Unique identifiers to curb manipulation on HK-China Stock Connect

HONG Kong has seen its fair share of illiquid stocks that soared amid suspicions of manipulation - only to collapse. Hanergy Thin Film Power Group Ltd is perhaps the most notorious recent example. China is anxious to avoid such explosions on its own exchanges. That's the motivation behind the plan to assign unique identifiers to each investor or firm trading Shanghai or Shenzhen equities from Hong Kong through the Stock Connect programme, which links the exchanges in the two jurisdictions.

From the third quarter of 2018, the change will align north-bound trading through the connect with mainland practice. Chinese regulators and exchanges currently have real-time access to the identity of every investor in the mainland, enabling them to investigate suspicious trades quickly.

The authorities in Hong Kong, on the other hand, must request such data from brokers. China has reason to be nervous. About 1,900 stocks in Shanghai and Shenzhen are eligible for trading through the connect, compared with only around 500 in Hong Kong. In about 20 per cent of the mainland stocks, the value of shares traded was less than 30 million yuan (S$6.2 million) on Thursday, making them potentially vulnerable to manipulation.