Hong Kong Exchanges and Clearing (HKEx) is planning to extend its trading link with Shanghai to the Shenzhen Stock Exchange, in a move which the bourse’s chief executive says will create a ‘mutual market’.
In a blog published by HKEx on Tuesday Charles Li, CEO of HKEx, he says they are working towards a link with China’s second largest stock exchange. According to reports, he hopes the extension of the scheme will happen later this year.
A key feature of this mutual market, Li says, is that clearing and settlement will take place first in the home market before net settling with two clearing houses. “Such a clearing model minimizes cross-border fund flows and helps preserve the integrity and independence of the clearing houses in each market,” he says.
Launched in November 2014, the Hong Kong-Shanghai Stock Connect Program has been somewhat slow to take off largely due to overriding settlement issues amongst foreign investors such as China’s pre-delivery of securities requirement.
However, since the approval of the first UCITS fund by Luxembourg’s regulatory body in December, hopes that participation from European managers in the program have increased.
“Institutional investors are definitely interested and asking how best access Stock Connect. We have no doubt that this is just the beginning and it will only take a few months for most European institutional investors to get on board,” says Benoit Dethier, European head of Asia flows desk, Securities Services, Citibank.
“The expansion of the Stock Connect Program to Shenzhen seems like a logical next step. It will allow international investors to access a new set of dynamic companies for example in the technology and health care industries, offering a nice complement to what is already accessible in Shanghai.”