The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) jointly proposed to introduce block trading through the China-Hong Kong Stock Connect scheme in a bid to create a mutual market access programme between the two jurisdictions.

The initiative to enhance Stock Connect, announced last Friday, will increase the amount of available trading mechanisms, enhance trading efficiency, and promote the development of both capital markets. The block trading arrangements are set to be based on existing operational models and regulations.

Julia Leung, chief executive of the SFC, described the importance of block trading as a mechanism for best execution in large sized transactions, as well as stressing its effect on minimising price impacts on the market. “This initiative will enhance the price discovery functions of both markets and encourage more overseas investors to participate in the A-share market through Stock Connect,” she added.

Stock Connect will enable both southbound and northbound investors to participate. The exchanges and clearing houses on both sides will be supervised by the CSRC and the SFC, including the technical and regulatory arrangements.

The respective stock exchanges are set to announce the operational details and official launch dates in due course.

The Hong Kong exchange (HKEX) launched the Shanghai-Hong Kong Stock Connect programme back in 2014, expanding with the launch of Shenzhen Connect in 2016, and the more recent launch of Bond Connect in 2017. 

In an announcement, HKEX welcomed the proposals from regulators. Wilfred Yiu co-chief operating officer and head of equities at HKEX, said: “The launch of block trading is the latest significant enhancement to the Connect franchise, providing price and execution certainty for large-sized deals that will help further enhance trading efficiency. This will support the continued growth and development of this exclusive mutual market access platform, offering more choice and more liquidity.

“We look forward to working closely with our partners to prepare for this rollout, as well as on other Connect-related enhancements, as we connect China and the world.”

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The initiative allows Mainland and Hong Kong investors to trade eligible stocks and ETFs listed on each other’s exchanges through local securities firms or brokers. 

The announcement from Hong Kong’s Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) follows the confirmation of the inclusion at the end of last month.

HKEX, Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE) and China Securities Depository and Clearing Corporation (CSDC) have previously agreed on the Stock Connect inclusion and trading arrangements, as well as eligibility criteria for ETFs.

When the inclusion takes effect, trading of eligible SSE-listed ETFs through Shanghai Connect and trading of eligible SZSE-listed ETFs through Shenzhen Connect will be – for the first time – open to all Hong Kong and overseas investors including institutional and individual investors.

HKEX launched the Shanghai-Hong Kong Stock Connect programme in 2014. This was expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017. 

Last year, the Shenzhen Stock Exchange and the Singapore Exchange (SGX) also agreed to set up a cross-border link for ETFs. Under a Memorandum of Understanding (MoU), the two exchanges will jointly develop and promote ETF markets in Singapore and China through cross-border investments.  

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