Differences in trading halt rules likely to bring trouble

Dual-listed stocks highlight the need for harmonised policies on both sides of the border

PUBLISHED : Tuesday, 17 September, 2013, 12:00am
UPDATED : Tuesday, 17 September, 2013, 3:32am

It is time for the mainland securities watchdog to review its stock suspension policies in light of increasing cross trading between the Hong Kong and mainland markets.

The stock markets currently have different trading hours and different suspension policies.

This was not an issue when there were different pools of investors trading A shares listed on the mainland and H shares in Hong Kong. But the increasing amount of cross trading makes separate policies less desirable.

If anything, [the exchanges’ policies on suspension] appear to be getting apart

It will be a continuing problem if dual-listed shares are suspended on the mainland but continue to trade in Hong Kong.

The markets are moving closer all the time. The two qualified foreign institutional investor schemes now allow foreigners to trade in mainland stocks market while the qualified domestic institutional investor scheme lets mainlanders buy equities in Hong Kong.

Then we have the several cross-border exchange-traded funds launched last year that track mainland or Hong Kong benchmark indices.

While the mainland and Hong Kong markets have more cross trading, there is no plan to make suspension policies more uniform. If anything, they appear to be getting further apart.

The Hong Kong stock exchange from next year plans to allow listed companies to suspend trading of their shares for 30 minutes in order to release important information. This will replace the current practice of suspending trading for half a day or longer.

The change has been welcomed by local and international investors as this is what other international markets do. In fact, companies in some markets keep trading without any break at all.

There has been criticism of long suspensions after the stock exchange trading system came under attack from computer hackers in August 2011.

The mainland has a completely different suspension system, with resumption of trading permitted in the next trading session.

From next year, the companies that are listed in both Hong Kong and Shanghai - including the biggest players such as Industrial and Commercial Bank of China and Bank of China - will be able to suspend trading for just 30 minutes in Hong Kong but the A shares can only resume trading in the next session. Such differences could spell trouble.