HK Exchange’s new chief promises a culture change

HONG KONG – The Hong Kong Stock Exchange’s new chief executive has become the highest-paid regulator in the financial hub city, remuneration he will earn in sight of the internal and global challenges he will face.

Nicolas Aguzin, 52, former chief executive of JP Morgan’s Asia-Pacific operations and its International Private Bank, began his three-year term on Monday (May 24).

HKEx said his compensation package includes a basic salary of HK$10 million (US$1.29 million) per annum, plus performance-related discretionary bonus and share awards.

On Monday, Aguzin was awarded shares with different vesting periods worth HK$95.4 million according to today’s closing prices. He will be paid 7% more in salary than his predecessor Charles Li.

Hailing from Argentina, Aguzin is HKEx’s first non-Chinese chief executive. HKEx announced on February 9 that he would replace Li.

The announcement said that Aguzin, who had been based in Hong Kong for nine years, was not personally subject to any investigation process, disciplinary action or public reprimand by financial regulators, though several units of JP Morgan were publicly reprimanded and fined between 2015 and 2018.

“HKEX has a critical role to play in the evolution of strong, resilient and interconnected global financial markets,” Aguzin said in February.

“As China’s economy and capital markets continue to open, HKEx will become ever more relevant, facilitating anticipated significant new flows of capital, and supporting the strong demand for capital to fuel growth, acting as a catalyst that connects China with the world, and the world with China.”

HKEx chairperson Laura Cha said Aguzin’s skills and expertise would help the stock exchange drive forward its strategy, using its deep China experience and reinforcing its international reach and relevance.

Cultural shake-up

Aguzin arrives amid a certain market upswing. In February, HKEx said its revenue rose 24% year on year to HK$16.86 billion for the year ended December 31, 2020. Net profit increased 23% to HK$11.5 billion.

The bourse’s 2020 revenue was 123% higher than the HK$7.57 billion revenue recorded in 2010 while net profit grew 128% during the decade when Li was in charge. HKEx’s average daily turnover also surged 87.4% to HK$129.1 billion last year from HK$69.1 billion in 2010.

While Li was widely praised for successfully boosting the stock exchange’s income and attracting many Chinese technology giants to list in Hong Kong, he was simultaneously criticized for not doing enough to protect investors’ rights, as many IPO candidates were not up to the bourse’s standard.

Sally Wong, chief executive of the Hong Kong Investment Funds Association, said HKEx had launched several rounds of investor protection measures but the bourse seemed to have adopted more suggestions from IPO sponsors than investors. Wong said she was looking forward to increasing dialogue with Aguzin on topics related to investor protection.

Media reports said Cha told Aguzin on his first working day to review HKEx’s practices and “force a cultural shake-up” after a bribery scandal and censure from the Securities and Futures Commission.

People familiar with the situation say he has the experience to finish the task as he worked at a heavily regulated international bank.

In March 2020, Hong Kong’s Independent Commission Against Corruption (ICAC) said a former joint-head of the IPO vetting team of the HKEx and an IPO consultant had been charged with bribery and misconduct in public office involving a total of HK$9.15 million in connection with the IPO applications of various listed companies.

Chinese IPOs

Last year, the US Securities and Exchange Commission warned that some Chinese stocks would eventually be delisted from the New York Stock Exchange and Nasdaq if they refused to disclose their financial audits. Baidu Inc and Alibaba Group Holding are among the US-listed Chinese firms whose auditors reportedly did not meet the requirements.

The Trump administration also announced that Chinese firms deemed to pose a threat to the US would be kicked out of US bourses. Early this month, China Mobile, China Unicom and China Telecom said they would be delisted by the New York Stock Exchange in line with US investment restrictions. With that trend, many US-listed Chinese firms are pushing forward their secondary listings in Shanghai or Hong Kong.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University, said he believed that after Aguzin took office, the HKEx would continue to welcome secondary listings by large mainland companies and provide Chinese firms with a relaxed IPO policy in the future, making it a strong competitor to Nasdaq.

Francis Yuen, an independent non-executive deputy chairman of Pacific Century Regional Development Ltd and a former chief executive of the HKEx, said in an interview in March that it was a wise decision for the HKEx to choose Aguzin to be its new chief as the former banker was experienced in wealth management.

Yuen said many investors had planned to keep their funds in Hong Kong after the National Security Law was implemented in the territory last year.

Yuen also said there was a strong pipeline of giant Chinese firms planning to list in Hong Kong. He said Hong Kong should position itself in a way that it would not be squeezed by US-China geopolitical competition.

On May 6, the People’s Bank of China, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission announced new draft rules for the cross-border Wealth Management Connect scheme. The new rules will allow Hong Kong investors to buy directly financial products of the Greater Bay Area while people in the area can buy Hong Kong’s investment products.

Each mainland participant is required to have at least one million yuan (US$155,548) of funds while the combined net flow of southbound and northbound capital is capped at 150 billion yuan per day.

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