Bourse operator Hong Kong Exchanges and Clearing (HKEX) will launch Synapse, a new settlement platform, in 2022 to help international investors settle mainland Chinese trades according to the country’s “tough” settlement requirements.
Synapse will standardise and streamline settlement workflows for international investors when they trade mainland shares listed in Shanghai or Shenzhen through the two stock connect schemes linking these markets with Hong Kong.
The platform will allow fund managers, stockbrokers, global and local custodians to interact with each other on an electronic network, so that they have to hire fewer people and incur lower costs to settle trades according to China’s settlement requirements.
Currently, international investors need to hire more people to settle trades involving mainland Chinese shares, as Beijing requires all stock trading to be settled within the same day of the transaction. This is called “T+0” and is tougher settlement cycle. Internationally, settlements can be made two days after a transaction, or T+2.
“The T+0 rule in China is a very tough requirement. Many international investors need to hire more people to meet the tight settlement time,” Glenda So, head of post trade at HKEX, said during an online media briefing on Tuesday. “Some international investors avoid investing in mainland markets due to this stringent settlement requirement.”
The new platform will save time and human resources for such investors, and will encourage others to trade mainland Chinese shares via the two stock connects, she added.
“Synapse is our latest stock connect innovation, and will be of major benefit to global investors when they trade through the northbound stock connect,” said Charles Li Xiaojia, HKEX’s chief executive.
Fund managers have welcomed the move. “The stock connects have virtually become the channel of choice for many international investors,” said Sally Wong, the chief executive of Hong Kong Investment Association. “Any initiative that can enhance the efficiency of the investment cycle and enable better risk management is welcomed by investors.”
The planned launch of Synapse came as international investment in mainland A shares through Hong Kong reported a record turnover.
The average daily turnover from northbound trading – buying of Chinese stocks by international investors – reached 90 billion yuan (US$13.6 billion) in the first nine months of this year, doubling from a year earlier, according to HKEX’s third-quarter result announcement this month.
Meanwhile, Carrie Lam Cheng Yuet-ngor, the city’s leader, could unveil some changes to the stock connect schemes during her policy address on Wednesday. This may include allowing Hong Kong-listed biotechnology companies to be traded by mainland investors, according to people familiar with the matter.
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