Hong Kong Exchanges and Clearing announced on December 13 that its securities market will soon launch a “dual currency trading model” (hereinafter referred to as the “dual counter model”) and a dual counter designated participant mechanism, further supporting the listing, trading, and settlement of Renminbi counters in Hong Kong

Dual counter model and dual counter bookmaker mechanism

The Hong Kong Stock Exchange says that after regulatory approval and market readiness, the registration process for various new measures is expected to begin in the first half of 2023. Under the dual-counter model, the exchange will optimize related trading and settlement arrangements so that investors can switch between Hong Kong dollar counter and Renminbi counter securities issued by the same issuer.

To enhance the liquidity of the Renminbi counter and narrow the spread between the two counters, Hong Kong Exchanges and Clearing will introduce a dual-counter market maker mechanism. After relevant legislation is passed by the Legislative Council, market makers engaged in providing liquidity can be exempted from stamp duty when conducting specific transactions. At the same time, these new measures will also prepare for subsequent mainland investors trading securities priced in Renminbi through Stock Connect.

The launch of a Hong Kong dollar-RMB dual counter model and dual counter market maker mechanism is an important measure for our market development. Coupled with our other market initiatives, this arrangement will help attract more dual-counter securities to list in Hong Kong and create good synergy with the Exchange’s existing mainland products. “Hong Kong Exchanges and Clearing is committed to actively promoting the internationalization of RMB and continuously enhancing Hong Kong’s position as a leading global offshore RMB center,” said Calvyn Yao, Chief Operating Officer and Head of Markets at HKEX.

It is understood that the existing listing, trading, clearing and settlement arrangements for Hong Kong stocks will also generally apply to Renminbi counter securities under the dual-counter model. The Hong Kong Stock Exchange will announce the implementation date of the dual-counter model and the list of eligible dual-counter securities that meet the requirements for inclusion in the designated participant mechanism in due course.

How to identify Hong Kong dollar-RMB exchange counters

According to documents from the Hong Kong Stock Exchange, the arrangement for dual currency (Hong Kong dollar-Renminbi) trading will generally follow the existing stock code allocation plan. Stocks on the Hong Kong dollar counter will have 5-digit codes starting with “0”, while stocks on the Renminbi counter will have 5-digit codes starting with “8”. The last four digits of the stock codes for both Hong Kong dollar and Renminbi counters will be the same. Stock short names on the Renminbi counter will be suffixed with “-R”.

Regarding trading arrangements, based on the premise that securities in Renminbi and Hong Kong dollar counters are of the same category and can be converted to each other, if one counter (e.g., Hong Kong dollar counter) is designated for short selling, the other counter (e.g., Renminbi counter) can also be included as designated for short selling according to exchange rules; accordingly, both counters will appear on the list of designated securities for short selling published by the exchange

Given that the stocks of the two counters belong to the same category and are convertible, both buying or holding in Hong Kong dollars and selling in Renminbi, or vice versa, will be regarded as a round-trip transaction. The settlement time between the two counters is T+2.

Short selling of specified stocks, such as borrowing shares in Hong Kong currency and then selling them on the RMB counter, will be considered a guaranteed short sale, and vice versa

It is worth noting that under the dual currency counter model, physical stock deposits and withdrawals are not available for RMB counters as they are solely used for trading and settlement. Physical stocks can only be deposited at Hong Kong dollar counters before being converted to RMB counters. Similarly, physical stocks can only be withdrawn after conversion from RMB counters to Hong Kong dollar counters.

Fees for related transactions, settlement and delivery, as well as all Hong Kong clearing fees, are calculated and charged in Hong Kong dollars, except for dividend collection service fees and interest collection service fees, which are calculated based on the qualified currency adopted by the relevant securities

Reference materials

HKD-RMB-Dual-Counter-Model Source: Hong Kong Exchanges and Clearing Market Pulse, Securities Times China