'Northbound' trading misconduct under Connect scheme to be curbed
Hong Kong's securities regulator plans to implement a real-time investor identification (ID) system around mid-2018 for "northbound" trading under the Stock Connect program with the Chinese mainland, its chief said, a move aimed at detecting potential misconduct.
"Northbound" trading refers to foreign investors from Hong Kong buying and selling shares in Shanghai and Shenzhen under the "Connect" scheme, as part of the mainland's efforts to open its markets more widely to foreign investors.
The Chinese mainland's $9 trillion bond market is perceived as the world's third-largest, yet is relatively undersold to foreign investors.
The move to monitor such trading is in line with global efforts to mitigate market volatility through greater transparency.
Ashley Alder, CEO of Hong Kong's Securities and Futures Commission (SFC), told the Thomson Reuters Pan-Asian Regulatory Summit that the identification system would be developed in conjunction with the China Securities Regulatory Commission (CSRC).
"The SFC and the CSRC are now working on a new system with Stock Connect that would give both regulators a direct, real-time line of sight in cross-border trades," he said.
"This is expected to begin for northbound trade around the middle of next year, and at about the same time, we expect the mainland regulator will provide an equivalent level of transparency for us for southbound trading."
To help detect potential market misconduct, investor identification processes that let securities regulators track stock trades in real time are already used by some markets in Asia such as South Korea.
Alder also said the SFC sees "enormous" potential for trading of risk management products in Hong Kong.
"This is because larger, more diverse capital flows will demand better overall risk management tools subject to a world class regulatory environment," he said.
China approved a bond connect program between the mainland and Hong Kong in mid-May, allowing investors from both sides to trade bonds on each other's interbank markets.
