Mainland China and Hong Kong to Bolster Stock Connect with Block Trading

<p>China and
Hong Kong’s securities regulators have greenlighted the integration of block
trading and manual trades into Stock Connect, a cross-border platform that
enables investors to trade shares listed on the Shanghai Stock Exchange (SSE)
and the Hong Hong Stock Exchange (HKEX). Block trading refers to the
purchase or sale of a large number of securities. On the
other hand, manual
trades are transactions arranged without the use of automated or algorithmic
trading systems.</p><p>Bridging
Offshore and Mainland</p><p>The Hong
Kong Securities and Futures Commission (SFC) and the China Securities
Regulatory Commission (CSRC) jointly announced the planned move today (Friday) in <a href="https://www.sfc.hk/en/News-and-announcements/Policy-statements-and-announcements/Joint-Announcement-of-the-CSRC-and-the-SFC-Aug-2023" target="_blank" rel="follow">a
statement</a>, explaining that the move will bolster the Stock Connect
programme, introduce additional trading methods, improve trading efficiency,
and foster the mutual growth of capital markets in both jurisdictions.</p><p>The regulatory authorities kicked off the Stock Connect programme in November 2014 with the
linking of the SSE and
HKEX. This was followed up with the integration of the Shenzhen Stock Exchange (SZSE) into the HKEX two years later.</p><p>Stock Connect offers two
trading directions: northbound and southbound trading. While northbound trading enables
international and Hong Hong investors to trade selected A-shares
listed on the SSE AND SZSE, southbound trading offers access to shares listed on HKEX to
Mainland Chinese investors. A-Shares are the stocks of mainland China-based companies that are denominated in Renminbi and traded in the Shanghai and Shenzhen stock exchanges</p><p>As both regulators have reached a consensus on introducing block
trading, exchanges
and <a href="https://www.financemagnates.com/terms/c/clearing/">clearing</a> houses in both territories are to be supervised in studying the business, technical and regulatory arrangements required for the integration.</p><p>“Under
Stock Connect, offshore investors will be able to conduct block trades on the
Shanghai Stock Exchange and the Shenzhen Stock Exchange through the northbound
trading link while Mainland investors will be able to conduct manual trades on
the Stock Exchange of Hong Kong Limited (SEHK) through the southbound trading
link,” the securities regulator explained. “Both northbound and southbound block trading will
be introduced at the same time.”</p><p>Modus Operandi</p><p>In <a href="https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=23PR90" target="_blank" rel="follow">a
separate statement</a>, HKEX elaborated that block trading provisions
for Stock Connect will be crafted using the current operational frameworks and
rules of each market, with suitable modifications put into consideration.</p><p>“Block
trading is an important trading mechanism to achieve the best <a href="https://www.financemagnates.com/terms/e/execution/">execution</a> of
large-sized transactions and minimise the price impact on the market,” Julia
Leung, the Chief Executive Officer of SFC, explained. “This initiative will enhance
the price discovery functions of both markets and encourage more overseas
investors to participate in the A-share market through Stock Connect.”</p><p>The planned move comes several months after both regulators <a href="https://www.financemagnates.com/forex/china-and-hong-kongs-regulators-sign-mou-on-cross-border-shares-listing/" target="_blank" rel="follow">signed a Memorandum of Understanding (MoU)</a> to strengthen their cross-border regulatory efforts in securities offering and listing by domestic companies in both territories. Additionally, the memorandum provides clarifications on how both regulators will go about a joint cross-border enforcement and information exchange, <a href="https://www.financemagnates.com/" target="_blank" rel="follow">Finance Magnates</a> reported.</p>

This article was written by Solomon Oladipupo at www.financemagnates.com.