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Shanghai-HK Stock Connect 'Operating Smoothly'

by Mary Swire, Lowtax.net, Hong Kong
05 December, 2014

In reply to a recent question in the Legislative Council, Hong Kong's Acting Secretary for Financial Services and the Treasury, James Lau, commented that it is too soon to review the success of the Shanghai-Hong Kong Stock Connect (SHKSC) pilot program, but uptake has been significant.

Launched on November 17, 2014, the SHKSC is a mutual market access program that allows Mainland investors to trade stocks listed on the Stock Exchange of Hong Kong (SEHK) directly through the Shanghai Stock Exchange (SSE) – the Southbound Trading Link. At the same time, it also allows Hong Kong and overseas investors to trade stocks listed on the SSE directly through the SEHK – Northbound Trading Link – also for the first time.

Lau noted that SHKSC's investment quota is used as a risk management tool rather than "a volume target or an indicator," and that, with the Southbound Trading Link's quota utilization currently lagging far behind the Northbound Trading Link, investors are generally seen "to take a cautious approach when entering a new market," while institutional investors "may need to conduct due diligence and risk assessment" before joining.

He added that "the Mainland and Hong Kong stock markets have rather different structures in terms of investor profiles, regulatory requirements, and trading and clearing arrangements. Some Mainland institutional investors may need to obtain regulatory approval before they participate in a new market."

Lau pointed out that "the very priority at the present stage is to ensure the smooth operation of the Stock Connect and the effective implementation of risk management and regulatory measures."

The Hong Kong Government, regulators, and the Hong Kong stock exchange will continue to collaborate with their Mainland counterparts to monitor SHKSC's development and will continue to communicate closely with market participants, he confirmed.

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