The success of the Shanghai-Hong Kong Stock Connect largely hinges on removing barriers to entry and removing features of the programme that restrict trading strategies, according to a study.
The study, published by research firm Celent and commissioned by the Depository Trust and Clearing Corporation (DTCC), revealed institutional investors continue to cite issues such as limited support for short selling and operating within the hybrid T+0/T+1 settlement cycle, as obstacles to increased usage of Stock Connect.
Regulators and the exchanges in Hong Kong and Shanghai are looking to resolve some of these complex issues, as well as addressing the ‘pre-deliver’ requirements for all sell orders.
Despite these issues, the paper says that improvements should enable greater participation, paving the way for more A-share representation in global equity benchmark indicies such as the MSCI and FTSE Russell.
“Over the next few years, as China becomes a core market for mainstream institutional investors, participants need to ensure their post-trade systems and operations can scale up to meet increased volumes and that best practice is employed to minimize operational risk,” says Matthew Chan, head of strategy at DTCC’s subsidiary, Omgeo.