HKEX’s audacious US$36.6bil bid for London Stock Exchange Group (LSE.L) raised quite a few eyebrows on 9/11. Three immediate questions were raised by the bid. First, does the bid make sense for shareholders on a commercial basis? Second, what are the strategic considerations for Hong Kong and global financial markets? Third, what are the regulatory and geopolitical hurdles?

My own policy is never to make any predictions on the prices or viability of any commercial deal but to let facts speak for themselves. At present prices, HKEx is the third largest listed exchange in the world with a market cap of US$40bil, larger than the LSE (US$31bil) but smaller than the CME Group (US$77bil) and the Intercontinental Exchange Inc (ICE, US$53bil). The fact that the LSE’s share price rose slightly after the bid announcement but remained lower than the bid price by HKEx suggested that the existing LSE shareholders are not particularly enthusiastic. On the other hand, HKEX price fell slightly as the merged institution will have a return on equity lower than the current level of around 24% (15% for LSE).