Regulators Quadruple Limits on Stock Links

China’s securities regulator announced it would quadruple the daily limits on trading through the stock links that allow mainland investors to buy Hong Kong-listed shares and vice versa.

The change was made in anticipation of increased overseas interest in the Chinese stock market following the upcoming June inclusion of A-shares in the MSCI index of companies from emerging markets.

Starting May 1, the quota for the net purchase of Chinese mainland stocks by investors in Hong Kong via the Stock Connect program will be increased to 52 billion yuan ($8.3 billion) and to 42 billion yuan for investments the other way round, the China Securities Regulatory Commission (CSRC) announced on Wednesday. “The measures facilitate overseas institutional investors’ participation in the A-share market, and safeguard market safety and stability,” a CSRC spokesperson said.

Next, regulatory agencies from the Chinese mainland and Hong Kong will continue to strengthen monitoring of cross-border fund flows and improve regulatory coordination, the spokesperson said.

The quadrupling of the quotas aims to support A-share inclusion in the MSCI Emerging Markets Index and help China further improve capital account convertibility, CSRC Vice President Fang Xinghai said during the Boao Forum for Asia Annual Conference. A higher quota will better meet the needs of overseas institutional investors, allowing them to adjust their investment structures with ease.

Current use of the stock connect has rarely reached its quota limit. Northbound trading through the Shanghai and Hong Kong Stock Connect has never exceeded the previous limit of 13 billion yuan. Overseas investors once traded as much as 8.26 billion yuan in shares on the Shanghai Stock Exchange, but that amount was only 63.55% of the quota, according to data from Wind Information.

For mainland investors purchasing Hong Kong-listed shares through the Shanghai-Hong Kong Stock Connect, there were only two days since the program began in November 2014 when investors hit the 10.5-billion-yuan quota.

“The expansion of the daily quota will further enhance the smoothness and certainty of trading, and help ensure that the process for the inclusion of A-shares in the MSCI Emerging Markets Index this year is orderly,” Norman Chan, chief executive of the Hong Kong Monetary Authority, said in a statement on Wednesday.

According to the most recent list from MSCI in March, there will be 236 mainland stocks included in the MSCI Emerging Markets Index.

“Increasing current quotas will also pave the way for the inclusion of a larger percentage of the A-shares in the MSCI in the future,” an agent from a retail brokerage told Caixin. For some institutional investors, the trading limits increase the cost and difficulty of transactions, the agent said.

Contact reporter Liu Xiao (liuxiao@caixin.com)