HK regulator announces enhancement to currency conversion arrangement under Stock Connect

Maria Nikolova

The enhanced arrangement aims to give investors the option to obtain RMB and conduct the related Forex hedging based on the onshore exchange rate for their underlying Northbound Stock Connect transactions.

The Hong Kong Monetary Authority (HKMA) today announced enhancements to the currency conversion arrangement under the Northbound trading of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect.

Mr Norman Chan, Chief Executive of the HKMA, said, “with the support of the People’s Bank of China, investors under the Northbound trading of Stock Connect may, for the first time, obtain RMB and conduct the related foreign exchange hedging based on the onshore exchange rate through the relevant Hong Kong banks. As major international financial market indices continue to include A-shares or increase weights assigned to them, the enhanced currency conversion arrangement will offer more diversified choices to investors, and increase the convenience and attractiveness of Stock Connect, thereby reinforcing Hong Kong’s role as the intermediary for capital flowing into and out of the Mainland.”

At present, investors investing in the Mainland stock markets through the Northbound trading of Stock Connect have to settle their transactions in offshore RMB. The enhanced arrangement aims to provide investors with an additional option to obtain RMB and conduct the related Forex hedging based on the onshore exchange rate for their underlying Northbound Stock Connect transactions.

Investors may access the service from designated Hong Kong banks through relevant securities companies and brokers. The said banks are allowed to square the relevant positions in the onshore FX market.

The Stock Connect service has been evolving since its launch. In September last year, for instance, investor identification model for Northbound trading (NB Investor ID Model) through the mutual stock market access program of Hong Kong Exchanges and Clearing Limited (HKEX) and the exchanges in Shanghai and Shenzhen (Stock Connect) was launched. Implementation of the NB Investor ID Model is anticipated to result in more efficient Hong Kong-Mainland cross-border market surveillance.

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