The Hong Kong Exchange and Clearing (HKEX) announced on December 13th that it will soon launch the “Hong Kong-Renminbi Dual Counter Model” (hereinafter referred to as “Dual Counter Model”) and dual counter broker mechanisms for its securities markets, further supporting RMB-designated listings, trading, and settlement in Hong Kong.

Dual-Listing Model and Dual-Listing Broker Mechanism

Hong Kong Exchanges and Clearing (HKEX) stated that the registration procedures for these new measures are expected to begin implementation in the first half of 2023, pending regulatory approval and market readiness. Under the dual-listing model, HKEX will optimize related trading and settlement arrangements, allowing investors to swap securities issued by the same issuer on both the Hong Kong Dollar (HKD) and Renminbi (RMB) trading venues.

To enhance liquidity in the RMB trading venue and narrow the price difference between the two venues, HKEX will introduce a dual-listing broker mechanism. Once relevant legislation is passed by the Legislative Council, market makers engaging in supply activities will be exempt from stamp duty when conducting specific transactions. Simultaneously, these new measures will also prepare for subsequent mainland investors to trade securities priced in RMB through the Hong Kong Connect (HKT) scheme.

“The launch of the dual-listing model of Hong Kong Dollar-Renminbi and the dual-listing broker mechanism is a key measure for the development of our market. In conjunction with our other market initiatives, this arrangement will help attract more dual-listing securities to be listed in Hong Kong, complementing the existing mainland products at HKEX. HKEX is committed to actively promoting the internationalization of RMB and continuously enhancing Hong Kong’s position as a leading offshore RMB center globally.” Said Mr. Yao Kai-yan, Chief Operating Officer and Head of Markets at HKEX.

It is noted that the current listing, trading, settlement, and clearing arrangements in the Hong Kong stock market will largely apply to RMB securities under the dual-listing model. HKEX will announce the implementation date of the dual-listing model and the list of eligible dual-listing securities included in the broker mechanism at an appropriate time.

How to Identify Hong Kong Dollar-Renminbi Trading Booths

Hong Kong Exchanges and Clearing (HKEX) documentation indicates that the Hong Kong dollar-Renminbi dual listing arrangement will largely follow the existing stock code allocation plan, meaning Hong Kong dollar booths will have stock codes starting with “0” followed by five digits, while Renminbi booths will have stock codes starting with “8” followed by five digits. The last four digits of both Hong Kong dollar and Renminbi booth stock codes will be identical. Renminbi booth stock abbreviations will be appended with “-R”.

Regarding trading arrangements, based on the fact that securities in both the Renminbi and Hong Kong dollar booths belong to the same category and can be converted into each other, if one booth (such as the Hong Kong dollar booth) allows for short selling of specified securities, the other booth (such as the Renminbi booth) can also be included as eligible for short selling according to exchange rules. Correspondingly, both booths will be listed in the specified securities lists that are available for short selling on the exchange.

Given that the stocks in both booths belong to the same category and can be converted into each other, buying or holding the stock in Renminbi while selling it in Hong Kong dollars will be considered a carry trade (short sale), and vice versa. Settlement times between the two booths are T+2.

For specified securities eligible for short selling, such as borrowing stocks in Hong Kong dollars and then selling them on the Renminbi booth, this will be treated as a secured short sale, and vice versa.

It’s worth noting that under the dual booth model, since the Renminbi booth is only for trading and settlement, it will not provide physical stock deposits or withdrawals; physical stocks can only be deposited after being held in the Hong Kong dollar booth and then converted to the Renminbi booth. Similarly, the Renminbi booth must be converted to the Hong Kong dollar booth before physical stocks can be withdrawn.

All Hong Kong settlement and clearing fees, excluding dividend collection service fees and interest collection service fees, will be calculated and charged in Hong Kong dollars. Dividend collection service fees and interest collection service fees will be calculated using the currency adopted for the relevant securities.

References

HKD-RMB-Dual-Counter-Model Source: HKEx Pulse / HKEx, Broker China