CSRC strictly controls the “fake foreign investment” via Shanghai/Shenzhen-HongKong Stock Connect, the comment from one Securities Company is: Regulate the northbound return transactions of mainland investors, and continue to promote high-level opening up to the oversea market.
On December 17, 2021, the China Securities Regulatory Commission publicly solicited opinions on the amendment to the "Certain Provisions on the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets", and will no longer allow mainland investors to invest in A shares through the interconnection mechanism. This move is conducive to strengthening the supervision of return transactions by mainland investors, and has little impact on the capital of northbound transactions, and the high-level opening of the capital market will not be affected.
On December 17, 2021, the China Securities Regulatory Commission publicly solicited opinions on the revision of the "Certain Provisions on the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets".
The "Regulations" propose to amend the first paragraph of Article 13 to read "Investors shall legally enjoy the rights and interests of stocks purchased through the trading interconnection mechanism of the mainland and Hong Kong stock markets.
Investors who are available to trade via Shanghai-HongKong and Shenzhen-HongKong Stock Connect do not include the mainland investors."
The Northbound Stock Connect will no longer allow mainland investors to participate in.
The original intention of the Stock Connect trading system is to allow foreign investors to conveniently invest in A-shares under the interconnection mechanism through Hong Kong brokers.
However, in recent years, some mainland investors have opened securities accounts in Hong Kong and then traded A shares through the northbound, giving the market the impression of "fake foreign capital" in northbound transactions.
This revision of the system prohibits individuals holding Mainland China ID and legal institutions and legal entities registered in the Mainland China from trading A shares through the Northbound Trading of Stock Connect.
Three types of investors are affected more.
According to research, there are three scenarios for mainland investors to trade A shares via Northbound Stock Connect:
First, the mainland investors who hold the overseas assets have enabled the northbound trading function of Hong Kong stock accounts to achieve the goal of global allocation within one account when allocate the overseas assets;
Second, for investors who trade stocks with low interest rates, the lowest financing interest rate in the Hong Kong market is less than 2%, which has an interest rate advantage over the Mainland's 6% to 7%.
Third, According to the cases that the Securities Regulatory Commission had
investigated, there’re some traders who manipulated the market illegally, by
manipulated multiple accounts in both Hong Kong and China mainland
markets. They had manipulated stock prices of several underlyings of
“Shanghai Stock Connection” by spoofing, deliberately pushing up stocks
prices, trading between accounts they controlled etc.
It has little impact on the capital of northbound transactions and has a deterrent effect on illegal transactions.
According to the China Securities Regulatory Commission, there are 39,000 mainland investors who have traded via northbound s in the past three years. The percentage of northbound transactions by mainland investors is about 1% of all northbound transactions. In addition, the regulations are accompanied by a one-year transitional period arrangement which will has little impact on the asset amount of northbound trading.
This time, the regulator had published the accurate number of trading accounts, the proportion of transactions, and the status of the A-share accounts of investors with the investors’ identities of these accounts.
These are all due to the identification code system of northbound trading.
system of penetrating account model is an important application for cross-border transaction regulation. The recent regulatory actions were warnings to some northbound transactions that had been walking on fine line of regulation yet those actions had no impact on mainstream funds.