Hong Kong’s sell-side has set itself the target of being fully prepared for the first day of the Shanghai Hong Kong Stock Connect. There is a lot of work to go on behind the scenes and it is a short time scale, with the aim to be ready in October.
“We are busy working on the Shanghai-Hong Kong Stock Connect and plan to have full execution capabilities on Day 1 into China,” said Ian Smith, head of Goldman Sachs Electronic Trading in Asia Pacific. “From the moment the news broke, we have been reviewing internally and engaging with key clients through meetings and events. We continue to provide analysis and information of the latest developments.”
The firm intends to offer exactly the same product suites it has in other markets.
The sell-side perceives the Stock Connect as a pivotal moment in market structure change. The market will witness potentially a large number of retail participants coming to Hong Kong and that could result in volume volatility in unexpected smaller and mid-cap stocks.
On the mainland trading side, education of the market and investors is a necessity. There are numerous ways of expressing a trading view of China and different applicable systems. The Stock Connect has to be shoe-horned into these existing methods.
The way the new Stock Connect is constructed is that positions held in the Stock Connect and those held in Qualified Foreign Institutional Investor scheme (QFII) are non-fungible. Therefore if an investor holds a QFII position and a Stock Connect position, he has to be aware that they are separate because the investor cannot sell QFII through Stock Connect and vice-versa.
As at the beginning of 2014, with the electronic trading regulations enacted by the Securities and Futures Commission, the market has rallied round to co-operate on tackling the matters arising from the Stock Connect’s introduction – as the deadline looms.
“It is great to see the whole street, both the buy- and sell-side, working together to solve issues around the Stock Connect to help ensure the programme is a success,” said Smith.