HK and China regulators announce launch of ETF Connect

Rick Steves

“ETF Connect is an important milestone because for the first time Stock Connect is expanded beyond stock trading.”

The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) made a statement on the launch of ETF Connect.

Trading of exchange-traded funds (ETFs) under the Mainland-Hong Kong Stock Connect will commence on 4 July 2022.

Stock Connect expands beyond stock trading

Ashley Alder, Chief Executive Officer of Hong Kong’s SFC, commented: “ETF Connect is an important milestone because for the first time Stock Connect is expanded beyond stock trading. It will catalyse Hong Kong’s growth as an ETF hub and underscore Hong Kong’s unique role connecting global capital with the Mainland.”

The SFC and the CSRC have agreed on arrangements for cross-boundary regulatory cooperation and investor education in relation to the inclusion of ETFs in Stock Connect and will enhance cooperation on enforcement against cross-boundary illegal activities and market misconduct to maintain an orderly market and protect investors.

The Stock Connect is a Mutual Market Access programme through which investors in the Mainland China and Hong Kong can trade and settle shares listed on the other market via the stock exchanges and clearing houses in their home market.

In late May, the regulators pre-announced the inclusion of Exchange Traded Funds (ETFs) in Stock Connect. Adding eligible ETFs into Stock Connect will support the healthy development of ETFs in both the Hong Kong and Mainland China markets by expanding their respective investor bases, who can count on ETFs as a cost-efficient investment option and a popular choice for diversification.

Stock Connect enables international exposure to Mainland China

Stock Connect is a platform designed to allow international and Mainland Chinese investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange.

Under the programme, Hong Kong and overseas investors can trade Shanghai and Shenzhen listed stocks (northbound trading, Shanghai A share – Shanghai Connect or Shenzhen A share – Shenzhen Connect). In return, Mainland Chinese investors can trade Hong Kong-listed stocks (southbound trading, or Hong Kong Connect).

This comes as an opportunity for international market participants to gain exposure to Mainland China and its fast-growing emerging economy.

The program covers a wide range of SSE and SZSE A shares, which allows for diversification as well as opportunities to invest with RMB without the need to hold an account on Mainland China. HKEx subsidiaries are responsible for trading, clearing, and settlement. All fund transfers are in Hong Kong.

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