Stock Connect

Hong Kong and China regulators sign agreement to strengthen cooperation on futures markets

MOU also paves the way for a futures connect between Hong Kong and China

PUBLISHED : Friday, 29 December, 2017, 7:37pm
UPDATED : Friday, 29 December, 2017, 7:37pm

The financial regulators of Hong Kong and China have signed a memorandum of understanding that will set the stage for a cross border trade in futures contracts between the city and the mainland next year.

The China Securities Regulatory Commission and the Securities and Futures Commission announced the agreement on Friday.

“The MOU facilitates regulatory and enforcement cooperation in the mainland and Hong Kong futures markets, and enhances supervisory assistance, enforcement cooperation and information exchange on various matters including cross boundary derivatives, futures exchanges and futures brokers,” the regulators said in a joint statement.

The new agreement will replace an MOU signed in 1995, in light of the increasing interaction between the Hong Kong and mainland futures markets and the need for closer regulatory cooperation.

“It also facilitates the healthy development of the mainland and Hong Kong futures markets,” the regulators said.

Chow Chung-kong, the chairman of Hong Kong Exchanges and Clearing, which operates the stock and futures markets in Hong Kong, told the South China Morning Post that the bourse was working on new connect schemes with the mainland authorities, to introduce cross border derivatives trading.

Hong Kong and Shanghai launched their stock connect scheme in 2014 to allow cross border trading of stocks and a new connect was added with Shenzhen in 2016. A bond connect was launched this year and Chow believes an exchange-traded funds and derivatives connect will happen in 2018.

The derivatives connect will include plans to introduce A-share futures or derivatives products in Hong Kong, Chow said.

“The derivative connect would allow Hong Kong and international investors to have hedging tools when they trade A shares,” Chow added. “This would encourage more cross border trading.”

This follows a recent move by the Hong Kong regulator to back the introduction of dual-class shares on the city’s stock exchange next year. The Securities and Futures Commission recognised the competitive pressures Hong Kong faced in attracting listings by new economy companies, its chairman Carlson Tong Ka-shing has said.