By Jiang Bowen and Leng Cheng
The Hong Kong Stock Exchange might require investors to register with their real names in order to trade stocks under the mutual-access programs that link to the Shanghai and Shenzhen bourses.
On the Chinese mainland, investors must register with their real names and identification numbers with brokerages before they can trade securities. The aim of this longtime policy is to prevent the capital market from becoming a hotbed of money laundering and other illegal and improper activities. However, in Hong Kong, investors are not required to register with real names or identities.
Market watchers see the adoption of real-name management as helping Hong Kong push for mutual access to more investment products with the mainland market. In fact, Hong Kong Exchange CEO Charles Li has repeatedly expressed a desire to expand the connect programs. For now, such mutual access includes stocks, while Hong Kong investors can also trade mainland-listed bonds. But mainland investors cannot trade Hong Kong-listed bonds, at least for now.
“As a major participant of the connect programs, the exchange is actively discussing and studying when and how to launch” real-name registration, a spokesperson for Hong Kong Exchanges and Clearing Ltd. told Caixin on Monday, adding that “if real-name registration is implemented, it will only apply to investors under the Stock Connect program.”
The spokesperson didn’t elaborate how far the discussion has gone and whether there is an expected timeline for an agreement.
For now, investors in Hong Kong who buy more than 5% of a company’s shares through the Stock Connect program are not required to file a disclosure, whereas such a large purchase elsewhere usually does require such a disclosure. The absence of such a Stock Connect rule sows potential risks for stock manipulation due to poor transparency, market watchers say.
The China Securities Regulatory Commission said earlier that Hong Kong investors must register trading accounts on a real-name basis before 2018, if more mutual-trading access on products such as exchange-traded funds or futures are to be opened, the Hong Kong Economic Journal reported citing unnamed sources.
During the stock market turmoil of 2015, China blamed a trading platform for allowing trust companies to open sub-accounts under their trading accounts with securities firms, essentially bypassing the supervision of real-name account trading, as the key culprits that amplified bourse volatility.
The two Stock Connect programs have attracted a total 288.67 billion yuan ($43.55 billion) of capital inflows into Shanghai and Shenzhen stock markets by Tuesday since their establishment, while drawing about 498.39 billion yuan of southbound market funds into Hong Kong’s stock market.
As of Monday, the Hang Seng Index has surged 26% to 27,863.29 points in 2017.
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