HK SFC’s Alder: plans for closer relationship, info sharing with Mainland regulator

As the Mainland Chinese and Hong Kong financial markets continue to work more closely together, their respective regulators are needing to do so as well, and in this regard are working on plans to share information about the identities of investors trading A-shares through the Stock Connect investment channel, Hong Kong Securities and Futures Commission chief executive Ashley Alder said today.

In an address to a Thomson Reuters-sponsored event in Hong Kong, Alder said considerable progress had been made since the Shanghai-Hong Kong Stock Connect scheme went live in 2014,  and  “opened up a vast onshore equity market to the rest of the world”, while at the same time enabling “a huge pool of Mainland investors to diversify outside of their home markets”.

But this has driven a need to continue to adjust the regulations to better manage the growing range of ever more complex risks that arose from the increase in cross-market flows between Hong Kong and the Mainland.

“My central point for today is this,” Alder said, according to a transcript of his remarks that has been posted on the HKSFC’s website.

“Much of our vision for Hong Kong’s future can only be realised if it is underpinned by a sophisticated and unique set of cooperative arrangements between the regulators in the Mainland and Hong Kong.

“These arrangements will be essential to give each of us sufficient confidence to pursue the type of market access and other goals on which Hong Kong’s development as an international financial centre will rest.

“Stock Connect was a good start because it was underpinned by new, bespoke Memoranda of Understanding between the CSRC and SFC.

“Our task is to build on this, beginning to realise a far more ambitious goal.

“This is to guarantee Hong Kong’s long term pre-eminence as the international financial centre, where international capital connects with China, and Mainland investors connect with overseas financial markets.”

With respect to the plans to introduce “enhanced investor identification systems”, Alder said, the SFC has been looking at this for some time, as the financial services industry moves globally in the direction of “more effective market surveillance”.

“The immediate issue is that Mainland investors each have a unique identification code, and with this the CSRC [Chinese Securities Regulatory Commission] can monitor their trades in real-time in the domestic market.

“The problem is that when global investors trade Mainland securities through Stock Connect, the regulators have no meaningful data for surveillance purposes.

“By the same token, the SFC is unable to ask local brokers to identify trades made
through Stock Connect by anyone from the Mainland, for the simple reason that all of these trades are routed only through Mainland brokers.

“The SFC and CSRC are therefore working on a new system for Stock Connect which
would  give both regulators direct, real-time line of sight into cross-market trades at the client level.”

He said the new regulations are expected to begin to be implemented “around the middle of next year”.

Currently, Mainland investors are routinely identified so that the CSRC knows who the players are with each transaction, but Hong Kong investors aren’t so closely tracked, and aren’t routinely identified to the SFC except in response to requests.

Alder stressed that whatever system is ultimately arrived at “would need to be fully in line with Hong Kong data protection laws, a point accepted by all involved in this project”.

To read and download Alder’s remarks in full from the HK SFC website, click here. 

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