Efforts to make improvements to Stock Connect are ongoing. As of early this year, a number of significant projects are under review by the relevant regulatory authorities:
- MCSI China A Index Futures – improves access to hedging tools and derivatives instruments (announced in March 2019 but launch date is pending regulatory approval)
- Master Special Segregated Accounts (SPSA) – enhanced optional mechanism under the existing Stock Connect framework to allow pre-trade checking of sell orders for fund managers at an aggregate level for operational efficiencies of average pricing execution to achieve best execution at the fund manager level while maintaining the same post-trade settlement processes at the individual SPSA level for consistency (to be launched in 1H 2020 subject to regulatory approval)
- Distributed Ledger Technology solution – Hong Kong Exchanges and Clearing (HKEX) are planning to introduce a new integrated settlement platform using Distributed Ledger Technology (DLT) for Northbound Stock Connect to better manage the T+0 settlement market, which challenges the current established operation and settlement flow designed for a T+2 settlement market. (To be further communicated to the market in the near future subject to regulatory approval)
There are other Stock Connect enhancement initiatives which are being reviewed as follow:
- Trading holidays of Stock Connect
- Increase in foreign ownership restrictions
- Increase in the breadth of Stock Connect coverage
- Securities lending/ short-selling enhancements
- Block trading
Collateralizing Stock Connect assets
BNY Mellon was the first Triparty agent to provide collateral services for securities settled through Hong Kong Stock Connect, supporting growing cross-border trade volumes in and out of China. This bespoke solution allows clients to post Stock Connect assets in non-title transfer pledge arrangements, providing numerous benefits:
The ability to use Stock Connect assets within a financing transaction reduces clients’ collateral costs. It also enables enhanced optimization of assets within their global collateral portfolios, helping institutions maximize their balance sheet. Clients utilizing Triparty collateral services reduce operational risks through the centralization of post-trade collateral management functions.
Ultimately, BNY Mellon’s Triparty Stock Connect solution helps clients use collateral more efficiently while also helping clients ensure that other obligations are met, addressing a broad range of collateral management needs for clients.
As China market continues to reform, more future enhancements are expected to further improve operating model and market accessibility.