THETRADETECHFX DAILY news update
Hong Kong’ s ambitions to position itself as a global RMB liquidity centre and digital market infrastructure leader remain constrained by entrenched operational, regulatory and technological frictions – and resolving these obstacles will define the city’ s next stage of growth, agreed a panel of experts.
Executives from HKEX, Deutsche Bank, State Street, Euroclear, CMU OmniClear and The ValueExchange offered one of the clearest assessments to date of the structural pressures limiting Hong Kong’ s transition into a more integrated RMB and digital ecosystem.
Their message was consistent: the direction of travel is right, but significant groundwork remains.
Looking at FX One of the sharpest challenges raised was the high FX conversion cost faced by mainland investors using Southbound Stock Connect – a friction that persists despite policy efforts to deepen RMB usage.
Tae Yoo, managing director, head of institutions and client executive, global client development at HKEX, said:“ We have roughly about HK $ 6.2 trillion of portfolio that’ s held by mainland investors through Southbound Connect … The current FX cost is roughly about 200 to 250 basis points for mainland investors to convert renminbi to Hong Kong dollars.”
That cost, he emphasised, is incurred on every buy and sell order.
“ That means whenever there is a transaction of buy or sell, the mainland investors have to pay somewhere around 2-2.5 % on transaction cost.”
For a programme designed to encourage connectivity, such costs remain a material barrier. Though, the dual-counter model aims to soften this problem by allowing investors to trade and settle in RMB directly, but the scale of the friction underscores how far the ecosystem must go before RMB truly becomes the default operating currency in Hong Kong markets.
Despite a decade of cross-border development, China access mechanisms remain fragmented – Stock Connect, Qualified Foreign Institutional Investor( QFII), CIBM Direct – each with different account structures and regulatory expectations. This is one of the biggest pain points for institutions trying to operate efficiently across channels.
A key sticking point remains the ability for the China Securities Regulatory Commission( CSRC) to see through nominee structures used in Connect.
This reflects a broader regulatory divergence: China’ s central regulator – State Admission of Foreign Exchange( SAFE) – is understood to be comfortable with increased fungibility, but CSRC’ s disclosure and transparency requirements continue to hold the brakes.
From an infrastructure perspective, HKEX needs to accommodate two fundamentally different philosophies – the onshore ID-based model versus offshore omnibus structures.
Ben Li, China head of securities services at
POST-TRADE
Time zones, FX costs and legacy rails threaten Hong Kong’ s path to digital settlement
REGULATORY FRAGMENTATION, LEGACY INFRASTRUCTURE AND LIMITED RMB LIQUIDITY CONTINUE TO CONSTRAIN HONG KONG’ S AMBITIONS TO BECOME A FULLY INTEGRATED DIGITAL MARKET AND RMB HUB.
Deutsche Bank, said:“ The market structure of the Asia market has always been ID market driven. When you have to integrate offshore practice to onshore practice, it’ s quite complex to pull off.”
This tension explains why convergence, despite being widely requested, remains slow.
The role of RMB Even as RMB’ s role in global trade expands, offshore liquidity tools remain underdeveloped. This mismatch discourages corporates and financial institutions from relying on RMB sustainably.
James Fok, chief commercial officer, CMU OmniClear, said:“ Some 35 % of all China’ s commercial goods trade, and over 40 % of China’ s services trade, are now being settled in renminbi. Chinese companies and those companies interacting with Chinese counterparts do not have the full suite of liquidity and risk management tools in renminbi. Offshore they are still being forced to operate in US dollars with all the friction and costs associated with that.”
In other words, RMB usage is outpacing the development of supporting infrastructure.
Until repo markets, money market funds and broader risk tools mature, Hong Kong’ s ambition to function as a true RMB hub remains constrained.
The issue of time zones As global markets move toward shorter settlement cycles, Hong Kong faces a fundamental barrier: time. With most of its trading driven by overseas participation – especially from the US – the time difference creates a uniquely difficult operational challenge.
Fok said:“ Two-thirds of the trading in the Hong Kong market comes from overseas … If you need to deal with affirmations, allocations, post-trade on a T + 0 basis … there is simply no overlap in the business hours that enable you to do that.”
This means the traditional settlement workflow cannot support T + 0 or even certain T + 1 requirements, and so, the implication is clear: digital infrastructure cannot be an optional parallel track; it needs to become foundational.
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