[HONG KONG] The Hong Kong stock exchange plans to launch in March a system fix that would help foreign funds work around China's settlement rules and boost trading volumes in Shanghai shares via a landmark Hong Kong trading link.
Chinese rules stipulate that investors must deliver stocks to their broker before 7.45 am on the day they wish to sell, an unusual requirement that investors worry exposes them to undue risk.
In a presentation posted on its website this week, the Hong Kong Exchanges and Clearing Ltd said the new system would reduce these risks by allowing custodians, which typically hold stocks on an investor's behalf, to open a segregated account in the investor's name with the clearing house.
This will allow the Hong Kong and Shanghai exchanges to see investors' holdings in Shanghai shares without those shares having to be physically moved.
HKEx and mainland China regulators have come under pressure to address settlement issues and other technical and legal concerns that have left many foreign firms on the sidelines of the Hong Kong Shanghai Stock Connect scheme while they await the greenlight from their home European regulators.
The Hong Kong Exchanges and Clearing said in a statement late on Tuesday evening it has been working with overseas investors and regulators to familiarise them with the mechanics of the scheme, launched on November 17.
"Relevant overseas regulators have gained a clearer and better understanding of Stock Connect," the exchange said.
HKEx also reassured investors they retain ownership to shares held by the clearing house. Industry insiders say legal opinion is divided over whether investors could enforce their rights to shares held under beneficial ownership in China, should the HKEx's clearing house go bust.
"We understand that the market needs time to get used to the idea of beneficial ownership...in the context of mainland law," said Christine Wong, HKEx's Chief Counsel and Head of Legal Services state in the statement.
"We are committed to making this and other concepts adopted in Stock Connect properly understood by investors and other stakeholders."