Through train stock trading scheme 'will be ready for October start'

Treasury chief says authorities confident of solving problems facing cross-trading of HK and Shanghai shares before launch in October

PUBLISHED : Tuesday, 20 May, 2014, 12:56am
UPDATED : Tuesday, 20 May, 2014, 11:34am

The Hong Kong government will not underestimate the difficulties of the operational and cross-border regulatory challenges of the through train stock scheme between Hong Kong and Shanghai but believes problems can be solved before the October deadline to get the scheme kicked off as planned.

Secretary for Financial Services and the Treasury Chan Ka-keung told the South China Morning Post in an exclusive interview the stock exchanges and regulators of Hong Kong and Shanghai had stepped up efforts to work out the blueprint of the scheme as announced by Beijing last month.

Under the scheme, mainland and Hong Kong retail investors will for the first time be allowed to cross-trade stocks listed in both cities up to a total quota of 550 billion yuan (HK$683.8 billion).

Similar through train concepts emerged in August 2007 but the plan was dropped four months later as the mainland feared it would spin out of control.

Chan insisted this time would be different. "In 2007, the through train scheme was just a concept. This time, we have the blueprint, the quota and the risk control mechanism to make sure we can implement the scheme smoothly," he said.

"The government will not underestimate the difficulties of all the operational challenges and cross-border supervision and regulatory matters under the scheme. We are working on all these issues."

The government will not underestimate the difficulties … we are working on all these issues

Chan also said he believed the deadline was achievable.

The many challenges he mentioned would include how to handle the situation when the quota runs out. Under the scheme, the cap on trades by Hong Kong investors in mainland stocks is 300 billion yuan, with a daily limit at 13 billion yuan.

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

Other challenges include regulatory problems as Securities and Futures Commission staff cannot go north to supervise or investigate any market misconduct such as insider dealing or market manipulation.

Likewise, the China Securities Regulatory Commission cannot conduct any enforcement or investigation work in Hong Kong.

"The SFC and CSRC will need to step up their cooperation to see how they can do cross-border investigation or supervision. The two regulators will work out these issues," Chan said.

Local brokers said mainland restrictions limiting Hong Kong investors to exchanging only 20,000 yuan a day could cap their trade in mainland stocks.

Chan said mainland officials such as People's Bank of China governor Zhou Xiaochuan had been aware of the demand from Hong Kong to remove the exchange limit.

If the Shanghai and Hong Kong stock market tie-up was successful, he believed it might expand to other asset classes, such as commodities, or a similar link between Hong Kong and Shenzhen, which is the smaller of the two mainland stock markets.

"The through train scheme will give a new role for Hong Kong to play in the economic reform and opening up of China. It allows international investors access to the mainland markets through Hong Kong," Chan said.