Bourse assures foreign investors ownership of Stock Connect shares is safe and sound

Hong Kong Exchanges & Clearing Ltd (HKEx) has pledged to help international investors defend their ownership rights over shares bought under the Shanghai-Hong Kong Stock Connect program.

The bourse amended its clearing rules last month, committing to provide certificates of ownership to investors who acquired shares through the cross-trading scheme. It said it would help investors to prove their ownership of mainland stocks.

"These amendments to the rules will reinforce the interests of foreign investors," said Marc-Andre Bechet, a legal director at the Association of the Luxembourg Fund Industry. The association said Luxembourg is home to investment funds with about $3.7 trillion in net assets, and that the changes "will be definitely welcomed by investment managers".

International funds need tangible proof they actually own the shares they have purchased. Such assurances had been unclear with the Stock Connect, which was launched last year to give foreigners unprecedented access to the mainland's equity market. In a December report, the Asia Securities Industry & Financial Markets Association said there was no clear system to confirm who owns Chinese stocks purchased through the Hong Kong bourse.

"Funds in the US and Europe need to show they've got good ownership title, they need to be able to enforce their shareholder rights," said James Fok, HKEx's head of global strategy.

"We are very comfortable with the fact that an investor holding their shares through HKSCC (Hong Kong Securities Clearing Co) as a nominee has full and good legal title to their shares on the mainland," Fok said.

Executives from HKEx met fund managers from Luxembourg and Ireland last month to discuss investment through the stocks link.

Luxembourg's financial regulator has given eight funds permission to use the program, according to Patrick Hommel, a member of the secretariat general at the Commission de Surveillance du Secteur Financier.

Officials from the Central Bank of Ireland also met HKEx representatives, and the nation's financial regulator may soon grant its first approval to a fund to invest through the link, said Brian Dillon, a Dublin-based partner at Dillon Eustace, who cited letters from the Irish Funds Industry Association.

"The Shanghai-Hong Kong Connect offers a whole range of convenience and easy access that no other system can currently offer you," HKEx Chief Executive Officer Charles Li Xiaojia has said, although he acknowledged there still may be difficulties in the union between the mainland and Hong Kong markets.

"The two markets are so different, that you will never be able to get the differences of the markets so clearly and completely sorted out," Li said.

Proving ownership of mainland shares is, so far, the biggest outstanding issue that prevents many investors from using the link, said Ben Valentine, the head of pan-Asia electronic execution at Citigroup Inc in Hong Kong.

Global investors have purchased about 41 percent of the aggregate 300 billion yuan ($48.4 billion) quota of shares available through the scheme.

"Make no mistake, China is the market people are focused on," Valentine said. "Based on the assumption that all this stuff gets resolved, it's just going to be a bigger uptick in terms of the volume that we are going to see going into China."

Hong Kong Exchanges & Clearing Ltd has assured foreign investors that their stock ownership rights under the Shanghai-Hong Kong Stock Connect program will be protected. Edmond Tang / China Daily

(HK Edition 04/03/2015 page9)