A pilot program to link the Shanghai and Hong Kong bourses will abide by the “home market rules” of the exchange where the orders are matched and executed, Hong Kong Exchanges and Clearing Ltd. (00388.HK) said Tuesday.
“The trading hours, settlement cycle, price limit and fees remain unchanged on the order-executing sides,” HKEx chief executive Charles Li said.
“The Hong Kong and Shanghai stock exchanges, Hong Kong Securities Clearing Co. Ltd. and the China Securities Depository and Clearing Corp. Ltd. will share equally revenue, responsibility and rights.”
In an initiative to open up its capital market further to offshore investors, the State Council announced on April 10 that it had approved a mutual market access mechanism between the Shanghai and Hong Kong bourses. Known as Shanghai-Hong Kong Stock Connect, the program aims to pave the way for greater cross-border investment and money flows.
To limit market risks, regulators will set investment quotas and other curbs on investors. The total cross-border trade quota will be capped at 250 billion yuan (US$40.48 billion) for Hong Kong-listed stocks, with a daily ceiling of 10.5 billion yuan, and 300 billion yuan for Shanghai shares with a daily ceiling of 13 billion yuan.
“The quota refers to the net volume limit at which trading will be halted. We will put the quota remaining on the exchange’s website on a real-time basis for transparency,” Li said.
“It is an important milestone in yuan internationalization and the initial vehicle of trading between both sides. The quota and the range of products will be expanded depending on market activity, investor sentiment and the system.”
Li also said that Hong Kong investors — but not mainland investors — are allowed to use margin financing to buy A shares, but they should remember that laws and stamp duties apply. The exchange will clarify these rules.
Before Stock Connect’s expected launch in October, the exchange will work on implementation details and seek regulatory approvals. It also needs to make sure the IT is up to scratch.
“For example, stock codes in Shanghai have six digits while those in Hong Kong have five. We have to get the system readied in the next two to three months and start intensive market rehearsals,” he said.
The exchange also needs to work with the Shanghai exchange to ensure international investors are familiar with the markets.
Stock Connect is expected to boost the circulation of offshore renminbi in Hong Kong.
“Hong Kong investors have had a buy-and-hold attitude to yuan-denominated products such as dim sum bonds over the last year, and so the currency has not circulated. But with Stock Connect, the currency has a way to go back to the mainland and circulate,” Li said.
– Contact HKEJ at [email protected]