Traders using the stock connect between exchanges in Hong Kong and mainland China may soon get more days to sell Chinese shares.

Hong Kong Exchanges & Clearing Ltd. is working on an arrangement to keep the northbound link to bourses in Shanghai and Shenzhen open on the days before a public holiday in Hong Kong, Lorraine Chan, HKEX spokeswoman, said by email. If adopted, the deal would mean investors could sell mainland-listed stocks via the link on those days. Final details of the arrangement have not been announced and any deal is subject to regulatory approval, Chan said.

The different holidays in Hong Kong and mainland China, together with early closures of the connect system due to settlement times, mean the link will be closed for 32 weekdays this year, a source of complaints among brokers. The changes under discussion would be a first step to ensuring more trading time, and would give investors an extra three days under this year’s calendar.

While any change would let offshore investors sell mainland stocks via the link, they would still be unable to buy shares. That’s because the banks in Hong Kong needed for such transactions may not be open on the settlement day, said Cindy Chen, managing director at Citigroup Inc.

HKEX is also talking to market participants over whether to keep the northbound link open on days when only Hong Kong has a public holiday, a change that would add around eight more days to the trading calendar, said Chen, who’s been involved in the discussions.

“Having the exchange link close due to public holidays is the key disadvantage of using connect,” said Chen. The closures are one reason why investors continue to trade mainland shares using the quotas overseen by the People’s Bank of China, she said, even though the connect is seen as cheaper and less cumbersome.

The Hang Seng Index has risen 9.4 percent this year, while the Shanghai Composite Index is up 2.2 percent.

Preliminary Agreement

The bourses in Hong Kong, Shanghai and Shenzhen have reached preliminary agreement on how to partially address the closed days, Wang Yixuan, managing director of China Innovation Market Service, part of Shenzhen Stock Exchange, said at a conference on April 12. Wang did not give details, but said the final agreement could come by the end of the year.

The Shenzhen-Hong Kong Connect opened in December, two years after the start of the cross-border link with Shanghai. The two systems mean that more than 1,400 mainland stocks are available for offshore investors to trade via Hong Kong. Activity through the link has mostly been muted, with net buying of Shanghai stocks averaging 248 million yuan ($36 million) a day this year, according to data compiled by Bloomberg.

Under the current structure, the link is closed the day before a Hong Kong public holiday to avoid disrupting a next-day settlement process on northbound trades.

Working around additional stock connect market holidays was flagged by MSCI Inc. in a March consultation paper about including Chinese stocks in its benchmark indexes.

Source:
courtesy of BLOOMBERG

by Benjamin Robertson

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