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Progress Report On Shenzhen-Hong Kong Stock Connect

by Mary Swire, Lowtax.net, Hong Kong
06 February, 2015

Hong Kong's Secretary for Financial Services and the Treasury, K C Chan, has given an update on the proposed stock link between Shenzhen and Hong Kong, which is expected to be established this year along the same lines as the Shanghai-Hong Kong Stock Connect (SHKSC) program.

Launched in November last year, the SHKSC is a mutual market access program that allows, for the first time, Mainland investors to trade stocks listed on the Hong Kong Stock Exchange (SEHK) directly through the Shanghai Stock Exchange (SSE), and for Hong Kong and overseas investors to trade stocks listed on the SSE directly through the SEHK.

Situated in the Pearl River Delta region in Guangdong province and close to Hong Kong, Shenzhen is being seen as the next logical place from which to build greater links between stock exchanges on the Mainland and Hong Kong. During a recent visit to the Chinese city, Chinese Premier Li Keqiang confirmed that a Shenzhen-Hong Kong Stock Connect (Sz-HK Stock Connect) "should be next."

In that regard, in reply to a recent question in the Legislative Council for a report on Sz-HK Stock Connect progress, Chan noted that SEHK is currently discussing with Shenzhen Stock Exchange and that further details, including operational arrangements and an implementation timetable, will be available at a later stage when the discussion progresses further.

With particular regard to the implications of the recent falls and volatility on the SSE due to the China Securities Regulatory Commission's curbing of margin financing, a supplementary question also asked whether the Hong Kong Monetary Authority and the Securities and Futures Commission are assessing the risks that could be posed to Hong Kong's financial regulatory system by launching the Sz-HK Stock Connect shortly after the commencement of SHKSC.

In reply, Chan noted that Sz-HK Stock Connect implementation will require regulatory approvals and, "in reviewing any proposals, the regulators will assess the potential implications for the Hong Kong financial market to ensure an orderly market and prudent risk management."

He added that "the recent plunge of the SSSE in January 2015 did not carry any significant adverse implications for the Hong Kong market; market operations in Hong Kong, including the operations of SHKSC, remained smooth and orderly."

"SHKSC has been in operation for only two months and, as a pilot program, it is too soon to make a comprehensive assessment of its impact in the Mainland market and in the Hong Kong market," he concluded. "Nevertheless, its operations, including order routing and matching, trade confirmation and reconciliation, clearing and settlement, as well as risk management, have been smooth."


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