Change to settlement process boosts Stock Connect traffic

Traffic on the Shanghai-Hong Kong Stock Connect program may become much busier after the Hong Kong Exchange and Clearing Ltd said on Thursday that investors would be able to avoid the pre-trade quota check before transaction starting next Monday.

A small change in the settlement process could open the door for more participants in the Stock Connect. Fund managers including those with most big mutual funds domiciled in Europe's Luxembourg have been prevented from participating in the Stock Connect scheme, as it requires them to transfer shares to the brokerage from their custodian bank before sell orders are executed, which is contradictory to their compliance requirements.

The HKEx said in a statement on Thursday night that they are rolling out a significant enhancement to its Central Clearing and Settlement System on Monday to enable investors to settle their trades of A shares (Northbound trades) through Shanghai-Hong Kong Stock Connect similar to the way they settle their trades of Hong Kong stocks.