China's markets watchdog aims to enhance funds recognition scheme with Hong Kong to boost flows

Mainland China's top securities watchdog has proposed amending a funds recognition scheme with Hong Kong in the latest move to boost cross-border trading and capital flow between the two markets.

The China Securities Regulatory Commission (CSRC) published a consultation paper on Friday on enhancing the mainland-Hong Kong mutual recognition of funds (MRF) scheme to provide investors with more choice. The mechanism was originally unveiled by the regulator on April 19 as one of five measures aimed at strengthening ties between the two, and to boost Hong Kong's status as a global financial hub.

The paper is open to public consultation until July 14, according to the CSRC.

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"[The proposed amendments] would address a long-standing wish of asset managers in Hong Kong for the scheme to be more flexible and to provide more diversified product choices to mainland investors as well as injecting new impetus into the continuous development of the MRF scheme," said Julia Leung, chief executive officer of Hong Kong's Securities and Futures Commission (SFC).

"The SFC will continue to work closely with the CSRC to formulate and implement the measures," the city's market watchdog said in a separate announcement on Friday.

Geared towards promoting the coordinated development of mainland China and Hong Kong's capital markets, the five measures also included a plan to relax the eligibility criteria for exchange-traded fund (ETF) products in the Stock Connect mechanism that allows investors in the two regions to invest in each other's markets.

The Hong Kong stock exchange said on Friday that the new eligibility requirements for ETFs will take effect on July 22.

"[The ETF] expansion will further enhance the investment choices for Stock Connect investors, enabling them to diversify their assets across both Hong Kong and mainland China markets in an efficient and cost-effective manner," the HKEX said on Friday.

The Stock Connect scheme was first launched in November of 2014 to link the Shanghai and Hong Kong exchanges, and later expanded to include Shenzhen. It allows investors in mainland China to buy select companies listed in Hong Kong - known as the southbound channel - and foreigners to buy mainland-listed A shares in what is called northbound trade.

An updated list of eligible ETFs for northbound and southbound trading under the Stock Connect scheme will be unveiled on July 12, Hong Kong Exchanges and Clearing, which operates the bourse, said.

In another unprecedented move to open up its capital market and offer mainland investors more options, the CSRC on Friday approved the country's ETFs to track top firms in Saudi Arabia.

The two funds, managed by China's Huatai-Pinebridge Investments and Southern Asset Management separately under the Qualified Domestic Institutional Investor (QDII) programme, will track Hong Kong-listed CSOP Saudi Arabia ETF, which listed in Hong Kong last November.

The CSOP Saudi Arabia ETF tracks the performance of the FTSE Saudi Arabia Index, which had a market capitalisation of US$303.5 billion as of the end of May.

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