Brokers to demand more clarity over Hong Kong-Shanghai stock trading
Restrictions over Hong Kong-Shanghai stock trading plan to be discussed today amid uncertainty over details of the scheme
Brokers will press executives of the Shanghai Stock Exchange in their meeting today to clarify the many regulatory restrictions Hong Kong investors face in trading on the mainland's A-share market when the stock through train scheme begins in October.
The meeting in Hong Kong came after the Shanghai bourse and mainland brokers tested the system's connections and before a full test with Hong Kong Exchanges and Clearing on August 30 and September 13.
"Taxation issues, regulatory differences and trading hours could be the key issues that we would like the Shanghai Stock Exchange executive to clarify in our meeting," Christopher Cheung Wah-fung, legislator for Hong Kong brokers, told the South China Morning Post yesterday before the meeting.
"Tax [issues are] the top concerns. Beijing has not yet clarified if Hong Kong or international investors who trade A shares via this scheme would need to pay mainland capital gain taxes," Cheung said.
"Different trading hours and trading rules also make it hard for investors to arbitrage. It would be better for the two markets to synchronise their trading time and trading rules."
Shanghai's stock market closes 30 minutes earlier than Hong Kong in the morning and finishes an hour earlier than Hong Kong, even though both exchanges open at the same time.
Trading rules are different too. Hong Kong allows investors to sell stocks bought on the same day but the mainland bans the practice.
The mainland requires investors to have a stock pre-check which means international investors must have their stock placed in the Hong Kong clearing house before 7.30am before they can sell the shares.
Hong Kong allows settlement two days after trades are made. The scheme will not operate if either the Hong Kong or Shanghai market is closed for a holiday.
Charles Li Xiaojia, chief executive of HKEx, admitted the scheme was "not perfect".
"If we wait for the mainland market to align with Hong Kong's, we could be waiting a decade or longer," Li said. "So we had to figure out a way to connect the markets while respecting the differences between the current regulatory regimes in the mainland and Hong Kong."
He wrote on the HKEx website that the pre-check rule "will inevitably add an administrative burden to international investors" but said the local bourse "will not be in a position to offer investors alternative solutions at the time of launch".
Hong Kong Investment Funds Association chief executive Sally Wong said many investment managers have shown interest in trading A shares through the scheme.
"However, there are a few technical issues that need to be thrashed out, such as the beneficial ownership, disclosure rules and tax issues. We hope that greater clarity can be provided before the launch," she said.
Global mutual fund investors have been pumping money into mainland equities with a net US$6.6 billion of inflows in the last nine weeks, according to data tracked by brokerage Jefferies.
The strength of the inflows - by far the biggest worldwide in major national markets over the past four weeks - still leaves mainland equities with a small net outflow for the year to date of US$214 million. Fund investors were net sellers in 2013 to the tune of US$3.6 billion, Jefferies said.
Investors have been stepping up their buying as the date of the launch looms. The benchmark Hang Seng Index rose 1.29 per cent to close at 24,646.02 points yesterday while HKEx also rose to its highest since May 2011 to close at HK$179.20, below its peak in 2007 at HK$268.60.
In April, Beijing announced the scheme to allow Hong Kong and international investors to trade up to 13 billion yuan (HK$16.36 billion) a day, or 300 billion yuan in total, in A shares listed in Shanghai, while mainland investors can trade up to 10.5 billion yuan a day, or 250 billion yuan in total, of Hong Kong stocks.
Hong Kong investors must use the yuan to trade the A shares, but individuals can only exchange up to 20,000 yuan a day.