaction-related expenses Operating expenses 2

EBITDA

EBITDA margin 3

1 Excludes cash equities (which are included under the Cash segment)
2 Includes Listing Division costs apportioned to DWs, CBBCs and warrants traded on the Stock Exchange
3 EBITDA margin is calculated based on EBITDA divided by total revenue less transaction-related expenses.

Change

15%Change

16%

Trading Fees and Trading Tariffs

$m 2,500

2,072 2,076

2,000

624

606

1,500

$18.6 bn$18.0 bn

1,285

1,147

1,000

344

296

526 442

614

537

500 226

181

Trading fees of	Trading taris of	Trading fees of	Trading taris of
DWs, CBBCs	DWs, CBBCs	derivatives contracts traded	stock options
and warrants	and warrants	on the Futures Exchange1,2	contracts2

Total

2020 2019

ADT of DWs, CBBCs and warrants Average daily number of trades of DWs, CBBCs and warrants ('000)

ADV of derivatives contracts traded on the Futures Exchange ('000)1

ADV of stock options contracts ('000)

1 Excludes London Metal Mini Futures, Gold Futures, Silver Futures and Iron Ore Futures contracts (which are included under the Commodities segment)
2 Excludes trading fees and trading tariffs allocated to the Post Trade segment (Derivatives contracts traded on the Futures Exchange - 2020: $303 million; 2019: $308 million; stock options contracts - 2020: $86 million; 2019: $72 million)

Trading fees and trading tariffs for the segment are generated from the trading of derivatives on the Stock Exchange (ie, DWs, CBBCs, warrants, and stock options) and trading of futures and options on the Futures Exchange. A portion of the trading fees and trading tariffs for futures and options contracts is allocated to the Post Trade segment as the trading and clearing fees of these products are bundled together in the form of trading fees and trading tariffs.

2020 saw record new issues of DWs and CBBCs, and a 16 per cent increase in the average daily number of trades. As a result, trading fees and trading tariffs from DWs, CBBCs and warrants increased by $89 million or 15 per cent to $699 million (2019: $610 million), higher than the 3 per cent increase in ADT due to higher trading fees.

Derivatives trading fees of the Futures Exchange decreased by $138 million, or 11 per cent, attributable to the decrease in number of derivatives contracts traded on the Futures Exchange, as investors took a "risk-off" approach during heightened volatility. The decrease in trading fees and trading tariffs was higher than the 3 per cent drop in ADV, due to a lower proportion of higher fee contracts, including HSI futures and options, being traded during 2020.

Business Review

Stock Exchange Listing Fees

Fees $m

4,000 3,500 3,000

38,039

2,500

24,732

2,000 1,500 1,000

12,128 8,939

500

969 679

Number 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000

Stock Exchange listing fees are mainly derived from initial and subsequent issue listing fees for DWs and CBBCs. The fees increased by $290 million or 43 per cent, reflecting the record number of newly listed DWs and CBBCs in 2020.

2020

2019

Initial and subsequent issue listing fees

Number of newly listed DWs Number of newly listed CBBCs

EBITDA

Transaction-related expenses include licence fees and other costs which directly vary with trading transactions. The increase was partially driven by the licence fees for the new MSCI index futures contracts launched since July 2020.

Operating expenses increased by $97 million (19 per cent) due to higher allocated costs of the Listing Division, reflecting the increase in listing fees from DWs and CBBCs compared with the decrease in listing fees from equities, and increase in incentives relating to the new MSCI index futures contracts. EBITDA increased by 5 per cent year-on-year, though EBITDA margin decreased from 83 per cent to 81 per cent, reflecting the higher percentage increase in operating expenses compared to the percentage increase in revenue.

Business Update

The Hong Kong Derivatives Market demonstrated resilient growth in 2020. The total number of futures and options contracts traded in 2020 was 281,871,2216, up 7 per cent on 2019. A number of key futures and options contracts reached new record highs (see below).

New Record Highs - Full Year Trading Volume

2020
Number of contracts
Mini HSI Futures	27,902,077	24,664,381	(2018)
Mini HSI Options	3,345,582	3,343,429	(2019)
Weekly HSI Options	1,191,533	246,717	(2019)
Stock Futures	1,141,729	917,358	(2019)
Stock Options	131,021,660	127,279,101	(2018)

Pre-2020 record Number of contracts

Excludes London Metal Mini Futures, Gold Futures, Silver Futures and Iron Ore Futures contracts (which are included under the Commodities segment)

New Record Highs - Single-day Trading Volume and Open Interest

Single-day Trading Volume

Open interest

Mini HSI Futures Weekly HSCEI Options Weekly HSI Options

MSCI Taiwan Net Total Return (USD)

400

MSCI Taiwan (USD) Index Futures 1

MSCI Indonesia Net Total Return (USD)

MSCI EM Asia Net Total Return (USD)

MSCI Japan Net Total Return (USD)

Stock Options

300

500

Number of	Date	Number of
contracts	(2020)	contracts
298,812	N/A	N/A
7,166	30 Dec	12,097
17,027	6 Nov	13,274
19,207	18 Sep	22,092
28,242	10 Nov	28,512
42,363	29 Oct	65,267
12,700	15 Dec	13,668
10,600	31 Dec	10,748
1,545,227	N/A	N/A
200
150	139
100
50

Index Futures 1

Launched in July 2020

Average Daily Volume of Major Futures and Options Contracts

Number of contracts

'000

550

526

450

442

350

250

209

167

146

112

HSI FuturesMini HSI FuturesHSI OptionsHSCEI FuturesHSCEI OptionsStock Options

2020

2019

Equity Futures and Options Market Development

Stock options were a major contributor to growth in 2020, with ADV reaching a record high of 526,191 contracts, a 19 per cent increase compared with 2019. In addition, a daily record high of 1,545,227 stock options contracts were traded on 6 July 2020. During 2020, 11 new stock option classes were introduced and 32 out of 106 option classes reached new daily volume record highs.

Trading volume in the After-Hours Trading (T+1) Session continued to grow, with ADV in 2020 reaching a historical high of 94,224 contracts, up 15 per cent from 2019. In addition, the number of equity index futures and options traded in the T+1 Sessionreached a daily record high of 303,482 contracts on 18 March 2020.

In 2020, HKEX successfully launched 38 new MSCI index futures contracts. The launch represents a major step forward in the expansion of HKEX's derivatives product portfolio and significantly adds to the breadth and depth of the Hong Kong markets. Among the newly introduced products, two are in Japanese Yen (JPY) and one is in Singapore Dollar (SGD), marking the first JPY and SGD derivatives contracts traded in the Hong Kong market. Moreover, a revision of opening hours and the introduction of pre-market opening period for the MSCI Taiwan (USD) Index Futures and MSCI Taiwan Net Total

Business Review

Return (USD) Index Futures became effective on 28 September 2020, facilitating investors' ability to react to market events and price movements over a longer period. In view of the increasing number of equity index futures with foreign market underlyings, HKEX plans to extend trading and clearing of the selected derivatives to cover Hong Kong public holidays, allowing investors to respond to the underlying market movement during those days.

As at 31 December 2020, the MSCI suite recorded a total of 704,050 contracts traded since launch, and 62,975 contracts in open interest. MSCI Taiwan (USD) Index Futures and MSCI Taiwan Net Total Return (USD) Index Futures were among the most active contracts out of the 38 MSCI index futures contracts launched.

HKEX introduced Hang Seng TECH Index Futures on 23 November 2020. The product has been well received with 49,122 contracts traded since launch and 4,721 contracts in open interest as at 31 December 2020. To provide investors a further option to manage their risk exposures to Hong Kong-listed technology companies, the Hang Seng TECH Index Options was launched in January 2021.

To allow broader investors to participate in the newly introduced MSCI and Hang Seng TECH products, HKEX filed applications to the US Commodity Futures Trading Commission (CFTC), with a total of 29 MSCI and the Hang Seng TECH futures contracts certified to be offered and sold to persons in the US.

Fixed Income and Currency (FIC) Development

The RMB currency derivatives market gained momentum in the second half of 2020 amid continued appreciation of the RMB since May. A total of 1,777,418 contracts of USD/CNH Futures and Options contracts were traded during 2020, while open interest amounted to 30,706 contracts as at 31 December 2020, up 24 per cent from 31 December 2019, as the contracts were increasingly utilised by investors to manage their currency risk exposures.

The INR/USD Futures contracts established new daily records multiple times during the year, including the latest daily record high of 5,035 contracts on 2 March 2020, and a total of 169,336 INR/USD Futures contracts were traded during 2020. To better facilitate management of risks in longertenors, additional contract months were added to INR/USD Futures and INR/CNH Futures in June and July respectively.

The 7th annual HKEX RMB FIC Conference was hosted in September 2020, in a virtual format with over 1,600 market participants and professionals attending. Speakers and panelists from over 20 organisations shared their views on the FIC landscape, including future developments in the Chinese bond and derivatives markets and electronic bond market development.

Structured Products

Trading activities of structured products also experienced a strong year in 2020. ADT of CBBCs, DWs, and warrants was $18.6 billion, up 3 per cent from 2019 and accounted for 14 per cent of total market turnover. During 2020, a total of 50,947 structured products were listed, exceeding the previous record of 38,472 in 2018 by 32 per cent. HKEX has been working with market participants to simplify workflow and enhance market efficiency.

In July 2020, the listing cycle of structured products was shortened from five to three trading days, after the adoption of electronic submission of documents and other streamlined processes. The shorter cycle enhances market efficiency on product issuance, as more products are available in any given time frame.

HKEX has also been expanding the list of both local and overseas eligible underlying assets for structured product issuances in response to increasing market interest, with the S&P 500 and Hang Seng TECH Index becoming eligible underlying assets in September and November 2020 respectively. Such expansion further enhances the attractiveness of Hong Kong's structured products market.

Market Data Business

In 2020, HKEX continued its effort in promoting derivatives products globally. The Market Data Marketing Programme for New Derivatives Products was extended for another year to the end of 2021, continuing the subscriber fees waiver for information vendors where their clients are located in eight promoting regions, namely Mainland China, Korea, Taiwan, Malaysia, India, Thailand, Vietnam and Singapore.

Commodities Segment

Key Market Indicators

2020	2019	Change
ADV of metals contracts traded on the LME ('000 lots)
Aluminium	237	236	0%
Copper	128	131	(2%)
Zinc	90	109	(17%)
Nickel	67	89	(25%)
Lead	42	42	0%
Others	7	10	(30%)
Total chargeable ADV excluding Admin Trades 1	571	617	(7%)
Chargeable Admin Trades 1	37	46	(20%)
Non-chargeable Admin Trades1 and other non-chargeable trades	2	34	(94%)
Total ADV	610	697	(12%)

Admin Trades were introduced in 2017 to meet requirements resulting from MiFID II. These trades were not chargeable prior to 1 May 2019, but became chargeable at US$0.04 per contract thereafter.

At	At
31 Dec 2020	31 Dec 2019	Change
Total futures market open interest ('000 lots)	2,044	2,170	(6%)
Analysis of Results
Summary
2020	2019
$m	$m	Change
Trading fees and trading tariffs	1,089	1,036	5%
Market data fees	196	193	2%
Other revenue:
Commodities stock levies and warehouse listing fees	67	63	6%
Financial OTC booking fees	49	45	9%
Others	53	62	(15%)
Total revenue and other income	1,454	1,399	4%
Operating expenses	(692)	(668)	4%
EBITDA	762	731	4%
EBITDA margin	52%	52%	-
Business Review

Trading Fees and Trading Tariffs
Fees	Contracts
$m	'000 lots
2,000	800
700

617

1,500

1,000

500

571

1,089 4

1,085

1,034

1,036 2

600 500 400 300 200 100

2020

Chargeable ADV of metal contracts traded on the LME decreased by 7 per cent as financial users took a "risk-off" approach in response to Covid-19 uncertainty. LME trading fees, however, increased by $51 million (5 per cent) due to the fee increment effective from 1 January 2020 and higher proportion of trades conducted on the electronic trading platform due to the temporary closure of the Ring, which generated higher fees.

2019

Trading fees of metal contracts traded on the LMEChargeable ADV2 of metals contracts traded on the LME

Trading fees of derivatives contracts traded on the Futures Exchange1 and QME trading fees

1 Includes London Metal Mini Futures, Gold Futures, Silver Futures and Iron Ore Futures contracts
2 Chargeable ADV excludes Admin Trades (which became chargeable from May 2019 at a lower trading fee rate of US$0.04 per contract) and other non-chargeable trades

EBITDA

Operating expenses rose by $24 million (4 per cent), mainly attributable to higher IT maintenance expenses and higher professional fees incurred for operational resilience and strategic projects. As the percentage increase in revenue was the same as the percentage increase in operating expenses, EBITDA margin remained stable at 52 per cent.

Business Update LME

The LME demonstrated its resiliency and adaptability throughout the year. Due to Covid-19 and reflecting guidance from the British Government, the LME suspended trading activity on the Ring, and temporarily shifted to electronic pricing, with effect from 23 March 2020. Since then, the LME's metals prices have been generated on the basis of activity on the LME's electronic trading platform, supported by implied pricing functionality.

Business development initiatives have progressed well, with several of the cash-settled futures contracts launched in 2019 seeing active trading volumes in 2020. The LME will introduce new cash-settled contracts in 1H 2021, including a lithium contract to serve the needs of the growing battery materials sector, additional aluminium products, and additional steel contracts to complement the existing suites, subject to regulatory approval.

In March 2020, the LME launched a new incentive programme to encourage liquidity providing trades, and published a roadmap to an enhanced options market following a market wide discussion paper.

The LME has continued to invest in its global physical ecosystem throughout 2020, continuing with the implementation of enhanced warehousing rules and disclosures, the development of a new electronic warranting process, ongoing progress with responsible sourcing, and plans for electronic certificates of analysis via a new LMEpassport platform. The LME's physical network has continued to provide an effective storage mechanism under Covid-19 and during the current economic slowdown.

In August 2020, the LME issued two discussion papers. The first paper covered the LME's sustainability plans and laid out its proposed way forward to make metals a cornerstone of a sustainable future. These proposals included a platform to support voluntary transparency on sustainability criteria (LMEpassport), a spot trading platform for the pricing and trading of sustainable metal, and new contracts for the electric vehicle and recycled economies. The second paper described the LME's planned launch of LMEpassport, a digital credentials register. Both of these papers received broad market support and will be progressed into 2021.

Numerous regulatory initiatives were undertaken in 2020 in response to regulatory changes, including implementing new pre-trade transparency arrangements for the inter-office market, implementation of the Senior Managers Regime for benchmark administrators, and for Brexit.

Due for delivery in 2022, the LME will upgrade its electronic trading platform (LMEselect) to refresh its trading infrastructure and add an enhanced onscreen options market.

In January 2021, the LME issued a discussion paper on future market structure which covered four main topics:

• The Ring and reference prices - proposing to make a permanent shift to its electronic venue for pricing (away from the Ring), which is expected to benefit the market by broadening direct participation during the price discovery periods and increasing overall transparency.
• Enhancing liquidity in the market - incentivising electronic trading on the member-to-member market to bring greater liquidity to the central electronic venue.
• Margin methodology - considering a move to "realised variation margin" methodology commonly used by other futures exchanges, which will increase trading efficiency, provide greater standardisation and remove some barriers to entry to the LME's market.
• Market conduct - exploring the introduction of additional disclosures and policies to strengthen market conduct.

HKFE Commodities Product Development

In Hong Kong, USD and CNH denominated Silver Futures were successfully launched on 8 June to broaden HKEX's precious metal product suite and further address investors' trading, hedging and risk management needs in precious metals. In 2020, a total of 68,682 contracts of Gold Futures and 1,282 contracts of Silver Futures were traded, with 1,351 kilograms of gold and 8,850 kilograms of silver physically delivered against the contracts.

In addition, USD London Metal Mini Futures and Iron Ore Futures volumes continued to grow, with a total of 186,947 contracts and 97,048 contracts traded in 2020 respectively, 537 per cent and 73 per cent higher than 2019.

In July 2020, an online HKEX Commodities Forum was hosted. The three-day forum attracted participation from more than 1,000 industry players globally to share insights on metals markets as well as opportunities and challenges during the Covid-19 period.

QME

In 2020, QME's trading turnover was eight times that of 2019, a result of further improvements in trading models and continuous growth in QME's client base. Breakthroughs were made in new product offerings, including the launch of a natural gas contract in August, and a cement contract in December, on top of the base metals product suite including alumina and copper cathode contracts. QME became the third natural gas trading platform in Mainland China and the first marketplace to introduce cement trading on-exchange. QME's warehouse ecosystem has started to serve clients' financing need, and QME this year gained industry-wide recognition as one of the KPMG's China Fintech 50 companies.

Business Review

Post Trade Segment

Key Market Indicators

2020	2019	Change
ADT on the Stock Exchange ($bn)	129.5 2	87.2	49%
Average daily number of Stock Exchange trades ('000)	1,962 2	1,453	35%
Average value per trade ($)	65,984	59,988	10%
Average daily value of Settlement Instructions (SIs) settled by
CCASS ($bn)	346.1	238.4	45%
Average daily number of SIs ('000)	115	95	21%
Average value per SI ($)	3,011,015	2,510,576	20%
Chargeable ADV1 of metals contracts traded on the LME ('000 lots)	571	617	(7%)

1 Chargeable ADV excludes Admin Trades (which became chargeable from May 2019 at a lower clearing fee rate of US$0.02 per contract) and other non-chargeable trades.

2 New record highs in 2020

Analysis of Results
Summary
2020	2019
$m	$m	Change
Clearing and settlement fees	4,355	3,160	38%
Depository, custody and nominee services fees	1,264	1,052	20%
Trading fees and trading tariffs - allocated from Equity and Financial
Derivatives segment	389	380	2%
Other revenue and sundry income	243	138	76%
6,251	4,730	32%
Net investment income	1,386	1,496	(7%)
Total revenue and other income	7,637	6,226	23%
Less: Transaction-related expenses	(25)	(10)	150%
Total revenue and other income less transaction-related expenses	7,612	6,216	22%
Operating expenses	(860)	(814)	6%
EBITDA	6,752	5,402	25%
EBITDA margin 1	89%	87%	2%

1 EBITDA margin is calculated based on EBITDA divided by total revenue and other income less transaction-related expenses.

Clearing and Settlement Fees

$m 5,000

4,000

3,000

2,000

1,000

Clearing fees	Fees for SIs	Clearing fees	Clearing fees
for Cash Market	for futures, options	for LME Clear
and OTC contracts

4,355

$129.5 bn

3,110

$87.2 bn

2,073

$346.1 bn$238.4 bn

641

3,160

571

617

1,133

1,068

492

507

508

Total

2020 2019

ADT on the Stock Exchange Average daily value of SIsADV of futures and options contracts ('000) Chargeable ADV1 of metals contracts traded on the LME ('000 lots)

Chargeable ADV excludes Admin Trades (which became chargeable from May 2019 at a lower clearing fee rate of US$0.02 per contract) and other non-chargeable trades.

Clearing and settlement fees for Cash Market and SIs increased by 50 per cent and 30 per cent respectively compared with 2019. The increases were primarily driven by a higher number of transactions, and record fees from Stock Connect Northbound Trading of $779 million (2019: $364 million).

Despite the 7 per cent decrease in chargeable ADV1 of metals contracts traded on the LME, clearing fees for LME Clear were at the same level as 2019, due to the fee increment effective from 1 January 2020.

Depository, Custody and Nominee Services Fees

Depository, custody and nominee services fees do not directly vary with changes in market activity. They rose by $212 million or 20 per cent due to higher e-IPO service fees and Stock Connect portfolio fees, partly offset by lower scrip fees.

Trading Fees and Trading Tariffs

Trading fees and trading tariffs allocated from the Equity and Financial Derivatives segment for clearing derivatives products increased by 2 per cent, due to a 19 per cent increase in ADV of stock options traded, partly offset by a 3 per cent decrease in ADV of derivatives contracts traded on the Futures Exchange (see commentary in the Equity and Financial Derivatives segment).

Other Revenue and Sundry Income

Other revenue increased by $105 million mainly due to an increase in accommodation income arising from HKCC CPs placing more Euro and Japanese Yen as collateral, and higher interest shortfall collected from LME Clear CPs on cash collateral, as USD investment return fell below the benchmark interest rate stipulated in the rules of LME Clear.

Business Review

Net Investment Income Average fund size

$bn 200

175.5 16.7

160

120

142.4 13.6

158.8

128.8

The increase in the average size of Margin Funds during the year was attributable to higher average Margin Fund sizes of LME Clear, HKCC and SEOCH due to higher margin requirements per contract, reflecting heightened volatility.

The increase in the average size of Clearing House Funds during the year was attributable to higher average fund size of LME Clear due to changes in risk exposures.

2020

2019

Margin Funds

Clearing House Funds

The analysis of net investment income is as follows:
2020	2019
Clearing	Clearing
Margin	House	Margin	House
Funds	Funds	Total	Funds	Funds	Total
$m	$m	$m	$m	$m	$m
78	1,333	1,296	109	1,405
-	56	97	-	97
-	(3)	(6)	-	(6)
78	1,386	1,387	109	1,496
0.47%	0.79%	1.08%	0.80%	1.05%

Net investment income dropped by $110 million, mainly due to lower interest income from declining interest rates, partly offset by higher average fund sizes of Margin Funds and Clearing House Funds.

EBITDA

Operating expenses rose by $46 million (6 per cent), reflecting increases in staff costs due to annual payroll adjustments. EBITDA margin rose from 87 per cent in 2019 to 89 per cent in 2020, due to the 23 per cent increase in revenue and other income.

Business Update

Cash and Derivatives Clearing

Driven by the strong flows in both Northbound and Southbound Trading in 2020, there was a strong increase in the utilisation of Stock Connect clearing services:

(i) an 89 per cent increase in the average daily value of Northbound SIs in 2020 compared with 2019;
(ii) the number of Special Segregated Accounts increased by 22 per cent to 11,659 accounts as at 31 December 2020 compared with 9,564 as of 31 December 2019; and

(iii) both Northbound and Southbound portfolio values of Stock Connect reached record highs in December 2020, with Northbound portfolio value increased by 64 per cent to RMB2,339 billion as at 31 December 2020 (31 December 2019: RMB1,429 billion) and Southbound portfolio value increased by 84 per cent to $2,096 billion as at 31 December 2020 (31 December 2019: $1,138 billion).

On 20 April 2020, HKSCC further enhanced its third party clearing arrangement to allow a CCASS CP to continue to self-clear its Exchange Trades, while appointing a General Clearing Participant for clearing its China Connect Securities Trades.

HKEX launched the Master SPSA service on 10 July 2020 as an enhancement to the existing SPSA service to support Northbound Trading. This optional service allows pre-trade checking to be conducted at a fund manager, or aggregate level, helping to increase operational efficiencies whilst maintaining the same post trade settlement processes for consistency.

On 24 November 2020, HKEX announced the launch of Synapse, a settlement acceleration platform for Stock Connect targeting production, proposed for Q1 2022. HKEX Synapse will automate and streamline post trade workflow for Northbound Stock Connect using Digital Asset Modeling Language (DAML) smart contract technology. The improved connectivity and capacity to handle the growing volume of trades flowing through Stock Connect will enhance efficiency and transparency for market participants.

HKEX completed two initiatives in relation to Large Open Position (LOP) Reporting in September 2020. Leveraging the Secure File Transfer Protocol facility, the Large Open Position Report (LOPR) submission has been fully automated to further enhance client experience. In addition, HKEX rolled out a new surveillance system for LOP and Position Limit monitoring by leveraging new technology. The modernised surveillance system further strengthens HKEX's surveillance capacity and supports the growth of HKEX's derivatives products.

To facilitate the clearing of the newly introduced MSCI Singapore and Japan futures contracts, on 28 September 2020, HKCC appointed several settlement banks to support the money settlement of SGD and JPY domestically.

HKSCC enhanced its existing buy-in exemption clauses on 16 November 2020, including the expansion of the scope of contingency situations and removal of buy-in exemption clauses which are no longer applicable after various CCASS enhancements.

On 30 November 2020, HKSCC started using the HKD Real Time Gross Settlement (RTGS) account with the Hong Kong Monetary Authority for settling the HKD central counterparty related payment

(ie, CNS related payment and risk management payment) with CPs. This arrangement improves CPs' liquidity for money settlement and aligns with international standards and practice (Principle 9 of PFMI) on managing credit and liquidity risk exposure.

FINI is one of the key initiatives under HKEX's Strategic Plan 2019-2021, as part of a broader range of market microstructure improvements and shortening of the IPO settlement cycle from T+5 to target, T+1. The initiative introduces a new web-based platform that enables IPO market participants, brokers, share registrars, advisers and regulators to interact digitally and seamlessly to complete the end-to-end IPO settlement process. HKEX has been working with different market stakeholders in platform design, market feedback collection and operational workflow reform over the past 18 months. More than 50 meetings with market stakeholders have been conducted and positive market support has been received. The first milestone was achieved on 16 November 2020 when the FINI concept paper was published for market feedback. The target delivery is estimated to be 2H 2022.

To enhance market transparency and capital efficiency across market participants and enable participants' risks to be managed in accordance with regulatory requirements, HKEX developed the Orion Risk Platform (previously known as NextGen Risk Management) for Cash Market - a new platform that adopts Value at Risk (VAR) methodology to calculate initial margin and default fund. The participants familiarisation program for the Orion Risk Platform started in January 2021.

HKCC and SEOCH enhanced their capital-based position limit (CBPL) policy effective 1 September 2020 to provide higher capital efficiency to the market. CPs meeting certain criteria and with appropriate business needs are allowed to increase their CBPL by one-third of their existing limits.

HKEX completed the 2020 Annual Attestation and Inspection Programme, with focus on three areas: (i) client margin requirements; (ii) risk management; and (iii) China Connect rules. The results and findings were announced to the market in February 2021.

OTC Clear

OTC Clear's Cross Currency Swaps (CCS) clearing volume remained strong during 2020, with notional amount cleared up by 8 per cent compared with 2019. However, the total notional amount cleared by OTC Clear in 2020 dropped 25 per cent, as the low interest rate environment led to a decline in Interest Rate Swaps (IRS) volume. In July 2020, the first IRS contract benchmarked to the HONIA was cleared through OTC Clear, supporting the market adoption of new risk-free reference rate in Hong Kong.

OTC Clear continues to strengthen its position in Asia and broaden its membership base with plans to on-board Japanese banks through the Sponsored Settlement Membership model. In addition, OTC Clear received its Recognised Clearing House (RCH) License from the Monetary Authority of Singapore (MAS) in November 2020, allowing it to offer clearing services to buy-side firms and inter-dealer brokers in Singapore.

Business Review

Technology Segment

Analysis of Results Summary

Network, terminal user, data line and software sub-license fees Hosting services fees

BayConnect sales and service revenue and other income Total revenue and other income

Operating expenses

EBITDA

EBITDA margin

2020	2019
$m	$m	Change
610	575	6%
230	188	22%
70	33	112%
910	796	14%
(304)	(245)	24%
606	551	10%
67%	69%	(2%)

Network, Terminal User, Data Line and Software Sub-license Fees

Network fees rose by $35 million (6 per cent) due to increased throttle usage of the Orion Central Gateway and China Connect Central Gateway by EPs, partly offset by lower fees from sale of new throttles.

Hosting Services Fees

Hosting services fees increased due to organic growth from both new customer subscriptions and increased usage by existing customers, with nearly 40 racks newly subscribed in 2020. As at 31 December 2020, 105 EPs were using HKEX's Hosting Services and 292 racks were subscribed by EPs and other hosting services ecosystem participants. These EPs generated, in aggregate, approximately 51 per cent of the Cash Market turnover and 63 per cent of the trading volume of the Derivatives Market in 2020.

EBITDA

Operating expenses increased by $59 million (24 per cent) mainly due to inclusion of operating expenses of BayConnect, a 51 per cent subsidiary acquired in June 2019. EBITDA margin fell from 69 per cent in 2019 to 67 per cent in 2020; however overall EBITDA increased by 10 per cent year-on-year.

Business Update

Trading and Clearing Systems

During 2020, despite the market volatility and the challenges posed by Covid-19 on work arrangements, all of HKEX's major trading, clearing, settlement and market data dissemination systems for the Cash, Derivatives and Commodities Markets continued to perform robustly.

HKEX conducted a holistic review on the Hong Kong Futures Automated Trading System, following the half-day suspension of the Derivatives Market in 2019, and published a detailed report on 28 December 2020 on the incident. HKEX took into account recommendations from the SFC and anindependent consultant, as well as feedback from EPs and other key stakeholders. This review has resulted in enhancement measures being put in place focusing in particular on incident prevention, detection and handling, mitigation of incident impact, and communication during incidents. These new measures will provide greater support to EPs, investors and other stakeholders in the event of future incidents, and will also help to enhance HKEX's decision-making process during market incidents. HKEX will continue to commit its resources to achieve its goal of operating a highly resilient, fair, informed and orderly market.

The project for hardware obsolescence replacement for various trading and clearing systems, together with the relocation of one of HKEX secondary data centre sites, which was kicked off in early 2020, has been progressing well. After project completion, estimated in Q3 2021, the existing secondary data centre will be relocated to a Tier 3 data centre with a higher level of resilience and lower operating costs.

Innovation Lab

The HKEX Innovation Lab was set up in 2018 to explore, incubate and apply new technologies to modernise HKEX's business and drive technological enhancements for our markets and our business. In 2020, the Innovation Lab successfully incubated FINI (refer to details in the Post Trade segment). It also continued to scale up HKEX's Robotic Process Automation programme, rolled out new data lake infrastructure and analytics tools for the business, and built an award-winning Artificial intelligence (AI) powered tool to facilitate the review of issuers' annual reports by the Listing Division. These initiatives continue to improve operational efficiency and reduce costs for our business.

Equity Investment

In 2020, HKEX acquired a minority stake in Huakong TsingJiao Information Science (Beijing) Limited (TsingJiao) for a total consideration of RMB100 million. TsingJiao specialises in the research and development of multi-party computation technologies, which allows collaborative data analysis without revealing private data during the computation and analysis process. HKEX believes that partnering with TsingJiao has the potential to be one of the building blocks for HKEX in developing its data strategy.

Corporate Items

"Corporate Items" is not a business segment but comprises central income (including net investment income of the Corporate Funds and HKEX Foundation donation income), the costs of central support functions that provide services to all operating segments, HKEX Foundation charitable donations and other costs not directly related to any operating segments.

Summary

2020	2019
$m	$m	Change
Net investment income	842	1,233	(32%)
HKEX Foundation donation income	106	-	N/A
Others	9	23	(61%)
Total revenue and other income	957	1,256	(24%)
Operating expenses:
- HKEX Foundation charitable donations	(112)	-	N/A
- Others	(1,269)	(1,157)	10%
EBITDA	(424)	99	(528%)
Net Investment Income
Average fund size
$bn
35

30.5

27.9

Average fund size increased principally due to cash generated and retained by the business after payment of cash dividends and the increase in fair values of collective investment schemes.

02020 2019

Corporate Funds

The analysis of net investment income is as follows:
2020	2019
$m	$m
Net investment income from:
- Cash and bank deposits	376	437
- Collective investment schemes	487	789
- Debt securities	8	6
- Exchange (losses)/gains	(29)	1
Total net investment income	842	1,233
Net investment return	2.76%	4.42%

Net investment income of Corporate Funds decreased by $391 million compared with 2019 due to lower fair value gains on collective investment schemes and lower interest income from lower deposit rates.

The decrease in fair value gains on collective investment schemes was mainly due to lower fair value gains of the public equities asset class of $365 million (2020: $79 million; 2019: $444 million).

Business Review

EBITDA

Excluding HKEX Foundation charitable donations of $112 million, operating expenses increased by 10 per cent against 2019, due to increased staff costs from annual payroll adjustments, higher recruitment costs and special gratuity payments, higher IT expenses for new IT systems, and higher professional fees incurred for strategic projects and other business initiatives.

Business Update Equity Investment

Following an initial capital investment of $50 million for a minority equity interest in Fusion Bank Limited in 2019, HKEX made a further capital injection of $50 million in April 2020 to facilitate the business launch preparation.

On 21 December 2020, Fusion Bank announced its full public launch in Hong Kong, offering a variety of banking services including savings, time deposits, local fund transfers as well as foreign exchange in HKD, CNY and USD.

Corporate Social Responsibility

Throughout the year, HKEX has continued to innovate and play an active role in shaping the long-term sustainability of global financial markets, focusing on people, operations and communities. HKEX is committed to promoting good corporate governance and ESG stewardship through ongoing publication of training and guidance materials, industry knowledge sharing and leadership on best practices.

Promoting its commitment to Sustainable Finance, in 2020 HKEX launched a new green and sustainable finance platform, STAGE, as well as the LME's

Expenses, Other Costs and Taxation

Operating Expenses

sustainability roadmap to further facilitate the low-carbon transition of financial markets, and society more widely.

Other new initiatives have been rolled out alongside the existing CSR and sustainability programmes including the launch of HKEX Foundation and its flagship Charity Partnership Programme, as well as the HKEX University Scholarship Programme. In response to Covid-19, HKEX supported the markets, its employees and the communities through a number of initiatives, such as relief measures for market participants, employees work from home and wellness support programmes and a $10 million Covid-19 Relief Fund in the communities.

HKEX Foundation

HKEX Foundation (via HKEX Foundation Limited, a controlled structured entity of the Group) was established as HKEX's dedicated charitable channel, with the aim to drive and inspire change by supporting community projects that champion various social and environmental challenges, helping to address global issues at a local level. During 2020, HKEX Foundation funded a wide range of projects and charities, supporting those in need. Initiatives include a $20 million Charity Partnership Programme, which supported 10 community projects in the HKEX Foundation's four focus areas of financial literacy, diversity and inclusion, poverty relief and environmental sustainability.

From 2H 2020 onwards, the donation income from the Stock Code Balloting Charity Scheme were received by HKEX Foundation, and the amounts previously paid by the issuers directly to the Hong Kong Community Chest were paid by HKEX Foundation.

Product
Staff Costs &	IT & Computer	Marketing &	Foundation	Other
Related	Maintenance	Premises	Promotion	Professional	Charitable	Operating
Expenses	Expenses	Expenses	Expenses	Fees	Donations	Expenses

HKEX

Total

+10%

+9%

-6

+19%

+27%N/A

-7

+11%

4,439

($m)

3,997

2,967 2,703

635

580

119

127

151

119

112

374

400

2020 2019

Staff costs and related expenses increased by $264 million (10 per cent) mainly due to annual payroll adjustments and increased headcount arising from the acquisition of BayConnect in June 2019.

IT and computer maintenance expenses consumed by the Group, excluding costs of services and goods directly consumed by participants of $84 million (2019: $93 million), were $551 million (2019: $487 million). The increase was mainly attributable to higher maintenance expenses for new IT systems and upgraded networks, as well as the inclusion of BayConnect.

Professional fees increased by $32 million (27 per cent) due to higher fees incurred for strategic projects and other business initiatives.

From July 2020 onwards, the donation income from the Stock Code Balloting Charity Scheme were received by HKEX Foundation, and the amounts previously paid by the issuers directly to the Hong Kong Community Chest were paid by HKEX Foundation. As a result, HKEX Foundation charitable donations of $112 million were recorded under operating expenses in 2020.

Depreciation and Amortisation

2020	2019
$m	$m	Change
Depreciation and amortisation	1,197	1,044	15%

Depreciation and amortisation increased by $153 million (15 per cent), attributable to an increase in depreciation of right-of-use assets of $34 million from new and renewed office leases in 2020, and increase in depreciation and amortisation of new IT systems completed in 2H 2019 and 2020.

During 2020, the Group incurred capital expenditure of $1,388 million, an increase of 30 per cent from 2019.

Finance Costs

Finance costs increased due to higher negative interest charges on deposits in Euro and Japanese Yen, collected from CPs as collateral.

Taxation

2020	2019
$m	$m
Finance costs	181	177

Change
2%
2020	2019
$m	$m	Change
Taxation	1,845	1,561	18%

Taxation increased due to higher profit before taxation in 2020 and a one-off deferred tax charge of $61 million arising from the change of statutory UK tax rate from 17 per cent to 19 per cent, partly offset by higher non-taxable income.

Business Review

Financial Review

Analysis of Results by Quarter

Quarterly Results

Q1 2020	Q2 2020	Q3 2020	Q4 2020	Total 2020
$m	$m	$m	$m	$m
Revenue and other income	4,009	4,773	5,309	5,099	19,190
Less: Transaction-related expenses	(17)	(14)	(39)	(40)	(110)
Revenue and other income less
transaction-related expenses	3,992	4,759	5,270	5,059	19,080
Operating expenses	(1,008)	(1,037)	(1,093)	(1,301)	(4,439)
EBITDA	2,984	3,722	4,177	3,758	14,641
Depreciation and amortisation	(274)	(271)	(282)	(370)	(1,197)
Operating profit	2,710	3,451	3,895	3,388	13,444
Finance costs	(49)	(47)	(43)	(42)	(181)
Share of profits less losses of joint ventures	19	20	15	15	69
Profit before taxation	2,680	3,424	3,867	3,361	13,332
Taxation	(422)	(448)	(528)	(447)	(1,845)
Profit for period/year	2,258	2,976	3,339	2,914	11,487
Loss/(profit) attributable to non-controlling
interests	4	(5)	8	11	18
Profit attributable to shareholders	2,262	2,971	3,347	2,925	11,505
Q1 2019	Q2 2019	Q3 2019	Q4 2019	Total 2019
$m	$m	$m	$m	$m
Profit attributable to shareholders	2,608	2,597	2,207	1,979	9,391
Note:

From Q4 2020 onwards, transaction-related expenses are presented under a separate line below Revenue and other income to more appropriately reflect the nature of such direct costs. The results from Q1 to Q3 2020 have been restated to conform with the revised presentation.

Analysis of Quarterly Results

Proﬁt $m 5,000

141.1

141.0

ADT $bn 140

Despite the challenging macroeconomic environment and uncertainty caused by Covid-19, 2020 headline ADT was higher than 2019 headline ADT for all four quarters, with Q3 being the highest quarter in 2020.

As profit generally follows the level of ADT, Q3 was the most profitable quarter during the year. Q1 was the least profitable quarter due to the $521 million of fair value losses of collective investment schemes. Profit in Q4 was lower than Q3 and Q2, due to fewer trading days, seasonal increase in scrip fees in Q2, and the seasonal increase in operating costs towards the end of the year.

2020 profit attributable to shareholders 2019 profit attributable to shareholders

2020 headline ADT on the Stock Exchange 2019 headline ADT on the Stock Exchange

Changes to Key Items in Consolidated Statement of Financial Position

(A) Significant Financial Assets and Financial Liabilities by Funds

At	At
31 Dec 2020	31 Dec 2019
$m	$m	Change
Financial assets
Cash and cash equivalents	157,996	128,152	23%
Financial assets measured at fair value through profit or loss	100,597	57,401	75%
Financial assets measured at fair value through other
comprehensive income	7,942	4,569	74%
Financial assets measured at amortised cost	62,688	40,672	54%
Total	329,223	230,794	43%

The Group's financial assets comprised financial assets of Corporate Funds, Margin Funds, Clearing House Funds, base, ferrous, and precious metals derivatives contracts, and cash prepayments and collateral for A shares traded under Stock Connect, as follows:

At	At
31 Dec 2020	31 Dec 2019
$m	$m	Change
Financial assets
Corporate Funds1	33,747	29,138	16%
Margin Funds2	175,129	137,012	28%
Clearing House Funds	21,251	15,176	40%
Base, ferrous, and precious metals derivatives contracts
cleared through LME Clear	92,884	48,008	93%
Cash prepayments and collateral for A shares	6,212	1,460	325%
Total	329,223	230,794	43%

1 Includes $1,241 million (31 December 2019: $818 million) solely used for supporting contributions to default funds and default fund credits for HKSCC Guarantee Fund, SEOCH Reserve Fund and HKCC Reserve Fund
2 Excludes Settlement Reserve Fund and Settlement Guarantee Fund paid to ChinaClear and margin receivable from CPs of $11,879 million (31 December 2019: $5,524 million), which are included in accounts receivable, prepayments and other deposits

At	At
31 Dec 2020	31 Dec 2019
$m	$m	Change
Financial liabilities
Base, ferrous, and precious metals derivatives contracts
cleared through LME Clear	92,884	48,008	93%
Margin deposits, Mainland security and settlement deposits,
and cash collateral from CPs	187,008	142,536	31%
CPs' contributions to Clearing House Funds	20,439	14,394	42%
Total	300,331	204,938	47%
Financial Review

The increase in financial assets and financial liabilities of Margin Funds at 31 December 2020 compared with 31 December 2019 was mainly attributable to increased contributions required from members of LME Clear due to higher margin requirements from higher metal contract prices, increased contributions from HKSCC CPs due to higher market turnover and the increase in Mainland security and settlement deposits attributable to the increase in Stock Connect Northbound Trading, and higher contributions from HKCC and SEOCH CPs due to higher margin requirements and the increase in open positions.

The increase in financial assets and financial liabilities of Clearing House Funds at 31 December 2020 compared to 31 December 2019 was mainly attributable to higher contributions required from members of LME Clear and HKSCC CPs in response to changes in risk exposures.

Financial assets of Corporate Funds at 31 December 2020 increased by $4,609 million as compared to those at 31 December 2019 due to the retention of cash generated by the business over the past year partly offset by the cash paid for the 2019 second interim dividend and 2020 first interim dividend, and the increase in fair values of collective investment scheme investments.

A portion of the Corporate Funds is invested in collective investment schemes which are designed to enhance returns and mitigate portfolio volatility and asset class concentration risk. Further details of investments in collective investment schemes are included in note 53(a)(iv) to the Consolidated Financial Statements of this Annual Report.

(B) Fixed Assets, Intangible Assets, Right-of-use Assets and Capital Commitments

The total net book value of the Group's fixed assets and intangible assets rose by $427 million from $19,967 million at 31 December 2019 to $20,394 million at 31 December 2020. The increase was mainly due to additions of assets of $1,388 million, but was partly offset by depreciation and amortisation of $892 million, and exchange differences arising mainly from depreciation of USD of $68 million. Additions during the year were mainly relatedto the development and upgrade of various trading and clearing systems (notably the Next Generation Post Trade systems), and the relocation of secondary data centre.

In accordance with HKFRS 16, the Group's operating leases are recognised as right-of-use assets. At 31 December 2020, the carrying amounts of these assets amounted to $2,193 million (31 December 2019: $2,366 million) and were mainly related to leases of office premises.

The Group's capital expenditure1 commitments at 31 December 2020, including those authorised by the Board but not yet contracted for, amounted to $890 million (31 December 2019: $1,217 million). These related mainly to the development and upgrade of IT systems including the cash, derivatives and commodities trading and clearing systems, and the set up of the new secondary data centre.

Acquisitions and Disposals of Subsidiaries, and Future Plans for Material Investments or Capital Assets

In 2020, HKEX acquired a minority stake in

Huakong TsingJiao Information Science

(Beijing) Limited (TsingJiao) for a total

consideration of RMB100 million.

HKEX also made a further capital injection

of $50 million in Fusion Bank Limited in April

2020, bringing the total investment in the bank

to $100 million.

In November 2020, the Group entered into an

agreement to acquire a minority stake in

Guangzhou Futures Exchange Co. Ltd. (GFE),

a newly established futures exchange in the

Greater Bay Area, which will focus on serving

the real economy and green development

initiatives. At 31 December 2020, the total

capital investment to be made by the Group

was RMB210 million.

Save for those disclosed in this Annual Report,

there were no other significant investments

held, nor were there material acquisitions or

disposals of subsidiaries during the year under

review. Apart from those disclosed in this

Annual Report, there were no material

investments or additions of capital assets

authorised by the Board at the date of this

Annual Report.

Capital expenditure excludes right-of-use assets recognised under HKFRS 16: Leases.

(D) Equity attributable to Shareholders and Return on Equity

Equity attributable to shareholders increased by $4,745 million to $48,918 million at 31 December 2020 (31 December 2019: $44,173 million). This arose principally from the $1,428 million of shares issued in lieu of cash dividends and an increase in retained earnings (excluding transfers to designated reserves) of $3,051 million mainly attributable to profit for the year less dividends declared or paid.

Equity attributable to Shareholders and Return on Equity

Return

Equity $m 70,000

on equity % 25

60,000

Return on equity rose by 3 per cent due to record high profit attributable to shareholders in 2020.

50,000

48,918

2020

2019

Equity attributable to shareholders

Return on equity1

1 Based on equity attributable to shareholders at year-end

Liquidity, Financial Resources and Gearing

Working capital rose by $5,101 million to $29,359 million at 31 December 2020 (31 December 2019: $24,258 million). The increase was mainly due to profit attributable to shareholders of $11,505 million and net decrease in non-current assets of $443 million, partly offset by the payment of 2019 second interim dividend and 2020 first interim dividend (net of scrip dividends) of $7,025 million.

At 31 December 2020, the Group had the following outstanding borrowings:

Financial Review

At 31 December 2020, the Group had a gross gearing ratio (ie, gross debt divided by adjusted capital) of 1 per cent (31 December 2019: 1 per cent), and a net gearing ratio (ie, net debt divided by adjusted capital) of zero per cent (31 December 2019: zero per cent). For this purpose, gross debt is defined as total borrowings (excluding lease liabilities) and net debt2 is defined as gross debt less cash and cash equivalents of Corporate Funds (excluding those reserved for supporting contributions to default funds and default fund credits for Clearing House Funds), and adjusted capital as all components of equity attributable to shareholders of HKEX other than designated reserves.

At 31 December 2020, the Group's total available banking facilities for its daily operations amounted to $21,223 million (31 December 2019: $21,246 million), which included $14,722 million (31 December 2019: $14,745 million) of committed banking facilities and $6,500 million (31 December 2019: $6,500 million) of repurchase facilities.

The Group has also put in place foreign exchange facilities for its daily clearing operations and for the RMB Trading Support Facility to support the trading of RMB stocks listed on the Stock Exchange. At 31 December 2020, the total amount of the facilities was HK$30,244 million (31 December 2019: HK$24,052 million).

In addition, the Group has arranged contingency banking facilities amounting to RMB13,000 million (31 December 2019: RMB13,000 million) for settling payment obligations to ChinaClear should there be events that disrupt normal settlement arrangements for Stock Connect.

At 31 December 2020, 82 per cent (31 December 2019: 74 per cent) of the Group's cash and cash equivalents were denominated in HKD or USD.

Pledges of Assets

Details of pledges of assets are included in note 51 to the Consolidated Financial Statements of this Annual Report.

Exposure to Fluctuations in Exchange Rates and Related Hedges

Details of the Group's exposure to fluctuations in exchange rates and related hedges are included in note 53(a)(i) - Foreign exchange risk to the Consolidated Financial Statements of this Annual Report.

Contingent Liabilities

Details of contingent liabilities are included in note 49 to the Consolidated Financial Statements of this Annual Report.

Net debt is zero when the amount of cash and cash equivalents of Corporate Funds (excluding those reserved for supporting contributions to default funds and default fund credits for Clearing House Funds) is higher than gross debt.

10-Year

Financial Statistics

Consolidated Statement of Financial Position

($m)


Non-current assets	23,413
Current assets	375,693
Current liabilities	(346,334)
Net current assets	29,359
Total assets less current liabilities	52,772
Non-current liabilities	(3,536)
Total equity	49,236
Non-controlling interests	(318)
Equity attributable to HKEX's shareholders	48,918
Equity per share 1 ($)	38.64
Financial Ratios
Dividend payout ratio	90%
Cost to income ratio 2	23%
Pre-tax profit margin 2	70%
Return on equity 3	24%
Current ratio	1.1
Notes:

* HKEX completed the acquisition of the LME Group on 6 December 2012.

Consolidated Income Statement

($m)

2018	2017	2016	2015	2014	2013	2012	2011
107.4	88.2	66.9	105.6	69.5	62.6	53.9	69.7
687	441	464	394	275	284	260	269
517	428	298	374	302	249	228	303
627	599	618	670	700	676	634	N/A
Revenue and other income	19,190	16,311	15,867	13,180	11,116	13,375	9,849	8,723	7,211	7,855
Less: transaction-related expenses	(110)	(51)	(54)	(40)	(39)	(36)	(27)	(27)	(24)	(27)
Revenue and other income less
transaction-related expenses	19,080	16,260	15,813	13,140	11,077	13,339	9,822	8,696	7,187	7,828
Operating expenses	(4,439)	(3,997)	(4,056)	(3,526)	(3,416)	(3,254)	(2,931)	(2,750)	(1,933)	(1,706)
EBITDA	14,641	12,263	11,757	9,614	7,661	10,085	6,891	5,946	5,254	6,122
Depreciation and amortisation	(1,197)	(1,044)	(762)	(858)	(771)	(684)	(647)	(507)	(158)	(90)
Costs relating to acquisition of LME Group	-	-	-	-	-	-	-	-	(138)	-
Costs relating to proposed combination
with LSEG	-	(123)	-	-	-	-	-	-	-	-
Finance costs	(181)	(177)	(114)	(134)	(82)	(114)	(196)	(183)	(55)	-
Fair value loss on derivative component
of convertible bonds	-	-	-	-	-	-	-	-	(55)	-
Share of profits/(losses) of joint ventures	69	32	2	(12)	(9)	(9)	(10)	(10)	(3)	-
Profit before taxation	13,332	10,951	10,883	8,610	6,799	9,278	6,038	5,246	4,845	6,032
Taxation	(1,845)	(1,561)	(1,592)	(1,255)	(1,058)	(1,347)	(900)	(700)	(761)	(939)
Profit for the year	11,487	9,390	9,291	7,355	5,741	7,931	5,138	4,546	4,084	5,093
Loss attributable to non-controlling interests	18	1	21	49	28	25	27	6	-	-
Profit attributable to shareholders	11,505	9,391	9,312	7,404	5,769	7,956	5,165	4,552	4,084	5,093
Dividend per share ($)	8.17	6.71	6.71	5.40	4.25	5.95	3.98	3.54	3.31	4.25
Basic earnings per share ($)	9.11	7.49	7.50	6.03	4.76	6.70	4.44	3.95	3.75	4.71
23,856	20,165	19,586	19,508	19,622	19,672	20,797	20,260	1,580
255,195	235,783	298,018	227,810	218,571	232,188	65,146	60,577	52,448
(230,937)	(213,581)	(278,566)	(210,688)	(203,976)	(222,564)	(57,538)	(55,337)	(44,809)
24,258	22,202	19,452	17,122	14,595	9,624	7,608	5,240	7,639
48,114	42,367	39,038	36,630	34,217	29,296	28,405	25,500	9,219
(3,613)	(1,464)	(1,663)	(4,246)	(4,255)	(7,937)	(7,887)	(7,736)	(60)
44,501	40,903	37,375	32,384	29,962	21,359	20,518	17,764	9,159
(328)	(174)	(102)	(118)	(146)	(86)	(113)	-	-
44,173	40,729	37,273	32,266	29,816	21,273	20,405	17,764	9,159
35.12	32.65	30.14	26.42	24.74	18.26	17.59	15.48	8.50
90%	90%	90%	90%	90%	90%	90%	90%	90%
25%	26%	27%	31%	24%	30%	32%	27%	22%
67%	69%	66%	61%	70%	62%	60%	67%	77%
21%	23%	20%	18%	27%	24%	22%	23%	56%
1.1	1.1	1.1	1.1	1.1	1.0	1.1	1.1	1.2

2020

2019

Key Market Statistics

Headline ADT traded on the Stock

Exchange ($bn) 129.5 87.2
ADV of derivatives contracts traded on
the Futures Exchange ('000 contracts) 607 626
ADV of stock options contracts traded on
the Stock Exchange ('000 contracts) 526 442
Chargeable ADV of metals contracts
traded on LME* ('000 lots) 571 617

1 Based on number of shares issued and fully paid less number of shares held for the Share Award Scheme at 31 December
2 For the purpose of computing cost (ie, operating expenses) to income ratio and pre-tax profit margin, income includes revenue and other income less transaction-related expenses and share of profits/losses of joint ventures.
3 Based on equity attributable to HKEX's shareholders at year end

Governance

Corporate Governance Report

The Board is committed to high standards of corporate governance and recognises that good governance is vital for the long-term success and sustainability of HKEX businesses.

HKEX's key corporate governance practices and activities during the year ended 31 December 2020 are highlighted in this report and the Committee Reports, as well as in the 2020 CSR Report which will be published on the HKEX Group website together with this Annual Report. All the Committee Reports form part of this report.

More details about HKEX's corporate governance structure, principles and practices are available on the HKEX Group website CG .

Governance Highlights

Board Structure

• 12 of the 13 Directors are independent
• Members of all governance related committees* are INEDs
• 3 of the 13 Directors are female

• Set a goal to achieve gender parity on the Board
• Diverse range of expertise and experience
• Periodic Board refreshment

Committee Reports

Nomination and Governance Committee Report:

pages 96 to 98

Audit Committee Report: pages 99 to 101

Risk Committee Report: pages 102 to 105

Remuneration Committee Report: pages 106 to 112

CSR Committee Report: pages 113 and 114

HKEX Group website(www.hkexgroup.com)

About HKEX (Our Structure) section OS Investor Relations section IR

Corporate Governance section CG Corporate Social Responsibility section CSR

Board and Governance Process

• 48 Board and committee meetings in total in 2020
• Completion of an internally-led Board evaluation
• International Advisory Council has been set up to provide the Board with expert insight and perspective

• Annual review of succession plans
• Annual review of compensation policies
• Robust risk management and internal controls framework
• Embedded compliance culture
• Proactive and ongoing stakeholder engagement

* Refer to the Audit Committee, the Nomination and Governance Committee, the Remuneration Committee, and the Risk Committee

Compliance with Corporate Governance Code

Throughout the year 2020, HKEX complied with all code provisions and, where appropriate, adopted the recommended best practices set out in the Corporate Governance Code, with the following exceptions:

Code Provision A.4.1 (Re-election of non-executive directors)

The Government Appointed Directors, all being Non-executive Directors, are not subject to election or re-election by Shareholders as their appointments are governed by the SFO.

Code Provision A.4.2 (Retirement by rotation of directors)

The Chief Executive in his capacity as a Director is not subject to retirement by rotation, as his term on the Board is coterminous with his employment as the Chief Executive with HKEX under HKEX's Articles.

HKEX has applied the principles of the Corporate Governance Code to its corporate governance structure and practices as described in this report and on the HKEX Group website CG / IR / OS . A checklist detailing HKEX's compliance with the Corporate Governance Code is available on the HKEX Group website CG . The Board has delegated its corporate governance functions to the Nomination and Governance Committee. A summary of the work of the Committee in 2020/2021 is set out in the Nomination and Governance Committee Report.

Strategic Planning

HKEX has a rigorous and continuing strategic planning process to identify and assess the opportunities and challenges that the Group might face and to develop a planned course of action for the Group to generate sustainable long-term value for Shareholders.

HKEX's three-year Strategic Plan 2019-2021 is available on the HKEX Group website (About HKEX section). In addition to the mid-year strategy review, the Board held a strategy meeting in September 2020 to review the achievements under the Strategic Plan, and discuss and explore potential strategic moves. The accomplishments achieved during the year are reported in the Chief Executive's Review and Business Review sections of this Annual Report.

The Board

Board Composition

The Board's structure is governed by HKEX's Articles and the SFO. The Board has an appropriate mix of skills, experience, and diversity that are relevant to HKEX's strategy, governance, and business, and underpin its effectiveness and efficiency. Its approach to achieving diversity is set out in the Board Diversity Policy, which is available on the HKEX Group website CG .

Independent Non-executive Directors

6 Elected Directors

6 Government Appointed Directors

Executive Director

Interim

Chief Executive

Gender

Female

Male

3 Directors

10 Directors

Ethnicity

Chinese

Non-Chinese

3 Directors

10 Directors

Age Group

50-55

56-60

61-65

66-70

>70

1 Director 5 Directors

Directorship with HKEX (Number of Years)

3 Directors

1 Director

1-2

3-4

5-6

12-13

2 Directors

5 Directors

4 Directors

Other Public Companies Directorship(s) (Number of Companies *)

2 Directors

5 Directors

1 Director 6 Directors

1 Director

* Directorships or alternate directorships held at companies within the same group are considered to be one single directorship.

Directors' Skills And Experience

Executive leadership & strategy/Directorship or senior executive experience with other listed company(ies)

INEDs

Laura M Cha (Chairman) Apurv Bagri

T C Chan

C H Cheah Susan Chow Anita Fung Rafael Gil-Tienda Fred Hu Benjamin Hung Hugo Leung John Williamson Stephen Yiu Executive Director Calvin Tai

Coverage

(% of entire Board)

Capital market expertiseInternational businessMainland

China exposure

Accounting professionals/ financial management expertiseLegal professionals/ regulatory & compliance/ risk management

Digital

100%

85%

92%

46%

77%

31%

The names of the Directors in office during 2020 and up to the date of this report, and the brief biographies of the current Directors are included in the Board and Committees section and the Board of Directors and Senior Management section, respectively, of this Annual Report.

Under HKEX's Articles, the term of office of Non-executive Directors is not more than three years (subject to re-appointment or re-election), although each Government Appointed Director is normally appointed for a term of approximately two years. Staggered terms of service enable the Board to have a good balance of experienced and new Directors. The average tenure of the current Directors as at the date of this report is 5 years. The service term of Anita Fung, Rafael Gil-Tienda and Stephen Yiu (Government Appointed Directors), and T C Chan, Fred Hu and John Williamson (Elected Directors)will expire at the conclusion of the 2021 AGM. On 5 February 2021, the Government appointed Nisa Leung and re-appointed Rafael Gil-Tienda and Stephen Yiu as members of the Board, each for a term of approximately two years from the conclusion of the 2021 AGM until the conclusion of the AGM to be held in 2023. On 24 February 2021, the Board accepted the nomination by the Nomination and Governance Committee and recommended Nicholas Allen, Anna Cheung and Zhang Yichen to stand for election at the 2021 AGM.

Information about the Board Diversity Policy and the Nomination Policy along with the results of the review of the Board's composition, the nomination of Board candidates and the assessment of INEDs' independence during 2020/2021 are set out in the Nomination and Governance Committee Report.

Roles and Responsibilities

Good governance emanates from an effective and accountable board. At HKEX, the Board directly, and indirectly through its committees, leads and provides direction to management by laying down strategies and overseeing their implementation by management. The Board monitors the Group's operating and financial performance, reviews the Group's compensation policies and succession planning, and ensures that effective governance and CSR policies and sound internal control and risk management systems are in place. The Board operates under defined terms of reference which set out matters specifically reserved for its decision. The terms of reference are available on the HKEX Group website OS .

For effective oversight and leadership, the Board regularly reviews reports from the Chief Executive and senior executives on the progress of the approved strategies, plans and budgets, and receives updates/advice from the Board committees, external market/industry experts and management on the Group's governance, business performance, and development. In light of the increasingly competitive and complex global environment, the International Advisory Council has been established to provide the Board with expert insight and perspective. Further details relating to the Board committees, the International Advisory Council, the Consultative Panels, and HKEX's management functions are set out in the Board Delegation section below.

Board Effectiveness

The Board recognises that conducting regular evaluation of its performance is essential to good corporate governance and Board effectiveness. Following the evaluation of the Board's performance by an independent external consultant in 2019, actions were taken during 2020 to further enhance the quality and efficiency of the Board's discussions, its risk oversight, and engagement with stakeholders.

In 2020, HKEX conducted an internal evaluation of the performance of the Board and its governance committees, which was led by the HKEX Chairman with the support of the Group Company Secretary. As part of the evaluation process, each Director completed a questionnaire to assess the performance of the Board, the Audit Committee, the Nomination and Governance Committee, the Remuneration Committee, and the Risk Committee, and also the 2020 Strategy Meeting. In addition, the HKEX Chairman interviewed other Directors individually to solicit their views, and her views were collected by the chairman of the Remuneration Committee. At the subsidiary level, each of OTC Clear, the LME, and LME Clear also conducted an internal evaluation of the performance of its respective board and board governance committees in 2020.

The evaluation results indicated that the directors of HKEX, OTC Clear, LME, and LME Clear agreed that the respective boards operate effectively and perform well in the governance of the respective companies, and they were satisfied with the composition and operational effectiveness of the relevant board committees. The evaluation results were presented to the HKEX Nomination and Governance Committee and the HKEX Board in November and December 2020 respectively. Recommendations for improvement are being followed up.

Chairman and Chief Executive

Following Charles Li's retirement as the Chief Executive of HKEX on 31 December 2020, Calvin Tai has been appointed as the Interim Chief Executive of HKEX with effect from 1 January 2021 until the new Chief Executive is appointed.

At HKEX, the roles of the Chairman and the Chief Executive are complementary, but importantly, they are distinct and separate with a clear and well established division of responsibilities. Details of their respective roles and responsibilities are available on the HKEX Group website CG .

Key Responsibilities of the Chairman and the Chief Executive

Laura M Cha Chairman (INED)

Calvin Tai Interim Chief Executive

(ex-officio Director)

• Provides leadership to the Board
• Monitors Board effectiveness
• Fosters constructive relationships among Directors

• Promote integrity and probity
• Ensure effective stakeholder communication

• Develops strategies for the Board's approval
• Executes strategies agreed by the Board
• Leads day-to-day management of the Group

The Chairman, the Interim Chief Executive and other Directors do not have any financial, business, family or other material/relevant relationships with each other.

Induction and Development

Upon appointment to the Board, Directors are provided with comprehensive induction training to ensure that they have a thorough understanding of the Group's operations and governance policies, as well as their role and responsibilities. Every new Board member also receives a Director's Handbook which contains the Board's terms of reference, an overview of Directors' responsibilities, the Guidelines on Conduct, and information on other key governance matters. The Director's Handbook and more information about induction training for new Directors are available on the HKEX Group website CG .

Ongoing training helps Directors keep abreast of current trends and issues facing the Group, while enabling them to update and refresh their skills and knowledge necessary for the performance of their duties. Directors are invited to attend the Board knowledge sessions, the Board strategy meeting(s), and the International Advisory Council meetings held during the year, at which external industry experts, Council members or senior executives of HKEX are engaged to provide information on various topics of interest, in particular on global strategies, market best practices, and the latest market trends and developments.

All Directors are required to provide HKEX with their training records, and to confirm their respective records on a semi-annual basis. The records are maintained by the Group Company Secretary for annual review by the Nomination and Governance Committee. During 2020, the Directors received an aggregate of about 420 hours of training by attending or participating in Board knowledge sessions, management briefings, and events such as conferences, seminars, and workshops on directors' duties and other topics relevant to HKEX's strategy and business.

2020 Directors' Training by Topic

Average hours of training: 32

HKEX's	Economy/	Director's	Financial	Legislative/
strategy/	financial markets	duties/	reporting/risk	regulatory
business	& products	ESG practices	management	compliance

ITINEDs

Laura M Cha (Chairman) Apurv Bagri

T C Chan

C H Cheah Susan Chow Anita Fung Rafael Gil-Tienda Fred Hu Benjamin Hung Hugo Leung John Williamson Stephen Yiu

Executive Director Charles Li

Board Process

In addition to the strategy meeting in September 2020, the Board held 10 meetings in 2020 to discuss matters relating to the Group's strategies, business operations, performance, governance, risk management, regulatory compliance, CSR, and human capital. The Chairman also had regular gatherings with other Directors, occasionally without the presence of the Chief Executive, to consider issues in an informal setting.

Attendance Record of Directors and Committee Members in 2020 1

Number of Meetings INEDs

- 2

Laura M Cha (Chairman) 3 Apurv Bagri

T C Chan 4 C H Cheah Susan Chow 5 Anita Fung Rafael Gil-Tienda Fred Hu 6 Benjamin Hung 7 Hugo Leung 8 John Williamson 9 Stephen Yiu Executive Director Charles Li

1/1 1/1 1/1 1/1

10/10

5/5

4/4

10/10

6/6 4/6

5/5

10/10

4/4

6/6

5/5

2/2

10/10

5/5

4/4

5/6

6/6

5/5 4/4

3/3

1/1

10/10

4/4

3/4

1/1

10/10

5/6

5/5

0/1

9/10

2/2

1/1

10/10

4/4 3/4

4/5 4/4

1/1

10/10

1/1

10/10

1/1 1/1

10/10 10/10

4/4 4/4 4/4

5/5 5/5

2/2 4/4 4/4

4/4

5/5

4/5

5/5 5/5

5/5

4/5

4/4

Market Professionals Clara Chan 10

1/1

Daisy Cheung 11 Lawrence Lam Clement Lau 10 Rico Leung Barbara Shiu Attendance Rate

4/5

4/4

5/5

4/5

92%

99%

100%

96%

100%

90%

88%N/A

93%

100%

93% 12

1 During 2020, certain members of the Board also performed a regulatory role by serving as members of the Listing Nominating Committee and the Listing Policy Panel, and attending as the chairman, the deputy chairman, or a member of the hearings held by the Listing Appeals Committee of the Exchange.
2 No meeting was held by the Panel Member Selection Committee during 2020.
3 Mrs Cha was redesignated from chairman to member of the Risk Committee on 2 January 2020.
4 Mr Chan ceased to be a member of the Risk Management Committee (statutory) on 7 May 2020.
5 Mrs Chow was appointed as a Director and a member of the Remuneration Committee, the Risk Committee, and the Risk Management Committee (statutory) on 7 May 2020.
6 Dr Hu was appointed to the CSR Committee on 7 May 2020.
7 Mr Hung was appointed to the Nomination and Governance Committee on 7 May 2020.
8 Mr Leung ceased to be a member of the CSR Committee on 7 May 2020.
9 Mr Williamson was appointed as the chairman of the Risk Committee and a member of the Risk Management Committee (statutory) on 2 January 2020.

10 Ms Chan was appointed to the Risk Management Committee (statutory) on 17 October 2020 to replace Mr Lau.
11 Ms Cheung was appointed to the Risk Management Committee (statutory) on 1 January 2020 to replace Gao Yingxin.
12 The attendance rate calculation took into account the attendance by the alternate member of the committee.

To facilitate effective oversight and decision making by the Board, HKEX has established the Group Escalation and Incident Reporting Policy to set out guidelines on handling critical concerns relating to the Group's operations and performance. The Continuous Disclosure and Communication Policy is in place to ensure timely reporting of inside information to the Board and communication with the Group's stakeholders, which together with other key features of the Board process are available on the HKEX Group website CG .

Group Company Secretary

All Directors have access to the advice and services of the Group Company Secretary. The Group Company Secretary reports to the Chairman on Board governance matters, and is responsible for ensuring that Board procedures are followed and for facilitating information flows and communications among Directors, as well as with Shareholders and management.

Board Delegation

Committees

David Fu has been appointed to succeed Joseph Mau as the Group Company Secretary with effect from 1 April 2020. Mr Fu's biography is set out in the Board of Directors and Senior Management section of this Annual Report. During 2020, Mr Fu attended over 15 hours of professional training.

HKEX Board

* A statutory committee established under Section 65 of the SFO

The Board has delegated authority to various committees to deal with specific matters under defined terms of reference. The composition and terms of reference of the Board committees are reviewed annually to ensure that they remain appropriate and in line with the Group's business and changes in governance practices. The list of members of the Board committees is set out in the Board and Committees section of this Annual Report, and their attendance record is set out in "Board Process" above. More information about the Board committees is available on the HKEX Group website CG / OS .

International Advisory Council

HKEX has established the International Advisory Council to provide the Board with insight and expertise from around the world, on business, economics, technology, and finance, drawing on the extensive skills and experience of its members. With the addition of Neil Shen as a new member in November 2020, the Council comprises six members, and is chaired by the HKEX Chairman. Four Council meetings were held in 2020.

Members of International Advisory Council

• Laura M CHA (Chairman)
• Stuart GULLIVER
• Mary SCHAPIRO
• Neil SHEN
• Joseph TSAI
• Marcus WALLENBERG

Consultative Panels

HKEX has three Consultative Panels which provide market expertise and advice to the Board in relation to the trading and clearing in Hong Kong's securities and derivatives markets. The composition and terms of reference of the Consultative Panels are available on the HKEX Group website OS .

Number of Panel Meeting(s) held in 2020

• Cash Market Consultative Panel 1

• Derivatives Market Consultative Panel 3

• Clearing Consultative Panel 3

Management

Senior executives, under the leadership of the Chief Executive, are responsible for the day-to-day management of the Group's businesses and implementation of the strategies approved by the Board. The Management Committee, a management decision-making body chaired by the Chief Executive with defined authority delegated by the Board, aims to meet at least twice a month. Its membership as at the date of this report is set out in the Management Committee section of this Annual Report, and its duties are available on the HKEX Group website OS . The Executive Committee, which comprises the Chief Executive and selected members of the Management Committee, is responsible for supervising and coordinating all key business and operational activities in relation to the implementation of HKEX's Strategic Plan. Members of the Executive Committee as at the date of this report and their biographies are set out in the Board of Directors and Senior Management section of this Annual Report.

During 2020, several senior executives changes were made to support the Group's latest strategic focus and replace retired or outgoing executives. Details are set out in the Media Centre (News Release) section of the HKEX Group website. HKEX's updated organisation structure is available on the HKEX Group website OS .

The Board recognises the importance of continuity in senior executives and identifying leaders with appropriate skills and experience to support delivery of the Group's strategic initiatives. Succession planning for senior executives is considered by the Nomination and Governance Committee and the Board annually. A mentoring programme pairing selected senior executives with experienced Directors is also in place to enhance succession planning and strengthen link between senior executives and the Board.

Given the competitive business environment in which the Group operates, HKEX arranges professional development programmes for its senior executives from time to time to support its long-term growth and success. During 2020, the Senior Management received an aggregate of about 396 hours of training by attending or participating in conferences, seminars, and workshops on various topics, including HKEX's strategy and business, development of the financial markets, regulatory compliance, ESG practices, risk management, information technology, leadership, and management. Other employees of the Group also attended training throughout the year. Details are set out in the 2020 CSR Report.

Subsidiary Governance

HKEX is committed to fostering good governance and a strong compliance culture at all levels of the organisation. To ensure an integrated, Group-wide approach towards upholding high governance standards, efforts have been made to strengthen the governance structures and processes of HKEX's subsidiaries.

For effective oversight of its subsidiaries, HKEX promotes governance linkages within the Group through common memberships between the Board and the subsidiaries' boards/committees and appointment of HKEX's senior executives to the subsidiaries' boards. A list of HKEX subsidiaries' directors is set out in the Directors' Report contained in this Annual Report. Details about the governance structures of the Group's major subsidiaries (including composition and terms of reference of their boards and committees) are available on the HKEX Group website OS . Induction training and materials have been provided to subsidiaries' non-executive directors to facilitate their understanding of the Group's business and their duties and obligations as a director.

HKEX has implemented a number of Group-wide governance policies, which are subject to review from time to time, to support its commitment to high standards of business, professional, and ethical conduct, and to ensure best practices across the organisation. In 2020, the Group organised a series of initiatives, including the Legal and Compliance Month, the Risk Awareness Month, Know Your Regulator Series, and e-training for new and existing employees, to reinforce a strong culture of compliance and risk management among the employees.

Key governance policies for employees

• Code of Conduct
• Continuous Disclosure and Communication Policy

• Group Anti-Bribery and Anti-Corruption Policy
• Group Personal Account Dealing Policy
• Group Prevention of Financial Crime Policy
• Group Whistleblowing Policy
• Group Compliance Policy

Information about the Group's governance policies and practices is available on the HKEX Group website CG / CSR .

Conflict Management

As a recognised exchange controller, HKEX shall act in the interest of the public with particular regard to the interest of the investing public, and ensure that the interest of the public prevails where it conflicts with HKEX's interest. Given its role of being the exchange controller and a listed company, HKEX has implemented a number of measures to ensure a level playing field with other listed issuers. These include, among others, the entering into an MOU with the SFC and the Stock Exchange, the separation of the regulatory function, and the establishment of a Conflict Committee. More information about HKEX's public and corporate responsibilities and its conflict management measures is available on the HKEX Group website CG .

The HKEX's Guidelines on Conduct as set out in the Director's Handbook also serve to provide guidance to Directors and committee members of the Group on the requirements to avoid conflicts of interest and on the circumstances under which appropriate action(s) shall be taken by the director in conflict. During 2020, the policy governing the acceptance by the Group's directors of external appointments in listed and unlisted companies was updated tointroduce specific safeguards that shall be undertaken by HKEX and each director to avoid potential conflicts of interest. The Director's Handbook is available on the HKEX Group website CG .

Remuneration of Directors and Senior Management

HKEX has formal and transparent procedures for fixing the remuneration packages of individual Directors and senior executives. Information about HKEX's remuneration policies and the Remuneration Committee, including its work in 2020/2021, is set out in the Remuneration Committee Report.

Directors' Securities Transactions and Interests in HKEX

Compliance with Model Code

HKEX has adopted the Model Code as its own code of conduct regarding Directors' securities transactions. In response to a specific enquiry by the Company, all Directors confirmed that they complied with the Model Code at all applicable times during 2020.

Directors' Interests and Short Positions in Shares and Underlying Shares of HKEX

The interests and short positions of Directors, including the Chief Executive, in the shares and underlying shares of HKEX (within the meaning of Part XV of the SFO) as at 31 December 2020 as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to HKEX and the SFC under the Model Code, are set out below.

Long Positions in Shares and Underlying Shares of HKEX

Number of shares/underlying shares held

Personal	Family	Corporate	Other	% of HKEX
Name of Director	interests	interests	interests	interests	Total	shares in issue
Charles Li	502,649 2	-	-	-	502,649	0.03
Stephen Yiu	-	2,000 3	-	-	2,000	0.00

1 Based on 1,267,836,895 HKEX shares in issue as at 31 December 2020
2 Details of Mr Li's interests in Awarded Shares are set out in the Remuneration Committee Report.
3 Mr Yiu's spouse was the beneficial owner of those shares.

Save as disclosed above, none of the Directors had any interests or short positions in the shares, underlying shares or debentures of HKEX or any of its associated corporations (within the meaning of Part XV of the SFO) as at 31 December 2020 as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to HKEX and the SFC under the Model Code.

Apart from the Awarded Shares as disclosed in the Remuneration Committee Report and notes 15 and 43 to the Consolidated Financial Statements, during 2020, none of the Directors (including their spouses and children under the age of 18) had any interests in or was granted any right to subscribe for the securities of HKEX or its associated corporations (within the meaning of Part XV of the SFO), or had exercised any such rights.

Other Persons' Interests and Short Positions in Shares and Underlying Shares of HKEX

Minority Controllers

As at the date of this report, other than the Government which has been a Minority Controller since

7 September 2007, 12 entities have been approved as Minority Controllers on the basis that they hold HKEX shares in custody for their clients. According to the Participant Shareholding Report as at 31 December 2020, these Minority Controllers in aggregate held approximately 77 per cent of HKEX shares in issue. More information about Minority Controllers is set out on the HKEX Group website CG .

Other persons' interests and short positions in the shares and underlying shares of HKEX (within the meaning of Part XV of the SFO) as at 31 December 2020 as recorded in the register required to be kept under Section 336 of the SFO are set out below.

Long Positions in Shares and Underlying Shares of HKEX

Name

CapacityNumber of shares/ underlying shares heldTotal

% of HKEX 1 shares in issue

JPMorgan Chase & Co. (JPMC)Interest of corporation 7,697,713 controlled by JPMC

Investment manager 37,779,999

Person having a security interest in shares Trustee

68,02389,391,803 2 7.05

Approved lending agent

36,586 43,809,482

HKSAR Government

Beneficial owner

74,840,961 3

74,840,961 5.90

(for the account of the Exchange Fund)

Short Positions in Shares and Underlying Shares of HKEX

Name

Capacity

Number of shares/ underlying shares heldTotal

% of HKEX 1 shares in issue

JPMC

Interest of corporation controlled by JPMC

6,125,295

6,125,295 4

0.48

1 Based on 1,267,836,895 HKEX shares in issue as at 31 December 2020
2 It included an aggregate interest in 5,699,894 underlying shares through JPMC's holding of certain listed derivatives (physically settled:
3,258,400 shares; cash settled: 1,029,130 shares) and unlisted derivatives (physically settled: 799,234 shares; cash settled: 613,130 shares).
3 Based on Hong Kong Monetary Authority's notification to HKEX on 4 June 2018
4 It included an aggregate interest in 6,080,835 underlying shares through JPMC's holding of certain listed derivatives (physically settled: 1,191,400 shares; cash settled: 2,290,180 shares) and unlisted derivatives (physically settled: 1,688,916 shares; cash settled:
910,339 shares).

Save as disclosed above, no other persons had any interests or short positions in the shares or underlying shares of HKEX as at 31 December 2020 as recorded in the register required to be kept under Section 336 of the SFO, or as otherwise notified to HKEX and the Stock Exchange.

Senior Management

All employees of the Group are obliged to follow the Company's restrictions on dealing in securities, futures contracts, and other derivatives, which are on terms no less stringent than the Model Code, as set out in the Group Personal Account Dealing Policy. Senior Management's interests in the shares and underlying shares of HKEX as at 31 December 2020 are set out below.

Number of shares that 1	Derivatives
remained unvested under	(number of
Senior Management	Number of shares held	the Share Award Scheme	underlying shares)
Matthew Chamberlain	13,322	46,103	-
Bonnie Y Chan	4,988	-	-
Romnesh Lamba	20,852	29,894	-
Vanessa Lau	26,258	13,780	-
Glenda So	2,000	-	-
Calvin Tai	110,502	38,002	-
Wilfred Yiu	-	28,551	-

Details of the Senior Management's interests in the Awarded Shares are set out in the Remuneration Committee Report.

Continuing Connected Transactions

In June 2000, the SFC granted a waiver to HKEX from strict compliance with the Main Board Listing Rules with respect to certain continuing connected transactions as referred to in (A), (B) and (C) below. The waiver has remained valid since then. The following table sets out the types of the continuing connected transactions subject to the waiver, and details of any of these continuing connected transactions entered into by the Group during 2020.

A. Transactions between HKEX or its subsidiaries and HKEX's connected person(s) arising from or in connection with the use of the facilities provided by the Group for the trading, clearing and/or settlement of securities and futures products, and transactions, and all services offered by the Group which are ancillary, incidental or otherwise related to the foregoing:
- • The Group did not enter into any of the above transactions with HKEX's connected persons during 2020.
B. Transactions between HKEX or its subsidiaries and HKEX's connected person(s) arising from or in connection with the listing of securities on the Stock Exchange, and all services offered by the Group which are ancillary, incidental or otherwise related to the foregoing:
- • Laura M Cha, the Chairman, was interested in the transactions entered into by HKR International Limited and Hanison Construction Holdings Limited, which are listed on the Stock Exchange and are Mrs Cha's associates by virtue of the Main Board Listing Rules.
C. Transactions between HKEX or its subsidiaries and HKEX's connected person(s) arising from or in connection with the HKSCC arrangement on behalf of CCASS Participants for: (i) carrying out "buy-in" when a CCASS Participant has failed to deliver securities on time for settlement under the CNS System or the Isolated Trades System operated by CCASS; (ii) the purchase or sale of securities in connection with the liquidation of the positions of a CCASS Participant that has been declared by HKSCC to be in default; and (iii) the sale of entitlements of securities held through CCASS (collectively referred to as Buy-in Transactions):
- • The Group did not enter into any Buy-in Transactions with HKEX's connected persons during 2020.

The Board has delegated authority to the Audit Committee to review the above continuing connected transactions pursuant to Rule 14A.55 of the Main Board Listing Rules. The results of the Audit Committee's review are set out in the Audit Committee Report.

The Company's external auditor was engaged to report on the above continuing connected transactions of the Group in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information", and with reference to Practice Note 740 "Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the HKICPA. The external auditor has issued an unqualified report containing its findings and conclusions in respect of the transactions disclosed above in accordance with Rule 14A.56 of the Main Board Listing Rules. The Company has provided a copy of the report to the SFC and the Stock Exchange.

Related Party Transactions

During 2020, the Group entered into certain transactions with "related parties" as defined under the applicable accounting standards. Related party transactions are disclosed in note 50 to the Consolidated Financial Statements. They include the following connected transactions under the Main Board Listing Rules.

Related party transactions whichconstitute connected transactions

Payment of membership fee by an associate of a Director to the LME as covered in note 50(a) to the Consolidated Financial Statements

Compensation to the Chief Executive and the directors of HKEX's subsidiaries and remuneration to HKEX's Non-executive Directors, which formed part of the "Key management personnel compensation" described in note 50(b) to the Consolidated Financial Statements

Accountability and Audit

Financial Reporting

The Board, which is responsible for overseeing the preparation of annual financial statements, receives monthly management accounts and updates on the Group's performance, financial position, and prospects. In 2020, HKEX published its annual, interim, and quarterly results within three months, two months, and 45 days respectively after the relevant period end. In preparing the financial statements for the year ended 31 December 2020, the Board adopted appropriate accounting policies consistently, made prudent and reasonable judgements and estimates, and ensured that the financial statements were prepared on a going concern basis and show a true and fair view of the consolidated financial position of the Group as at 31 December 2020 and of the Group's consolidated financial performance and cash flows for the year then ended.

Risk Management and Internal Control

The Board has the overall responsibility for evaluating and determining the nature and extent of the risks (including ESG-related risks) it is willing to take in achieving the Group's strategic objectives, maintaining sound and effective risk management

Compliance with Main Board Listing Rules

This was a connected transaction exempt from the connected transaction requirements under Rule 14A.76(1) of the Main Board Listing Rules.

These were continuing connected transactions exempt from the connected transaction requirements under Rule 14A.76(1) or 14A.95 of the Main Board Listing Rules.

and internal control systems (including those for ESG-related risks) and reviewing their effectiveness to safeguard Shareholders' investment and the Group's assets. To this end, management continues to allocate resources for internal control and risk management systems based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control - Integrated Framework 2013 and the ISO 31000 Risk Management principles and guidelines to provide reasonable, though not absolute, assurance against material misstatement or loss and to manage rather than eliminate the risk of failure to achieve business objectives. Details of the Group's risk governance structure and the Group Risk Management Framework are set out in the Risk Committee Report. Details of the Group's key control procedures and internal audit functions are available on the HKEX Group website CG .

The Board reviews the adequacy and effectiveness of the Group's risk management and internal control systems at least quarterly, through the Risk Committee and the Audit Committee. Information about the Risk Committee and the Audit Committee, including their work in 2020/2021, is set out in their respective reports contained in this Annual Report.

HKEX has engaged PricewaterhouseCoopers as its external auditor. An analysis of remuneration for audit and non-audit services provided by PricewaterhouseCoopers and details of the Audit Committee's work in assessing the independence of PricewaterhouseCoopers and ensuring audit effectiveness are set out in the Audit Committee Report.

Independence of External Auditor

Information about HKEX's policies and procedures in safeguarding and supporting the independence and objectivity of the external auditor is available on the HKEX Group website CG .

Shareholder Relations

The Board gives high priority to maintaining balanced, clear, and transparent communications with Shareholders and other investors to facilitate their understanding of the Group's performance and prospects, as well as the market environment in which it operates. HKEX has an ongoing dialogue with Shareholders and other investors through various communication channels and takes any areas of concern into consideration when formulating its business strategies.

Investor Engagement and Communications

HKEX's investor relations team focuses on effective communication with and provision of relevant public information to investors and analysts to support the appropriate valuation of HKEX equity. Through an extensive engagement programme, institutional investors and analysts can interact with the Chairman, the Chief Executive and other senior executives for updates on the development of the Group's strategic initiatives and operations, as well as HKEX's corporate governance policies. During 2020, around 250 physical/virtual meetings were held with institutional investors and analysts in Hong Kong, Mainland China, and overseas. To facilitate effective investor relations, regular shareholding analyses were conducted under Section 329 of the SFO to gain a better view of changes in HKEX's shareholding structure.

Investor Relations Activities in 2020

• Small group/one-to-one meetings
• Non-deal roadshows
• Analyst briefings
• Investor conferences

Investor Relations Contact Details

Email:investorrelations@hkex.com.hkTel: (852) 2840 3330

Investment community views are communicated regularly to the Board, including sell-side consensus rating and target price for HKEX shares and summaries of questions and feedback from investors and analysts. During 2020, investors' major areas of interest included:

(i) HKEX Strategic Plan 2019-2021;
(ii) Updates on financial performance of the Group;
(iii) ESG related topics, including board diversity, Chief Executive succession plan, and HKEX Foundation; and

(iv)Latest developments regarding the Group's initiatives, including Stock Connect, Bond Connect, product development, IPO market, development of ETF market, FIC strategy, LME's initiatives, development of QME, the listing regime reform, and data strategy.

To foster investors' understanding of the Group's governance performance, HKEX continues to provide related information to international and local ESG rating agencies upon request.

Shareholder Engagement and Communications

• HKEX ensures prompt dissemination of corporate communications to enable Shareholders and other stakeholders to keep abreast of the Group's business and developments so that they can make informed decisions.
• The HKEX Group website has been adopted as the designated company website for publication of HKEX's announcements, notices and other corporate communications. As at 31 December 2020, about 79 per cent of Shareholders had opted to receive corporate communications via electronic means.

• The financial calendar highlighting important dates for Shareholders in 2021 is set out in the Shareholder Information section of this Annual Report and is also available on the HKEX Group website IR .

• HKEX's dividend policy is set out in the Shareholder Information section of this Annual Report. Information about HKEX's dividend record is available on the HKEX Group website IR .
• One or more Shareholders representing at least 5 per cent of the total voting rights of all Shareholders having a right to vote at general meetings may request the Board to call a general meeting. The request must state the general nature of the business to be dealt with, and it may include the text of a resolution that may properly be moved and is intended to be moved at the meeting. Such requests must be sent to the Group Company Secretary at HKEX's registered office, or by email tossd@hkex.com.hk.
• Under HKEX's Articles, if a Shareholder wishes to propose a person for election as a Director at a general meeting, he or she should give written notice of the nomination to the Group Company Secretary at HKEX's registered office. Details of the procedures for nominating candidates to stand for election as a Director at the 2021 AGM is set out in the circular to Shareholders to be sent together with this Annual Report.

• Shareholders may put forward proposals at general meetings by sending written notice of their proposals to the Group Company Secretary at HKEX's registered office, or by email tossd@hkex.com.hk. Details of the procedures for putting forward proposals by Shareholders are set out on the HKEX Group website CG .

• The Shareholders Communication Policy ensures that Shareholders are provided with ready, equal, and timely access to information about HKEX. The policy is regularly reviewed to ensure its effectiveness and is posted on the HKEX Group website CG .
• The Shareholders' Guide with answers to the frequently asked questions of Shareholders with regard to their interests in HKEX shares is also available on the HKEX Group website CG .

• Based on publicly available information and within the Directors' knowledge as at the date of this report, approximately 100 per cent of the HKEX shares were held by the public. HKEX's market capitalisation and shareholding distribution as at 31 December 2020 are set out in the Shareholder Information section of this Annual Report.

Further information about the Group's stakeholder engagement activities in 2020 is set out in the 2020 CSR Report.

The Board is grateful to Shareholders and other stakeholders for their continued support and welcomes their views as well as any questions they may have about the management and governance of the Group. Shareholders and other stakeholders may at any time send their enquiries and concerns to the Board by addressing them to the Group Company Secretary and sending them by post to the Secretarial Services Department, HKEX, 8/F, Two Exchange Square, 8 Connaught Place, Central, Hong Kong, or by email tossd@hkex.com.hk.

2020 Annual General Meeting

HKEX uses the AGM as a forum to establish constructive dialogue with Shareholders. Separate resolutions are proposed on each substantially separate issue, with all resolutions considered in a poll conducted by HKEX's registrar and verified by an independent scrutineer. Electronic voting is used at the AGMs to enhance efficiency and transparency of the vote counting process.

Shares voted at the 2020 AGM:

45.7%

of total issued shares

Most of the Directors in office on the meeting date, including the Chairman and the chairmen of the Audit Committee and other Board committees, attended the 2020 AGM along with key senior executives and the external auditor. In light of the Covid-19 situation, a live webcast of the 2020 AGM was arranged and made available on the HKEX Group website for viewing by Shareholders who were not able to attend the meeting.

The voting results and the minutes of the 2020 AGM are available on the HKEX Group website IR .

Key Matters Resolved at the 2020 AGM 1

• Receipt of the 2019 audited financial statements
• Re-election of C H Cheah and Hugo Leung as Directors
• Re-appointment of PricewaterhouseCoopers as the Company's auditor
• Granting a general mandate to buy back HKEX shares (not exceeding 10 per cent of the number of shares in issue)
• Granting a general mandate to issue HKEX shares (not exceeding 10 per cent of the number of shares in issue and at a price not exceeding a discount of 10 per cent)

The full text of the resolutions is set out in the Notice of the 2020 AGM.

2021 Annual General Meeting

The 2021 AGM will be held on Wednesday, 28 April 2021 at 4:30 pm at the HKEX Connect Hall on the 1st Floor, One and Two Exchange Square, Central, Hong Kong. The Notice of the 2021 AGM, which constitutes part of a circular to Shareholders, will be sent together with this Annual Report. The Notice, the circular which sets out details of the business to be conducted at the 2021 AGM, and the proxy form will be available on the HKEX Group website IR . The results of the voting on the proposed resolutions will be published on the HKEX Group website IR shortly after the 2021 AGM is held.

In light of the uncertain development of the current Covid-19 situation, Shareholders are encouraged to appoint the chairman of the 2021 AGM as their proxy to vote on the resolutions, instead of attending the meeting in person. In accordance with prevailing guidelines published by the Government and/or regulatory authorities, HKEX will implement additional precautionary measures at the 2021 AGM to ensure the safety of the Shareholders attending the meeting. Details of the measures will be set out in the circular to Shareholders, and any further updates will be announced as appropriate.

Changes after Closure of Financial Year

This report takes into account the changes that occurred between the end of 2020 and the date of the approval of this report.

On behalf of the Board FU Yat Hung, David Group Company Secretary

Hong Kong, 24 February 2021

Nomination and Governance Committee Report

The Nomination and Governance Committee

The Nomination and Governance Committee (NGC) is delegated with the authority by the Board to review the Board's composition and diversity, formulate and implement the policy for nominating Board candidates for election by Shareholders, make recommendations to the Board on the appointment of Directors and members to the Board committees, and assess INED's independence and commitment. The NGC is also responsible for succession planning for Directors and senior executives, leadership

Summary of Work in 2020/2021

training and development, and oversight of matters relating to corporate governance. Its terms of reference are available on the HKEX Group website OS.

The NGC comprises six INEDs whose names and biographies are set out in the Board and Committees section of this Annual Report. The NGC held six meetings in 2020. Members' attendance records are in the Corporate Governance Report contained in this Annual Report.

• Reviewed the results of the internally led evaluations of the boards of HKEX, OTC Clear, the LME, and LME Clear and their respective governance committees
• Reviewed the composition of the Board and its committees
• Nominated Board candidates for election/re-election by Shareholders at AGMs
• Recommended the appointment of Directors to the Board committees and the Consultative Panels
• Reviewed the independence of the INEDs
• Considered amendments to the policy on acceptance of external directorships and other appointments by directors of HKEX and its subsidiaries
• Reviewed the external appointments of Directors
• Reviewed the time commitment of Directors for performance of their responsibilities
• Reviewed succession planning of the Board and the senior executives
• Reviewed the NGC's terms of reference
• Reviewed the training and continued professional development of the Directors and Senior Management
• Endorsed the annual Corporate Governance Report

Changes in Directors during 2020

In February 2020, the Government appointed Susan Chow and re-appointed Laura M Cha and Benjamin Hung to the Board, each for a term of approximately two years from the close of the 2020 AGM until the conclusion of the AGM in 2022.

At the 2020 AGM, C H Cheah and Hugo Leung were re-elected by Shareholders for a term of approximately three years from 7 May 2020 until the conclusion of the AGM in 2023.

Board Composition and Diversity

HKEX sees increasing diversity at the Board level as an essential element in attaining its strategic objectives and achieving sustainable and balanced development for the Group. Since 2013, HKEX has followed the Board Diversity Policy, which is available on the HKEX Group website CG. The Policy highlights the benefits of diversity with respect to the Board's effectiveness and decision-making process, its succession planning and development, and attainment of HKEX's strategic objectives. It also sets out the Board's commitment to gender diversity and other diversity aspects, with the ultimate goal of achieving gender parity on the Board. HKEX currently has three female Directors, and the Board will take opportunities to increase the proportion of female members over time as and when suitable candidates are identified.

To further enhance Board diversity while maintaining an appropriate balance between continuity of experience and Board refreshment, HKEX sets out in the Nomination Policy a non-exhaustive list of criteria for the NGC to assess suitability of a proposed Non-executive Director candidate and a maximum tenure of nine consecutive years for Non-executive Directors to be eligible for the Board's nomination for re-election by Shareholders.

The Nomination Policy is available on the HKEX Group website CG.

During 2020, the NGC reviewed the structure, size, and diversity of the Board to ensure that its composition complies with the Main Board Listing Rules and reflects an appropriate mix of skills, experience, and diversity that are relevant to HKEX's strategy, governance, and business and contribute to the Board's effectiveness and efficiency. Information about the Board's current composition, including a Directors' skill matrix, is set out in the Corporate Governance Report contained in this Annual Report.

Nomination of Candidates

The service term of Anita Fung, Rafael Gil-Tienda, and Stephen Yiu (Government Appointed Directors), and T C Chan, Fred Hu, and John Williamson (Elected Directors) will expire at the conclusion of the 2021 AGM. Mr Chan and Mr Williamson, who will have served on the Board for 12 consecutive years as at the 2021 AGM, are not eligible for nomination under the Nomination Policy for re-election and will retire at the conclusion of the 2021 AGM. Dr Hu has decided not to offer himself for re-election at the 2021 AGM.

During 2020, in considering the Board's succession, the NGC engaged an independent professional search firm to help identify potential candidates for Non-executive Directors. The NGC reviewed the profiles of the candidates, having regard to the Board's current composition, the Directors' skill matrix, the list of selection criteria for Non-executive Directors that have been approved by the Board, the Nomination Policy, and the Board Diversity Policy, and arranged interviews with the shortlisted candidates individually.

On 5 February 2021, the Government appointed Nisa Leung and re-appointed Rafael Gil-Tienda and Stephen Yiu as members of the Board, each for a term of approximately two years from the conclusion of the 2021 AGM to be held on 28 April 2021 until the conclusion of the AGM to be held in 2023.

On 23 February 2021, the NGC nominated Nicholas Allen, Anna Cheung and Zhang Yichen to the Board for it to recommend to Shareholders for election at the 2021 AGM. The nominations were made in accordance with the Nomination Policy and took into account the merits of the candidates including, among others, their market knowledge and experience, reputation for integrity, and the diversity aspects (including without limitation, gender, age, cultural and educational background, ethnicity, professional experience, skills, and knowledge), with due regard for the benefits of diversity, as set out in the Board Diversity Policy.

Given the background and past experience of the three candidates, in particular, Mr Allen's accounting expertise and vast experience in securities and regulatory matters, Ms Cheung's extensive business strategic and operational experience, and Mr Zhang's in-depth knowledge in the Mainland's capital markets, it is considered that their appointment would further enhance the Board's diversity and performance and benefit the future development of HKEX. The NGC was satisfied with the independence of Mr Allen, Ms Cheung and Mr Zhang with reference to the criteria laid down in the Main Board Listing Rules.

Each of Mr Allen, Ms Cheung and Mr Zhang does not hold any cross-directorships or have any significant links with other Directors through involvement in other companies or bodies. Mr Allen, Ms Cheung and Mr Zhang do not have any service contracts with any member of the Group that are not determinable by the Group within one year without compensation (other than statutory compensation). Their particulars will be set out in the circular to Shareholders to be sent together with this Annual Report and posted on the HKEX Group website IR .

Nomination and Governance Committee Report

Independence of Non-executive Directors

Independent Directors enhance the effectiveness and decision-making of the Board by providing objective judgement and constructive challenge to management. Non-executive Directors' independence is assessed upon appointment, annually, and at any other time where the circumstances warrant reconsideration.

Assessment upon Director's Appointment

An independence confirmation by Susan Chow was submitted in writing to the SFC upon her appointment to the Board in May 2020.

Ongoing Assessment

• Each INED is required to inform HKEX as soon as practicable if there is any change in his or her personal particulars that may affect his or her independence. No such notification was received during 2020.
• Details of the Director's interests in the Group's business are set out on pages 91 and 92 of this Annual Report.

On 23 February 2021, the NGC assessed the annual independence confirmation received from each INED, having regard to the criteria under Rule 3.13 of the Main Board Listing Rules.

Annual Assessment

• As a good corporate governance practice, every NGC member abstained from assessing his/her own independence.
• Particular attention was given to assessing the independence of the Government Appointed Directors (including Laura M Cha, who is an Executive Councillor) given that the Government is a Minority Controller of HKEX.
• Consideration was given to the independence of T C Chan and John Williamson, who have been serving on the Board for more than nine years.
• The NGC affirmed that all INEDs continued to demonstrate strong independence in judgement and were free from any business or other relationship which could interfere with their ability to discharge their duties effectively, and they therefore all remained independent.

Laura M CHA

Chairman of the Nomination and Governance Committee

Hong Kong, 23 February 2021

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HKEx - Hong Kong Exchanges and Clearing Ltd. published this content on 15 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 March 2021 04:26:04 UTC.

Delayed Hong Kong S.E. Other stock markets 03:03:48 30/04/2024 BST			5-day change	1st Jan Change
255.2 ^HKD	+0.08%		+10.57%	-4.78%

04-25	Nomura Adjusts Hong Kong Exchanges And Clearing's Price Target to HK$324.31 From HK$322.28, Keeps at Buy	MT
04-25	HKEX Appoints Chairman	MT

Nomura Adjusts Hong Kong Exchanges And Clearing's Price Target to HK$324.31 From HK$322.28, Keeps at Buy	04-25	MT
HKEX Appoints Chairman	04-25	MT
Hong Kong bourse operator names Carlson Tong as new chairman	04-24	RE
Hong Kong Exchanges and Clearing Limited Announces Board Changes	04-24	CI
HKEX's Q1 Profit Falls 13% as Revenue Slides 6%	04-24	MT
HKEX's Profit Falls for Second Straight Quarter on Weak Trading, Listings -- Update	04-24	DJ
HKEX's Net Profit Declines for Second Straight Quarter	04-24	DJ
Hong Kong bourse operator's Q1 profit down 13% on weaker listings, trading	04-24	RE
Hong Kong Exchanges and Clearing Limited Reports Earnings Results for the First Quarter Ended March 31, 2024	04-24	CI
Hong Kong Exchanges and Clearing Limited Announces Executive Changes	04-17	CI
LME bans Russian-origin metal after UK, US impose new sanctions	04-13	RE
Fresh Capital from IPOs in Hong Kong Falls 30% in Q1	04-10	MT
LME plans to list Saudi port as a copper and zinc delivery point	03-19	RE
Nomura Adjusts Hong Kong Exchanges and Clearing’s Price Target to HK$322.28 From HK$324.78, Keeps at Buy	03-19	MT
Hong Kong stock exchange poised to name Carlson Tong as new chair, sources say	03-07	RE
Nomura Adjusts Hong Kong Exchanges and Clearing’s Price Target to HK$324.78 From HK$332.40, Keeps at Buy	03-01	MT
Hong Kong Exchanges and Clearing Limited Reports Earnings Results for the Full Year Ended December 31, 2023	02-29	CI
Transcript : Hong Kong Exchanges and Clearing Limited, 2023 Earnings Call, Feb 29, 2024	02-29
HKEX profit up in 2023 despite weak fourth quarter	02-29	AN
Hong Kong Exchanges and Clearing Limited Announces Management Changes, Effective 1 March 2024	02-29	CI
HKEX's Earnings Took a Blow as Slower China Growth Hit Markets -- Update	02-29	DJ
HKEX's 2023 Attributable Profit Rises 18%; EPS Misses Estimates	02-29	MT
Hong Kong exchange's 2023 profit misses forecast as new listings, trading income sags	02-29	RE
HKEX's Fourth-Quarter Net Profit Declines Amid Poor Market Sentiment	02-29	DJ
Hong Kong exchange's 2023 profit rises 18% on investment income gains	02-29	RE

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HONG KONG EXCHANGES AND CLEARING LIMITED	-4.78%	40.42B
INTERCONTINENTAL EXCHANGE, INC.	+1.83%	75.52B
DEUTSCHE BÖRSE AG	-2.33%	36.1B
NASDAQ, INC.	+3.34%	34.86B
B3 S.A. - BRASIL, BOLSA, BALCÃO	-23.44%	12.29B
EURONEXT N.V.	+7.57%	9.34B
MARKETAXESS HOLDINGS INC.	-30.31%	7.59B
TMX GROUP LIMITED	+13.76%	7.36B
SINGAPORE EXCHANGE LIMITED	-4.78%	7.31B
INVERFAL PERÚ S.A.A.	-1.37%	5.63B

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