Mainland Stock Buyers to Get Access to Hong Kong Research

Hong Kong brokerages will be allowed to provide locally focused research notes and advisory services to Chinese mainland clients, in China’s latest step to integrate its stock markets with more advanced global counterparts, the domestic securities regulator said.

The move follows the recent quadrupling of daily limits for trading through two stock links that allow mainland investors to buy Hong Kong-listed shares and vice versa, as China uses the former British colony as a testing ground for many of its efforts to internationalize its financial markets.

The latest move will see three types of Hong Kong brokerages qualified to sell their local reports to mainland investors. Those will include local units of mainland securities firms, institutions providing research on Hong Kong-listed shares for more than three years and holding 20 licensed advisers, and asset managers that have operated for more than five years and held more than HK$10 billion ($1.3 billion) worth of securities or equivalent assets by the end of 2017, the China Securities Regulatory Commission (CSRC) said in a draft rule (link in Chinese) released on Friday.

Hong Kong brokers will be required to issue their notes in the name of mainland partners, and must not communicate with mainland clients directly, the draft added. It also requires that mainland brokers be present when their Hong Kong peers explain stock recommendations to potential mainland clients.

The guidelines clarify that under such stock recommending activities, mainland securities firms should be the ones responsible for forwarding reports on Hong Kong-listed shares to clients.

“With the gradual deepening of the stock link program between mainland and Hong Kong, mainland investors’ demand for related securities research reports and investment advisory services for Hong Kong stocks has been increasing,” CSRC spokesperson Gao Li said at a media briefing on Friday.

“Mainland securities firms need professional investment advice from people who are familiar

with the Hong Kong stock market to improve the performance of fund products. Hong Kong institutions also need to expand their customer base to participate in the bilateral opening up of capital markets,” Gao added.

Starting May 1, the daily quota for net purchases of mainland stocks by Hong Kong investors using the stock connect program will be increased to 52 billion yuan ($8.25 billion) and to 42 billion yuan for investments the other way, the CSRC said on April 11. The change will come weeks before the upcoming June inclusion of China-listed A-shares in the MSCI index of companies from emerging markets.

Contact reporter Leng Cheng (chengleng@caixin.com)