Hong Kong regulator to monitor investor IDs on Stock Connect

SFC move designed to clamp down on misconduct and promote city as China risk management hub

Hong Kong Exchange Square
The move is part of a global trend for better market surveillance and increased transparency

Hong Kong’s securities regulator plans to put in place a real-time investor identification system by next year for trading under the Stock Connect programme with China, in a move aimed at detecting any misconduct.

The programme will begin in mid-2018 with monitoring of so-called northbound trading – foreign investors from Hong Kong buying and selling shares in Shanghai and Shenzhen – under the Stock Connect programme, said Hong Kong Securities and Futures Commission chief executive Ashley Alder. The system is expected to be mirrored for southbound trading later in the year, giving the China Securities Regulatory Commission access to data on Hong Kong trading. The SFC’s plan is part of a growing global trend for effective market surveillance and greater transparency.

“The SFC has been looking at this for some time because the way we normally obtain information, by asking individual brokers to identify clients and trades, was becoming a strain on our internal resources as well as a strain on the industry,” said Alder, speaking at the Thomson Reuters Pan Asian Regulatory Summit 2017 in Hong Kong earlier today (October 10).

For the first time, as a result of the Stock Connect programme, regulators in Hong Kong and mainland China must rely on each other in order to protect their markets, said Alder.

We hope to establish a comprehensive framework for information exchange and co-operation for new Hong Kong futures, options and other derivatives
Ashley Alder, Hong Kong Securities and Futures Commission

Prior to the introduction of the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programmes, China’s domestic markets were almost entirely closed to foreign investors, and even the smallest amount of overseas participation was tightly controlled by quotas allocated to each institutional investor.

Alder said the increased and more diversified capital flows will “demand better all-round risk management tools”, which provide “enormous” potential for the trading of risk management products in Hong Kong.

If international investors can eventually access mainland Chinese futures and options, and mainland investors are allowed access to other derivatives contracts traded in Hong Kong, it will lead to the development of currencies and fixed-income derivatives in Hong Kong, he said.

“We hope to establish a comprehensive framework for information exchange and co-operation for new Hong Kong futures, options and other derivatives which reference important mainland asset classes. The aim is to use that framework to properly manage the very complex interaction between the onshore and offshore markets, and in doing so to anchor Hong Kong as the premier offshore centre for investors to manage their China risk,” Alder said.

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