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Hong Kong could become Asia’s leading AM hub

Hong Kong could become Asia’s leading AM hub

Hong Kong has the potential to become a leading asset management centre in Asia, according to Ashley Alder, chief executive of Securities and Futures Commission (SFC) Hong Kong.

‘This means real fund management expertise in Hong Kong, more funds domiciled here and the full suite of supporting services physically located here,’ Alder said during a keynote presentation at the 8th Pan-Asian Regulatory Summit.

‘Much of this hinges on mutual market access deals the SFC is striking with other regulators - first with the China Securities Regulatory Commission (CSRC) in 2015 and over the past year with Switzerland and France.’

The cooperation between the SFC of Hong Kong and the CSRC has been strengthened since the launch of the Stock Connect programme in November 2014.

The programme enables foreign investors to trade the Chinese A-shares via the Hong Kong stock exchange (“northbound” trading), while the Chinese investors are able to trade the Hong Kong H-shares through the Shanghai and Shenzhen Stock Exchanges.

According to Alder, the latest cooperation plan between the SFC and the CSRC is that they will launch a real-time investor identification system for the Stock Connect programme’s “northbound” trading around the middle of next year.

Under the new identification system, foreign investors trading A-shares via the Hong Kong stock exchange will have their identities passed on to the SFC, which will then share the information with the Chinese securities regulator, the CSRC.

Likewise, the CSRC will provide the SFC with investor identification of Chinese investors trading H-shares through the Shanghai and Shenzhen Stock Exchanges. Currently, the SFC can only obtain investor’s identification through making a request to an individual broker.

In mainland China, however, the situation is different, as each Chinese investor is identified by the CSRC through a domestic investor registration system, so the CSRC knows who is behind the transaction.

But since the launch of the Stock Connect back in 2014, the CSRC had to deal with the new situation that foreign investors could trade A-shares.

The Stock Connect programme is also not the same as Qualified Foreign Institutional Investor (QFII) or Renminbi-QFII schemes, because these schemes grant foreign investors quota when trading A-shares, which enables the CSRC to identify foreign investors behind the scene.

Similarly, the SFC is unable to ask local brokers to identify trades made through Stock Connect by anyone from the mainland China for the simple reason that all of these trades are routed only through mainland brokers.

Therefore, it is crucial for both regulators to work together to identify new investors created by this cross-border trading scheme, in a bid to crack down potential market manipulation and wrongdoings.

Besides stock connect, many mainland Chinese financial firms have set up subsidiaries in Hong Kong. They handle over 86% of initial public offering funds raised in the city. Therefore, it is important for the SFC to regulate those mainland firms listed in Hong Kong.

‘In many cases, successful investigations depend on our ability to access information on the mainland through the CSRC,’ Alder said.

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