Traders given green light to short Shanghai shares to boost Stock Connect scheme
Move is latest designed to boost lacklustre trading volumes under stock connect scheme
The new lunar year will see more measures to boost the lacklustre Shanghai-Hong Kong Stock Connect scheme, beginning with the provision of short-selling.
The Hong Kong Exchanges and Clearing (HKEx) has told brokers in a circular that from next Monday, it will allow investors to short-sell Shanghai-listed A shares under the scheme.
Short-selling, which allows investors sell stocks they don't own and then buy them to square the account, is used for hedging and to profit in bearish markets.
This would mark the first reform of the cross-border trading scheme since it kicked off on November 17. The turnover of A shares through the Hong Kong stock exchange stood at 2.67 billion yuan (HK$3.36 billion) as of February 17, the last trading day before the Lunar New Year break, representing just 1 per cent of the Shanghai market's turnover.
"However, we should not expect the turnover to go up immediately as there still continues to be many restrictions," he said.
Investors can only short-sell stocks that are designated to be traded under the Stock Connect scheme, according to the HKEx circular. Before short-selling, the investors would need to borrow stocks from brokers at a margin, as is the standard practice in Hong Kong.
The short-selling ratio - the number of shares sold short as a proportion of the total number of the same stock held by all investors in Hong Kong at the beginning of the trading day - will be capped at 1 per cent and no more than 5 per cent over 10 consecutive days.
HKEx chief executive Charles Li Xiaojia is expected to provide more details of the short-selling provision today at a ceremony marking the first day of trading of the Year of the Goat.
Earlier this month, Li announced a range of measures to boost trading under the Stock Connect scheme, including expanding the total quota, a reduction in market holidays and addition of more stocks that can be traded under the scheme.
The turnover under the scheme has been underwhelming. The total quota of 300 billion yuan set for overseas buyers of mainland stocks was expected to be exhausted in 23 days as the daily quota was set at 13 billion yuan. But after two months, only a third, or 100 billion yuan, of the quota has been used up.
Southbound trading, or mainland investors buying Hong Kong stocks, has seen only 10 per cent of the quota used.
