Hong Kong shelves ETF Connect scheme with China due to ‘technical issues’, says SFC chairman

Hong Kong’s delayed ETF Connect scheme would be shelved because of “technical issues”, and regulators from the city and mainland China would turn their attention to launch cross listings of these index funds, according to newly-appointed Securities and Futures commission chairman Tim Lui Tim-leung.

“The trading and settlement methods for ETFs between Hong Kong, Shanghai and Shenzhen are all very different. It will need a very long period of discussion to establish the infrastructure to build an ETF Connect,” Lui, a former accountant, said in his first media briefing as chairman of the watchdog on Wednesday.

“As such, we have decided to shift our focus to launch the ETF cross listings.”

An ETF (exchange traded fund) is a fund that tracks a basket of stocks or assets. Listed ETFs are traded like stocks.

The scheme was expected to start in the second half of the year as the fourth cross-border trading programme between Hong Kong and the mainland. Two stock connects with Shanghai and Shenzhen were introduced in 2014 and 2016 respectively, while the northbound bond connect scheme was launched last year.

The current priority to introduce ETF cross listings follows the mutual fund recognition agreement struck two years ago between the SFC and the China Securities Regulatory Commission, in which CSRC-approved Hong Kong funds can be sold in the mainland and vice versa.

The cross listings will allow Hong Kong-based ETFs to list on the mainland exchanges and Chinese funds to do likewise in the city. The approval process, Lui said, would be similar to that of the mutual fund recognition scheme.