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risky, as restrictions can be added back at any time.
It is also costly to obtain a license and operate as
a QFII. But the program could someday become
liberal enough to eclipse the Hong Kong Connect.
“The Chinese regulators say they are agnostic, but
there was a fear that the success of Stock Connect
may kill off QFII and that all the flow would come
from offshore and reduce visibility,” says Mark
Austen, CEO of the Asia Securities Industry &
Financial Markets Association (ASIFMA). “Whether
they are going to push QFII, that remains to be seen.
They just don't want it to die.”
Success story?
As it stands now, international investors are
presented with a buffet of options for accessing the
domestic market. Not only do they have H shares
and Chinese listings in other major markets globally
to choose from, but the Hong Kong Connect and the
various QFIIs are also available to them.
For straight buying and selling, many will just go
through the Stock Connect. It is easy, and it allows
them to use the tools and connect with institutions
they know and like: their global and local sub-
custodians, the Hong Kong Exchange and any
number of international banks and brokerages.
They also know that Hong Kong is one of the
most competitive and innovative markets, always
refining its offerings as it looks to be on the cutting
edge. The exchange is currently working on the
development of Distributed Ledger Technology that
will reduce settlement risk and make transactions
more transparent for investors. From a trading,
settlement and risk-management perspective, the
Stock Connect wins for some.
Investors interested in buying into initial public
offerings, or those who have a long-term interest in
being in the country, will often opt for a QFII license
and trade locally. Optics alone could make the
exercise worthwhile.
The program also comes with certain specific
advantages that could tip the scale depending
on interests, needs and risk profile. Those going
through QFII have legal ownership of their A
shares. Quants, or anyone engaged in a strategy that
requires low latency, may also prefer QFII, as they
can get physically closer to the exchange and do not
have go through so many intermediary steps.
“A clear benefit of the onshore scheme is the
wider instrument access it brings than is currently
available under the Connect model,” says Gary
O'Brien, regional head of custody product at BNP
70 // TheTRADE // Spring 2020