HKD-RMB dual counter scheme stiffens Hong

Norman Ray

Global Courant

HONG KONG, CHINA – JUNE 05: A pedestrian walks past an electronic screen displaying the figures for the Hang Seng Index on June 05, 2023 in Hong Kong, China. (Photo by Chen Yongnuo/China News Service/VCG via Getty Images)

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Investors can now trade selected Hong Kong stocks in both the Hong Kong dollars And Chinese Yuan in the so-called dual counter arrangement that started on Monday.

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With the newly launched “HKD-RMB Dual Counter Model”, 24 companies will initially begin offering yuan counters to enable investors in Hong Kong to trade yuan in addition to Hong Kong currency. Companies on the list are tech heavyweights such as tencent, alibaba And Baidu.

The two-counter model only covers securities quoted in both Hong Kong dollar and renminbi counters. The Hong Kong Exchange said all shares of the same securities in the two different trade counters will be “fully interchangeable between the counters”.

In an exclusive interview on CNBC’s “Squawk Box Asia,” Nicolas Aguzin, CEO of Hong Kong Exchanges and Clearing, said the move was designed to give investors more investment options, as well as more diversification opportunities.

“This program is focused on number one, making sure we give investors more options. Second, that we continue to help internationalize the renminbi.” Third, he said it “solidifies” Hong Kong’s role as a yuan trading center.

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The CEO of HKEX noted that the first batch of 24 companies accounts for about 40% of the average daily trading volume in Hong Kong.

“We would expect this to continue to expand,” he added. “And over time, I think a large majority of stocks in our markets will participate in this program.”

With trading volumes in Hong Kong at a four-year low, Aguzin said he expects an increase in revenue from the new dual connect model, noting that there are “a lot” of yuan deposits in Hong Kong. As such, “you tap into a renminbi liquidity pool that can now invest directly,” he noted.

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The main goal is to simplify the flow of investment southward from the mainland, Aguzin said.

Investments from the mainland are currently conducted through the Southbound Stock Connect, which allows investors on the mainland to purchase Hong Kong shares in Hong Kong dollars.

Connect stock is a reciprocal market access program that allows investors in mainland China to trade and settle equities in Hong Kong through exchanges and clearinghouses in their home market, and vice versa.

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Aguzin emphasized that it is “very inconvenient for mainland investors, (and) the fact that (now) they will be able to transact renminbi in the blink of an eye, that’s a huge difference.”

He foresees more investment flows from the mainland, especially from private investors.

“One of the challenges of Hong Kong is that it only has 7 million people. So it’s very limited in terms of retail. But the mainland, 1.4 billion people, that’s a lot. And a lot of that can come through Stock Connect and the liquidity in our market.”

The dual counter model will initially focus on supplying investors holding offshore yuan, eventually enabling mainland investors to trade Hong Kong-listed yuan stocks using onshore yuan, Reuters reported. .

While there is no set date for when investments will be able to access the dual-counter model through Stock Connect, Aguzin said it will take some time, and the HKEX is working closely with regulators and other stakeholders to make sure everything is in order. will be. place before making an announcement.

Not the first try

It is not the first time such a scheme has been introduced in Hong Kong.

In 2012, the Hong Kong Stock Exchange launched a similar scheme called the “double tranche, double counter” model, allowing the issuer to offer and list two tranches of shares denominated in both the Hong Kong dollar and the Chinese yuan.

Similar to the current two-counter model, the shares of both the RMB tranche and the HKD tranche were of the same class and shareholders in these two tranches are expected to be treated equally.

According to Bloomberg, that plan didn’t get off the ground when only one company took advantage of it.

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The difference this time around is that there is a “dual counter market maker program” – aimed at providing liquidity to the yuan counter and minimizing price differentials between the Hong Kong dollar and yuan counters.

Aguzin said there are currently nine of these market makers that have signed up, and he thinks this “should encourage a lot of activity and ensure that the markets in both markets have really stabilized.”

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HKD-RMB dual counter scheme stiffens Hong

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