More finessing needed for Hong Kong-China Stock Connect, says DTCC

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Although the Shenzhen-Hong Kong Stock Connect has been in play for six months, further fine tunning is needed to reconcile post-trade complexities involving two different settlement standards inside and outside of China, according to US-based post trade financial services Depository Trust & Clearing Corporation. Photo: SCMP handout

Karen Yeung

Published: 6:48pm, 30 May 2017Updated: 10:40pm, 30 May 2017

Hong Kong-Shenzhen stock connect, the second mutual stock access programme linking with China markets, has been in operation for six months, but more finessing is required to reconcile post-trade complexities involving two different settlement standards inside and outside of China, according to US-based post trade financial services Depository Trust & Clearing Corporation.

After a poor debut, the Shenzhen-Hong Kong Stock Connect programme is recovering. Its northbound flow climbed 79.1 per cent from the previous month to 60.0 billion yuan in March, after a 32.5 per cent increase in February and 3.4 per cent drop in January.

The differences between global standards and China’s unique market requirements open up buyside investors to risks, especially in cases when stock allocation and settlement instructions don’t match, which may in turn, deter foreign investors from entering the A-share market.

“We’re still finessing different parts of the stock connect as China’s market has matured in a different way after being closed for some time ,” Matthew Chan, Asia Pacific head of product & strategy post trade services at DTCC said.

China Securities Regulatory Commission chairman Liu Shiyu said at the launch of the Shenzhen-Hong Kong stock connect programme that because of the differences between the two markets in how they operated, mainland investors need at least five to 10 years to become completely familiar with how the Hong Kong stock market works. Photo: Xinhua

Roughly 95 per cent of instructions match straight away but the remaining 5 per cent of trades fail for reasons such as having the wrong shares bought, or that the broker was given incomplete or incorrect buy or sell instructions. This will require time to rectify before actual settlement is made, Chan said.