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Market sentiment continued to improve in Q2 2017 with Cash Market headline ADT rising to $77.8 billion, 5 per cent above Q1 2017. The positive momentum on Stock Connects also continued, with Northbound and Southbound ADT being 47 per cent and 15 per cent higher than Q1 2017. However, market volatility continued to decline reaching lows last seen in 20142 , which adversely impacted derivatives volumes. While the average daily number of HKFE contracts traded in Q2 2017 was slightly up against Q1 2017, it was 16 per cent below Q1 2016 when market volatility was approximately twice as high as Q2 2017.
Revenue and other income overall was 4 per cent higher than Q1 2017. This arose from seasonal increases in depository, custody and nominee services fees, partially offset by a one-off receipt of $55 million post liquidation interest from Lehman’s liquidators in Q1 2017, and net investment income in Q2 2017 being $41 million lower.
For 1H 2017, revenue and other income rose by 10 per cent against 1H 2016, mainly due to a significant increase in net investment income of $466 million and a one-off receipt of $55 million post liquidation interest from Lehman’s liquidators. Excluding these items, revenue increased by 1 per cent with higher volumes in the Cash Market being offset by lower volumes in HKFE and the LME.
Operating expenses for 1H 2017 increased by 1 per cent against 1H 2016. After adjusting for a one-off insurance recovery of $23 million of legal costs, relating to the warehouse litigation in the US (which for the LME and HKEX defendants has now been concluded), operating expenses increased by 3 per cent compared to 1H 2016. This increase primarily reflected increases in staff costs and premises expenses, which were partly offset by savings in IT costs. Having regard to persistent global economic uncertainties, the Group continues to maintain a prudent approach to cost management.
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