HKEx Goes Live with Enhanced Stock Connect Model

Hong Kong Clearing and Exchanges (HKEx) has gone live with a Special Segregated Accounts (SPSA) model to enhance settlement of China A Shares trading on the Shanghai-Hong Kong Stock Connect.

Launched on March 30, the SPSA addresses the biggest concern amongst investors by enabling to meet China’s pre-trade checking requirement for selling A shares northbound, without physically transferring their shares before they sell them.

Concerns around pre-trade settlement have largely deterred increased flows from foreign investors into Stock Connect, but HKEx hopes these changes will improve trading.

“This new service is part of HKEx’s ongoing effort to refine the Stock Connect programme,” says Calvin Tai, head of Global Clearing (Asia), HKEx. “SPSAs will make it easier for investors to minimise counterparty risk in A-share settlement and to maintain compliance with asset segregation and safe keeping requirements for institutional funds.”

In order to allow time for custodians and execution brokers to adapt to the new model, the pre-trade tracking mechanism based on the SPSA model will be launched on April 20.

In addition, China’s regulatory authority is set to approve Chinese mutual funds to access Hong Kong equities listed on Stock Connect, a move that could significantly improve southbound flows. This will enable local asset managers to access the Hong Kong market, even if they do not have a Qualified Domestic Institutional Investor (QDII) license.