Legislators fear regulatory woes in cross-border stock scheme

PUBLISHED : Thursday, 15 May, 2014, 1:43am
UPDATED : Thursday, 15 May, 2014, 1:43am

Lawmakers yesterday expressed concern over possible regulatory problems in the through train stock scheme, which will allow Hong Kong and mainland investors to cross-trade Hong Kong and Shanghai stocks starting in October.

Christopher Cheung Wah-fung, who represents the financial services sector, said at a media briefing the stock exchanges of Hong Kong and Shanghai would need to do a lot on investor protection because of the many regulatory differences between the two markets.

"The regulators of the two markets would also need to clarify how they will conduct cross-border enforcement when there are malpractices during cross-trading," Cheung said.

Under the stock trading scheme announced by Beijing last month, Hong Kong investors can trade mainland stocks up to a total of 300 billion yuan (HK$373 billion), with a daily limit at 13 billion yuan.

The regulators of the two markets would also need to clarify how they will conduct cross-border enforcement when there are malpractices

For mainlanders, the investment quota in Hong Kong stocks is 250 billion yuan, capped at 10.5 billion yuan per day.

"The quota for the scheme is too low. In addition, the threshold restricting only those mainland investors who have more than 500,000 yuan in their securities accounts can trade Hong Kong stocks is too high," Cheung said.

The scheme has no restriction on Hong Kong investors trading mainland stocks but they would need to have funds in yuan for buying the A shares.

"There will be a problem because Beijing allows Hong Kong people to exchange only up to 20,000 yuan a day. Where can they get the currency to trade the A shares?" Cheung said.

Another lawmaker, Frederick Fung Kin-kee, questioned whether the current regulatory regime could provide sufficient shareholder protection under the through train scheme since the Securities and Futures Commission could not cross the border to enforce trading rules.

In a written reply, Secretary for Financial Services and the Treasury Chan Ka-keung said the regulators of the Hong Kong and Shanghai markets would work closely to crack down on malpractices.

"The regulatory authorities of the two sides will take all necessary measures to establish, in the interests of investor protection, an effective regime under [the] Shanghai-Hong Kong stock connect to respond to all misconduct in either or both markets on a timely basis," Chan said.

He said the China Securities Regulatory Commission and the SFC would upgrade their agreement to strengthen their cooperation in terms of exchange information and investigation on illegal cross-border activities such as false information, insider dealing or market manipulation.