Summary of Hong Kong Stock Exchange (HKEX) Conference Call Industry Overview - HKEX is actively expanding its connectivity network to other Asian economies to create a more attractive regional liquidity pool, focusing on collaboration with overseas exchanges, particularly in the Middle East and Southeast Asia [2][3] - The company aims to provide a broader range of asset allocation tools for investors by expanding its product offerings [2] Key Financial Insights - HKEX is committed to cost control, targeting a cost increase below historical growth trends. Despite a 5% year-on-year increase in operating expenses for 2025 due to non-recurring items related to the LME nickel incident, the underlying increase is only 2% when excluding these items [2][4] - Future financial performance will be influenced by market transactions, net investment income, and fluctuations in the Hong Kong dollar exchange rate [2][4] Strategic Initiatives - The core rationale for regional expansion is that approximately 75% of trading volume in the Asia-Pacific stock market comes from mainland China and Hong Kong, indicating significant investment demand in other regional markets [2][6] - HKEX is focusing on building a larger ecosystem through partnerships with other regional exchanges, enhancing liquidity in both the stock and spot markets, and developing its derivatives product line [2][3][7] Cost Management and Investment Strategy - Cost management will continue to prioritize maintaining growth below historical trends while optimizing product systems and market structures [4][5] - HKEX plans to make necessary and prudent investments in fixed income, foreign exchange, and commodities while maintaining strict cost discipline [5][6] IPO and Market Demand - The IPO pipeline remains healthy, with 24 IPOs completed in 2026 year-to-date, raising over $10 billion. The market demand is strong, with completed projects performing well in the aftermarket [12][16] - HKEX is also exploring opportunities for dual listings and supporting Asian issuers' financing needs, with recent listings from Thailand, Indonesia, and Kazakhstan [6][10] Future Developments - HKEX is working on launching Chinese government bond futures, which is seen as a significant demand in the market [14][15] - The company is also focused on enhancing its FICC ecosystem, with a long-term investment in CMU OmniClear, which is expected to contribute to the overall FICC strategy [8][9] Competitive Positioning - HKEX's defense strategy emphasizes consolidating and amplifying its differentiated advantages rather than attempting to cover all areas. The unique selling point of its connectivity business sets it apart from other exchanges [10][11] - The company is not currently planning to offer prediction market products, focusing instead on building a multi-asset ecosystem [12] Conclusion - HKEX is strategically positioned to leverage its strengths in the Asia-Pacific region, focusing on cost control, product diversification, and enhancing liquidity through regional partnerships. The ongoing demand for IPOs and fixed income products presents significant growth opportunities for the company in the coming years [2][6][17]

Group 1 - The average daily trading volume and balance in the money market increased in January, with a notable rise in the net lending balance of large commercial banks [2][6] - The total trading volume in the money market for January was 180.6 trillion yuan, with an average daily transaction of 8.6 trillion yuan, reflecting a 2.2% month-on-month increase [2][3] - The People's Bank of China (PBOC) maintained a proactive stance by increasing medium-term lending facility (MLF) operations, resulting in a net injection of 1 trillion yuan into the market [4][5] Group 2 - Bond issuance and trading both saw month-on-month increases, with 4.4 trillion yuan in bonds issued in January, marking a 7.8% increase from the previous month [7] - The bond market's yield mostly declined, with the 10-year government bond yield stabilizing between 1.8% and 1.9%, and credit spreads narrowing [10] - The trading volume in the bond lending market increased significantly, with a total of 3.64 million transactions and an average daily transaction of 2.477 trillion yuan, reflecting a 21.3% month-on-month increase [9] Group 3 - The interest rate swap curve experienced a slight upward shift, with the average daily transaction volume in RMB interest rate swaps increasing by 23% in January [11][12] - The nominal principal amount for interest rate swaps reached 4.4 trillion yuan, with an average daily transaction of 2.076 trillion yuan, indicating a 19% month-on-month increase [12]

Core Viewpoint - The People's Bank of China (PBOC) is implementing a moderately accommodative monetary policy, with a focus on improving policy efficiency and effectiveness while maintaining liquidity in the financial system [1][2]. Group 1: Monetary Policy and Liquidity - In January 2026, the PBOC reduced the rates of various structural monetary policy tools by 0.25 percentage points, resulting in a net injection of 1 trillion yuan into the market [2][3]. - The average daily trading volume in the interbank market was 222.5 trillion yuan, reflecting a 6% month-on-month decrease but a 51% year-on-year increase [1][2]. - The PBOC's actions included a 9,000 billion yuan increase in Medium-term Lending Facility (MLF) and a total of 20,000 billion yuan in reverse repos, effectively countering the impacts of increased government bond issuance and seasonal cash withdrawals [2][3]. Group 2: Bond Market Performance - In January, the issuance of bonds in the interbank market reached 4.4 trillion yuan, a year-on-year increase of 22.1%, with net financing of 1.99 trillion yuan, marking a 136.1% month-on-month increase [4]. - The yields on various bonds mostly declined, with the 10-year government bond yield stabilizing between 1.8% and 1.9%, and the credit spreads narrowing [4][5]. - The yield curve for government bonds showed a mixed performance, with some maturities experiencing slight decreases while others saw minor increases [4]. Group 3: Interest Rate Swaps and Trading Activity - The interest rate swap curve saw a slight upward movement, with 6-month, 1-year, and 5-year Shibor 3M swap rates showing minor increases [6][7]. - The average daily transaction volume for RMB interest rate swaps increased by 23%, with a nominal principal amount of 4.4 trillion yuan [7]. - The trading of interest rate options surged by 280%, indicating a growing interest in hedging strategies within the market [7].

1. Report Industry Investment Rating No information provided in the content. 2. Core Viewpoints of the Report - The bond market is at a transformative moment, and the "Future is Here" series of reports focuses on exploring cutting - edge technologies affecting the bond market to empower investment research [3]. - Fixed - income quantification is an inevitable product of financial industrialization and the answer of the bond market in the AI - empowered era. It has evolved from subjective to systematic, model - based, and data - driven, and has moved from the edge to the core of the trading desk [3]. - Compared with relatively mature equity quantification, fixed - income quantification has unique characteristics, including more complex tools and market structures, stronger policy and institutional factors, and more prominent liquidity and data quality issues [3]. - The report aims to answer four questions: the main schools of fixed - income quantification and their basic logics, the applicable market environments for these quantification technologies, the problems that quantification technologies cannot solve or may amplify risks, and the future prospects and optimization spaces of fixed - income quantification [3]. 3. Summary According to the Table of Contents 3.1 Global Fixed - Income Quantification: Four Schools and Basic Logics 3.1.1 Fundamental Quant - Focuses on using economic logic, macro data, and fundamental factors to predict market directions or asset values. It tries to "model" the logic that traditional macro research relies on analysts' experience for [8]. - The process includes data input (such as GDP, CPI, and PMI), building models (e.g., a two - factor model of "growth" and "inflation" or a multi - dimensional macro - factor system), and formulating trading logics (e.g., going long on interest - rate bonds in the "loose money + tight credit" cycle) [8]. - With the development of data technology, it uses high - frequency data for nowcasting to capture economic temperature changes. However, it faces challenges such as "overfitting" risk, structural breaks, and the risk of "fundamental desensitization" and model failure [8][9][10]. 3.1.2 Technical Quant - Focuses on using market volume and price data to capture trading opportunities from trends, reversals, or micro - structures without relying on macro - economic explanations [11]. - Trend - tracking and CTA fixed - income strategies use time - series momentum trading on interest rates and bond prices, which has significant long - term trend premiums and is important in multi - asset CTA strategies. The strategies are applied through unified momentum/trend rules on multiple products and can be part of a cross - asset trend strategy [11][12][15]. - Market - making and micro - structure quantification focuses on using quantification technology to improve pricing and inventory management in aspects such as order - book modeling, quoting strategies, and execution algorithms [18][20]. 3.1.3 Relative Value Quant - Focuses on cross - sectional comparison or finding pricing deviations to earn mean - reversion returns or risk premiums, often involving long - short hedging or factor - based bond selection [18]. - Interest - rate term structure and curve trading use various interest - rate term structure models to factorize the yield curve and conduct relative - value trading based on the deviation between the theoretical and actual curves [18][23]. - Carry/Roll - down strategies aim to earn the "time value" of the interest - rate curve and bonds. It is effective in stable or downward - trending interest - rate environments and is often incorporated into the factor - investment framework [26][28]. - Credit and spread factor strategies map bond characteristics into a series of credit and style factors to construct long - short or over -/under - weighted portfolios to earn factor premiums [33]. - Relative value and basis arbitrage focus on price "dislocation" between different tools with the same or similar risk exposures and use methods like PCA, mean - reversion modeling, and high -/medium - frequency data mining to construct statistical arbitrage strategies [38]. 3.1.4 Multi - Factor Models - Aims to systematically integrate excess returns from different sources. The core logic is to decompose the expected return of bonds into a linear combination of several risk factors to build a portfolio with a higher Sharpe ratio and smaller drawdowns [39]. - It is related to the three previous schools. It uses a large amount of fundamental data, includes momentum factors from the technical school, and is mainly used for "bond selection" similar to the relative - value school [43][45]. 3.2 Market Environments Suitable for Quantitative Technologies - **Liquidity and Trading Systems**: High - liquidity, low - transaction - cost markets are suitable for curve trading, relative - value, CTA trend, market - making, and high - frequency strategies; medium - liquidity markets are suitable for term - structure models, carry, and some relative - value and factor strategies; low - liquidity, OTC - dominated credit markets are suitable for medium - to - low - frequency factor strategies, duration/barbell allocation, and some structured - product pricing [48][49]. - **Interest - Rate Levels and Volatility Environments**: When the interest - rate center is declining with mild fluctuations, carry and roll - down strategies perform well, and term - structure strategies can profit from the "loose - neutral" switch. When interest rates rise rapidly or policies change suddenly, term - structure and carry strategies are prone to net - value drawdowns, while CTA trend and duration - hedging strategies can provide some protection [50]. - **Credit Environments and Macroeconomic Cycles**: In a low - default - rate, credit - expansion period, credit factors and credit - sinking strategies have high "tailwind returns". In a credit - contraction and high - default period, quantitative models may underestimate tail risks and are difficult to capture sudden "black - swan events" [51][53]. 3.3 Five Limitations of Fixed - Income Quantification - Policy and institutional inflection points are "unquantifiable" because central - bank monetary policies and regulatory reforms often show "discrete" and "mutant" characteristics, and historical - data - trained models may fail when regime shifts occur [55]. - "Liquidity black holes" and "out - of - model" risks exist because most models assume a "frictionless market", but the credit - bond market often faces liquidity shortages, which can lead to the failure of traditional strategies [56]. - Credit defaults have "small - sample" and jump risks. Bond defaults are sparse events, resulting in model overfitting or non - convergence, and the non - standardized information in the default process is difficult to cover [57]. - Complex terms and game behaviors are non - modelable. Many fixed - income products have complex option terms, and their triggering depends on issuers' subjective will, causing the deviation between the theoretical option value calculated by quantitative models and the market price [58]. - Crowded trading and endogenous instability occur when quantitative strategies are highly homogeneous. Once the market fluctuates in the opposite direction, the concentrated stop - loss orders can cause a stampede and more severe fluctuations [59][60]. 3.4 Outlook: The Future Landscape of Fixed - Income Quantification - **Quantamental (Quantitative + Fundamental)**: Quantitative analysis will empower fundamental analysis. Future mainstream models include "quantitative support with subjective decision - making" or "subjective logic with quantitative verification", applicable in macro - asset allocation and credit screening [62]. - **In - Depth Penetration of Alternative Data and AI Technologies**: With the development of large - language models, non - structured data can be processed, providing new sources of alpha. Applications include semantic and sentiment analysis of text data and using satellite and geographical data for investment analysis [63]. - **Algorithmic and Automated Trade Execution**: The increasing proportion of electronic trading in the Chinese bond market provides a foundation for algorithmic trading. Intelligent order - splitting algorithms can reduce impact costs, and machine - learning - based market - making strategies can adjust quotes and control inventory risks [64][66].

Financial Data and Key Metrics Changes - The company finished the year strong with robust loan and core deposit growth, net interest margin expansion, and higher fee income [4] - Net interest margin expanded by 12 basis points to 2.75%, with net interest income increasing by 5% during the quarter [6][11] - Core deposits grew by 9% in the fourth quarter and 8% for the full year, while loans grew at an 11% pace [7] - Tangible book value per share grew 16.5% annualized and was up 15.3% year-over-year [7] Business Line Data and Key Metrics Changes - The company saw strong revenue growth from both spread and fee perspectives, with non-interest income bouncing back due to increases in swap fees and letter of credit fees [16] - Core deposit growth was driven by strong non-interest-bearing deposit growth, which increased by $100 million during the fourth quarter [18] - Loan balances were up 8.9% annualized in the fourth quarter and 11.4% for the year, with construction being the largest driver of growth [20][22] Market Data and Key Metrics Changes - The company is now the second-largest locally led bank in the Twin Cities, positioning itself well to capture market share amid M&A disruptions [9] - The multifamily portfolio continues to perform well, with only $62,000 in net charge-offs recorded since the bank's founding [23] - Non-performing assets increased modestly to 0.41% of assets, driven by isolated issues [24] Company Strategy and Development Direction - The company aims to optimize profitable growth while aligning loan growth with core deposit growth and expanding net interest margin [30] - There is a focus on gaining market share in the Twin Cities and expanding the affordable housing vertical both locally and nationally [31] - The company plans to leverage technology investments to support growth and organizational efficiencies, including a strategy around AI [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ability to continue driving net interest income growth and achieving a 3% net interest margin by the end of 2026 [12][29] - The company is monitoring the impact of recent events in the Twin Cities on team members and clients, emphasizing support for the community [9] - Management remains confident in the strength of the asset quality profile despite a modest uptick in non-performing assets and net charge-offs [7][24] Other Important Information - The company closed one of the two branches added through the First Minnetonka City Bank acquisition due to proximity to other branches, with minimal deposit attrition post-merger [8] - The company has a strong capital position, with a CET1 ratio increasing slightly from 9.08% to 9.17% [27] Q&A Session Summary Question: Can you unpack some of the deposit growth in the quarter? - Management noted that Q4 tends to be a seasonally high watermark for deposit growth, with a strong deposit pipeline overall [36][39] Question: Can you discuss the cadence of loan repricing? - Management indicated that loan repricing is well laid out and not concentrated in any one quarter, supporting the margin target [40][41] Question: What are the expectations for expenses in 2026? - Management expects expenses to grow in the high single digits, aligning with asset growth [42] Question: What is the company's appetite for potential acquisitions? - Management continues to engage in conversations with local bank owners and remains optimistic about future acquisition opportunities [55] Question: How does the company view the affordable housing vertical's growth potential? - Management expressed confidence in the affordable housing space, indicating it currently represents about 15% of the loan book and is expected to grow [59][60]

Core Viewpoint - In 2025, the central bank implemented a moderately accommodative monetary policy to maintain liquidity and support economic stability amid complex domestic and international financial conditions [1][2]. Monetary Policy and Liquidity Management - The central bank reduced the reserve requirement ratio by 0.5 percentage points in May 2025, injecting approximately 1 trillion yuan into the market, and lowered the policy interest rate by 0.1 percentage points [2]. - Throughout 2025, the net liquidity injection from various monetary policy operations totaled 64,315 billion yuan, including 49,405 billion yuan from reverse repos and 11,610 billion yuan from medium-term lending facilities (MLF) [2]. - The weighted average of overnight repo rates decreased, with DR001 and R001 down by 19 basis points to 1.46% and 1.55%, respectively [2]. Bond Market Dynamics - In 2025, the bond issuance and net financing scale increased significantly, with a total of 54.69 trillion yuan in bonds issued, a 14% year-on-year increase, and net financing of 20.33 trillion yuan, up 31.8% [4]. - The secondary bond market shifted from a one-sided upward trend to a more volatile market, with the yield on various government bonds rising by 15 to 36 basis points compared to the previous year [4]. - The yield curve for 10-year government bonds showed a fluctuation range of approximately 31 basis points, indicating a narrowing compared to the previous year [4]. Interest Rate Swap Market - The interest rate swap curve steepened in 2025, with significant increases in long-term rates, such as a 29 basis point rise in the 5-year Shibor 3M swap price [5]. - Daily trading volume in the RMB interest rate swap market increased, with a total nominal principal of 44.3 trillion yuan and an 18.5% year-on-year growth in daily average transactions [6]. - The trading of standard bond forwards and interest rate options also saw substantial increases, with standard bond forwards up by 242.2% year-on-year [6].

Core Insights - The interest rate swap market experienced significant growth in 2025, with a nominal principal transaction volume reaching 43.57 trillion yuan, a year-on-year increase of 33.3% [2] - The market is expected to face a range-bound fluctuation in 2026, influenced by the ongoing economic transition and moderate inflation recovery [12] Group 1: 2025 Interest Rate Swap Market Trading Conditions - The nominal principal of RMB interest rate swaps increased significantly, with 38.58 million transactions, marking a 17.0% year-on-year growth [2] - The trading volume for 1-year and below maturities accounted for 67.9% of total nominal principal, while transactions for maturities of 10 years and above surged by 241.5% year-on-year [2][3] - The market saw a rise in the number of participating institutions, with 871 entities registered for RMB interest rate swap business by the end of 2025, primarily consisting of non-legal person products [3] Group 2: 2025 Interest Rate Swap Market Trends Review - The interest rate swap market did not continue the downward trend of 2024, instead exhibiting an "N" shaped trajectory with rates rising, falling, and then rising again throughout the year [4] - The 1-year and 5-year FR007 swap rates ended the year at 1.4985% and 1.6116%, respectively, reflecting increases of 3 basis points and 18 basis points from the previous year [4][7] - The year was divided into four phases, with notable movements in interest rates influenced by various economic factors, including monetary policy adjustments and market sentiment [4][5][6][7] Group 3: 2026 Interest Rate Swap Market Outlook - The interest rate swap market is anticipated to experience a range-bound fluctuation, with economic fundamentals indicating a transition period and moderate inflation recovery [12] - Key factors to monitor include the economic recovery and government bond issuance pace, which could impact interest rate movements [13]

Core Viewpoint - The People's Bank of China (PBOC) is committed to supporting the development of Hong Kong as a major offshore RMB business hub, with several initiatives aimed at enhancing liquidity and market infrastructure for offshore RMB transactions [1][2]. Group 1: Liquidity Support - The PBOC supports the Hong Kong Monetary Authority in increasing the RMB business funding arrangement from 100 billion to 200 billion, providing more liquidity for the offshore market [2]. - The PBOC encourages Hong Kong RMB clearing banks to obtain RMB liquidity through various means, including issuing interbank certificates of deposit and account financing [2]. Group 2: Financial Market Connectivity - The PBOC aims to enhance financial market connectivity, enriching liquidity management and risk hedging tools for overseas investors by improving mechanisms like Bond Connect and Swap Connect [2]. - The PBOC plans to explore the use of RMB bonds as offshore eligible collateral and to promote the listing of RMB government bond futures in Hong Kong [2]. Group 3: Offshore RMB Government Bonds - The PBOC will work with relevant departments to increase the annual issuance of offshore RMB government bonds to meet the demand from foreign investors for quality RMB assets [2][3]. - A market-making mechanism for the offshore market will be established to enhance trading activity and improve RMB pricing capabilities [2]. Group 4: Gold Market Development - The PBOC supports the Shanghai Gold Exchange in participating in the construction of Hong Kong's gold clearing system, aiming to strengthen Hong Kong's position as an international gold trading center [3]. - The establishment of a delivery warehouse by the Shanghai Gold Exchange in Hong Kong has enriched the offshore RMB asset allocation tools [4]. Group 5: Cross-Border Use of RMB - The RMB's status as the second-largest trade financing currency and the third-largest payment currency globally has been further solidified, with its weight in the IMF Special Drawing Rights (SDR) basket ranking third [4]. - The Bond Connect has significantly enhanced Hong Kong's global hub function, with over 800 foreign institutions investing in the mainland bond market through the "Northbound" channel, holding a total of 810 billion RMB [3].

Core Insights - The People's Bank of China (PBOC) emphasizes the rapid development and global influence of China's financial markets, highlighting the interconnectivity between mainland and Hong Kong markets [1][2] Group 1: Bond Market Developments - The "Bond Connect" has significantly enhanced Hong Kong's role as a global financial hub, with over 800 foreign institutions investing in mainland bonds through the "Northbound" channel, holding a total of 810 billion RMB, which accounts for 25% of foreign holdings in Chinese bonds [1] - The total trading volume for 2025 is projected to reach 9.7 trillion RMB, representing over 60% of the market [1] - The "Southbound" channel has facilitated mainland investors in acquiring Hong Kong dollar, US dollar, and RMB bonds, with current holdings nearing 1.2 trillion RMB [1] Group 2: Stock Market Developments - The Stock Connect mechanism continues to expand, with mainland investors holding over 60 billion HKD in Hong Kong stocks through the "Hong Kong Stock Connect," while global investors hold over 2.5 trillion RMB in mainland stocks via the "Shenzhen-Hong Kong Stock Connect" [1] Group 3: Currency and Liquidity Management - The PBOC and Hong Kong Monetary Authority have launched offshore and cross-border RMB repurchase agreements, with 34 foreign institutions engaging in offshore repurchase totaling 119.1 billion RMB, and 46 new institutions participating in cross-border repurchase of 150.3 billion RMB, enhancing liquidity in the Hong Kong RMB market [2] - The "Swap Connect" has seen 87 foreign investors accessing the mainland derivatives market, with a cumulative nominal principal of over 9.9 trillion RMB in interest rate swaps [2] Group 4: Gold Market Developments - The Shanghai Gold Exchange has established a delivery warehouse in Hong Kong and listed related contracts, enriching offshore RMB asset allocation tools [2] - The PBOC supports the development of Hong Kong's gold market, aiming to strengthen its position as an international gold trading center [4] Group 5: Future Initiatives - The PBOC plans to increase the RMB funding arrangement scale for Hong Kong's offshore market from 100 billion to 200 billion RMB to enhance liquidity [3] - Continued efforts will be made to improve financial market connectivity and expand risk management tools for foreign investors [3] - The PBOC will also increase the supply of offshore RMB government bonds to meet foreign investors' demand for quality RMB assets [3]

Core Insights - The People's Bank of China (PBOC) announced an increase in the offshore RMB liquidity arrangement in Hong Kong from 100 billion to 200 billion RMB to better meet market demand [1] - The RMB has become the second largest trade financing currency and the third largest payment currency globally, with its weight in the IMF's Special Drawing Rights (SDR) basket ranking third [1] - The PBOC is committed to enhancing financial market connectivity and liquidity management tools for foreign investors, including the expansion of offshore RMB bond issuance [2] Group 1 - The PBOC supports the Hong Kong Monetary Authority in increasing the offshore RMB liquidity arrangement to 200 billion RMB [1] - The PBOC and the Hong Kong Monetary Authority will promote offshore RMB bond repurchase and cross-border repurchase business in Hong Kong in 2024 [1] - There are currently 34 foreign institutional investors participating in offshore repurchase with a total scale of 119.1 billion RMB [1] Group 2 - The PBOC plans to increase the supply of offshore RMB government bonds to enhance market liquidity and meet foreign investors' demand for quality RMB assets [2] - A cooperation agreement was signed between Hong Kong and the Shanghai Gold Exchange to develop the gold market, enhancing the offshore RMB market's functionality [2] - The PBOC will support the Shanghai Gold Exchange in participating in the Hong Kong gold clearing system to strengthen Hong Kong's position in the global gold market [2]