Source: Wall Street Journal              Date: August 24, 2011

The Hong Kong Exchange (HKE) is discussing opportunities to cooperate with mainland stock exchanges. The HKE is in talks with both the Shanghai and Shenzhen stock exchanges, which could result in the development of index and other equity derivative products, reported the Wall Street Journal. The greatest challenge here is China's restrictions on trade. The HKE is currently bidding to list Mongolian companies in its markets.

The news quickly followed Chinese Vice Premier Li Keqiang's announcement for several initiatives to strengthen Hong Kong's role as a financial center in Asia. This included the allowance for exchange-traded funds (EFTs) holding stocks listed under the HKE to be sold in mainland China. Although it is unclear when these long-awaited EFTs will be launched, officials suggest it will be soon.

This step comes after petitions from Hong Kong's exchange operator for closer ties between Chinese markets. The HKE believes cooperation is crucial because more than 70 percent of its trading volume is in China-related securities. These plans come at a time when the HKE is trying to better sync itself with the markets of mainland China. It is considering extending its trade hours to better suit Chinese markets and began listing local shares denominated in the yuan.