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SFC

SFC

Hong Kong, mainland Chinese regulators agree to share identity of Stock Connect investors

PUBLISHED : Tuesday, 10 October, 2017, 12:55pm
UPDATED : Tuesday, 10 October, 2017, 11:30pm

International investors trading A-shares via the cross border Stock Connect scheme will have their identities passed on to the Securities and Futures Commission which will share the information with its mainland Chinese counterpart, according to SFC chief executive Ashley Alder, who unveiled the plan on Tuesday.

Likewise, the China Securities Regulatory Commission will provide the SFC with investor identification for mainlanders trading Hong Kong stocks via the Stock Connect, Alder said.

The new regulations will be implemented from the middle of next year.

At present, Hong Kong trading systems only show the brokers name and client identification is only provided to the SFC upon request. This is different from the mainland where each investor is identified so the CSRC knows who is behind the transactions.

Such regulatory differences create problems under the Stock Connect schemes which allow investors to engage in cross border trading. The first Connect, introduced in November 2014, linked the markets of Shanghai and Hong Kong while the link between Hong Kong and Shenzhen began operating in December last year.

The current system allows a mainland investor to set up an account with a Hong Kong broker to trade mainland shares via the Stock Connect, without the need to provide identification to the CSRC.

The CSRC is also worried about the potential for international investors to manipulate mainland shares.

The SFC and CSRC are now working closely together to establish a real time identification framework for the Stock Connect schemes so both regulators will know the names of investors behind all transactions done under the cross border trading scheme, Alder said.

“The new regulatory framework will enhance market transparency and surveillance and hence improve efficiency in cracking down on malpractice,” he said at the 2017 Thomson Reuters Pan Asian Regulatory Summit in Hong Kong on Tuesday.

“The SFC will work closely with the stock exchange to make sure the regulation is simple and easy for all the local brokers to comply with,” he said.

Alder said the commission will study whether such a real time identification system should be expanded to trading done outside the Stock Connect schemes.

Sally Wong, chief executive of the Hong Kong Investment Funds Association, said it has been a worldwide trend for regulators to introduce investor identification disclosure.

“It is reasonable for the SFC to introduce such regulations for the Stock Connect scheme,” she said.

The SFC said it will work with fund managers on compliance with the identification rules because they are dealing with a pool of investors.

However, fund companies want the real time identification rule to only disclose the asset management company’s name and not the individual funds, Wong said.

“Many funds have a complicated structure. We would like the new SFC regulations to only require us to disclose up to the level of the fund company and not the individual funds investing in the Stock Connect,” she said.

Alder said many US and western markets have plans to require real time investor identification that can be made available to local regulators and Hong Kong authorities will monitor these international trends.

Southbound trading via Stock Connect, which refers to mainlanders trading Hong Kong stocks, represented almost 6 per cent of total Hong Kong market turnover this year, Alder said.

The SFC will have to work closely with the CSRC and China Banking Regulatory Commission on cross border regulation. Besides Stock Connect, many mainland Chinese financial firms have set up brokerages or fund houses in Hong Kong. These mainland firms handle 86 per cent of initial public offering funds raised in Hong Kong and 50 per cent of margin financing, Alder added.

Additional reporting by Xie Yu

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