Investors can settle their trades of A-shares through the Shanghai-Hong Kong stock connect with ease following recent enhancements to Hong Kong’s central clearing and settlement system (CCASS).
Hong Kong Exchanges and Clearing’s new service will allow investors to open special segregated accounts (SPSAs) in CCASS through its custodian participants. This new feature will address investors’ concerns about the stock-connect programme’s pre-delivery trading restrictions but still does not address the issue on beneficial ownership, according to participants at a media roundtable organized by Standard Chartered on SPSA.
The enhanced CCASS will enable investors to meet the programme’s pre-trade checking requirement without transferring their shares before they are sold.
Investors will only be required to transfer shares they are selling to their broker for settlement after their sell orders are executed. Before this enhancement, investors must transfer the A-shares for pre-trade checking before they can sell.
The rollout of the enhanced CCASS started March 30, but custodians and executing brokers were given until April 20 to comply. The pre-trade tracking mechanism for the stock-connect program using the SPSA went live Monday.
The Hong Kong-Shanghai stock connect scheme started trade in November, but it took months before a cross-border trade of shares became robust. Enhancements to the CCASS and other initiatives aimed at refining the program are helping drive interest in the trade of shares between the cities.
“That is the best execution practice that complies with the two different regulatory systems for stock trading across mainland and Hong Kong has become a reality,” says Barnaby Nelson, head, investors & intermediaries, transaction banking, Greater China & Northeast Asia, Standard Chartered.
The new model also facilitates investors to trade with up to 20 brokers. “We have trades going through a large number of brokers in a multi-broker environment,” says Nelson from Standard Chartered.
Under the enhanced model, investors who use custodians only transfer A-shares to clearing participants after sell order execution. “And the new model is applicable on an individual level,” says Tae Yoo, head of client business development and FIC development, global markets division, HKEx.
