Market Profiles

RBC IS operates an omnibus account structure in this market.

For further information or support around accessing this market, please contact your RBC IS representative.

Hong Kong Bond Connect

FII Market Entry Requirements for HK Bond Connect

RBC IS operates a segregated account structure in this market.

Please refer to 'Market Account Opening Requirements' for information on the market requirements. Clients are requested to refer to the requirements for information purposes only.

For further information or support around accessing this market, please contact your RBC IS representative.

Hong Kong Stock Connect (2 packs)

FII Market Entry Requirements for Stock Connect Standard SPSA MODEL

FII Market Entry Requirements for Stock Connect SPSA+ RDP Model

RBC IS operates a segregated account structure in this market.

Please refer to 'Market Account Opening Requirements' for information on the market requirements. Clients are requested to refer to the requirements for information purposes only.

For further information or support around accessing this market, please contact your RBC IS representative.

The Stock Exchange of Hong Kong Limited (SEHK)
was incorporated in Hong Kong as a limited company in 1980 and became a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX) on March 6, 2000.Consists of the Main Board and the Growth Enterprise Market (GEM). 

The Main Board listing refers to the main group of publicly listed companies with proven profitability records and size to justify being publicly listed. 

The GEM was modelled after the NASDAQ exchange in the US and began trading in November 1999. It generally caters for smaller companies that do not qualify for main board listing and is primarily for smaller capitalised and newly emerging companies. This market is more volatile than the main board.

The Hong Kong Futures Exchange Limited (HKFE)
The Stock Exchange of Hong Kong Limited and the Hong Kong Futures Exchange Limited demutualised and, together with the Hong Kong Securities Clearing Company Limited, merged under a single holding company, HKEX. The merger was completed in March 2000 and HKEX began listing its shares on the stock exchange in June 2000. 

The mission of HKEX is to operate a world-class marketplace for Hong Kong and Mainland China securities and derivatives products. 

Shanghai-Hong Kong Stock Connect 
Shanghai-Hong Kong Stock Connect (Stock Connect) launched on November 17, 2014. Shanghai-Hong Kong Stock Connect is a mutual stock market access program between Mainland China and Hong Kong. Eligible investors in Hong Kong and Mainland China are allowed to trade eligible shares listed on the each other's market through the exchange and clearing house in their local market.

This program allows global investors to trade Shanghai ‘A' shares through the Hong Kong Stock Exchange (subject to foreign ownership limits), while Chinese mainland investors are able to trade Hong Kong ‘H' shares through the Shanghai Stock Exchange. The aggregate quota under Shanghai-Hong Kong Stock Connect was abolished with effect from August 16, 2016.

Shenzhen-Hong Kong Stock Connect
The Shenzhen-Hong Kong Stock Connect launches on December 5, 2016, will provide a mutual stock market access between Shenzhen and Hong Kong via the northbound trading link as well as the southbound trading link. There is no aggregate quota applied to the Shenzhen-Hong Kong Stock Connect.

Bond Connect
HKMA and the People's Bank of China (PBOC) issued a joint announcement on Bond Connect which approves the launch of the mutual bond market access (Bond Connect) market links between Hong Kong and the Mainland China.

Bond Connect enables eligible overseas investors to access the China Interbank Bond Market (CIBM) via qualified offshore online trading platforms. Tradeweb markets is the main trading interface for offshore investors to access Bond Connect.

Third Automatic Order Matching and Execution System (AMS/3) trades securities listed on SEHK.

AMS/3 supports these trading methods: 
• automatic continuous matching (price-time priority)
• single price auction for pre-opening trading session for price discovery and trade execution at an equilibrium price
• semi-automatic matching for odd/special lots (point-and-shoot manner)

The Hong Kong Futures Exchange Limited (HKFE) trades through the Hong Kong Futures Automated Trading System (HKATS), an electronic screen-based system which has replaced open outcry.  HKATS is the trading system for the derivatives market. A variety of derivative products are being traded including equity index products, equity futures and options, currency futures and options, interest rate and fixed income products and commodities products.

Monday to Friday:

Note: There is no Extended Morning Session and Afternoon Session on the eves of Christmas, New Year and Lunar New Year.  There will be no Extended Morning Session if there is no Morning Session.

The extended morning session is for the trading of Extended Trading Securities (ETS) which currently include iShares MSCI South Korea Index Fund (stock code: 4362) and iShare MSCI Taiwan Index Fund (stock code: 04363) only. Thus Extended Trading Securities are traded continuously between 9.30am - 4.00pm.There is no extended morning session and afternoon session on the eves of Christmas, New Year and Lunar New Year.There shall be no extended morning session if there is no morning session.

For Closing Auction Session (CAS) securities, the securities market closing time has been extended to no later than 16:10 from 16:00. For half trading day, the securities market closing time has been extended to no later than 12:10 from 12:00.

STOCK CONNECT (NORTHBOUND)

Trading is conducted on Monday to Friday (excluding non-Northbound Trading days) at the following times:

Note (1):

Orders that are not executed during the opening call auction session will automatically enter the continuous auction session.

HKFE

( ) = Trading Hours on Last Trading Day of Spot Month Contract, if different from regular trading hours

Stock Transfer Services

1. An additional Settlement Instruction (SI) matching run is in place at 09:15. As a result, there are now a total of nine SI matching runs per day. The existing schedule for the four Batch-settlement-runs will remain unchanged.
2. Advance the available time for Input Delivery Instruction (DI) function by 30 minutes, from 10:00 to 09:30.
3. Increase the number of release of five reports, including Intra-day Trade Files (CCLID01), Unmatched SI Report (CCLUS01), ATI Batch Input Control Report (CSEBA01), STI Batch Input Control Report (CSEAT01) and STI Activity Report (CSEAT02).

Depository Services 
Advance the CCASS Depository counters' operating hours for accepting physical deposit and allowing collection of eligible securities from CCASS Participants by 30 minutes to 09:30. 

Typhoon Arrangement

1. Advance the time for determining the availability of CCASS services during typhoon situation by 30 minutes, from 09:30 to 09:00.

After the change, the time to determine the availability of CCASS services under both typhoon and rainstorm situations are aligned. In case a Typhoon Signal number 8 or above (Signal) is hoisted or a Black Rainstorm Warning (Warning) is issued before 09:00 on a business day and remains in effect at 12:00, no CCASS services or facilities will be available to CCASS participants and such day will not be treated as a settlement day. Should the Signal or the Warning be lowered or cancelled at or before 12:00, CCASS services will normally resume two hours thereafter.

ISIN (International Securities Identification Numbering): Yes

Other: (i) CCASS: Local stock market code (A SEHK five-digit code is used for trading and settlement).
(ii) CMU: Common code

The Securities and Futures Commission (SFC): supervises exchanges, clearing houses, listed companies and registered persons; responsible for administering the laws governing the securities and futures markets in Hong Kong and facilitating and encouraging the development of these markets. 

Hong Kong Monetary Authority (HKMA): supervises all deposit-taking companies and banks, including custodian banks and is responsible for maintaining monetary and banking stability. Its main functions are:

• keeping the Hong Kong dollar stable
• managing the Exchange Fund - Hong Kong's official reserves - in a sound and effective way
• promoting the safety of Hong Kong's banking system
• developing Hong Kong's financial infrastructure to enable money to flow smoothly, freely and without obstruction.

Hong Kong Exchanges and Clearing Limtied (HKEX):  The Stock Exchange of Hong Kong Limited (the Exchange) takes the leading role in regulating companies seeking admission to the Hong Kong markets and supervising those companies once they are listed.  The Exchange is responsible under statute for ensuring, so far as reasonably practicable, that the Hong Kong markets are fair, orderly and informed (the Exchange’s statutory duty). The Exchange's role is not exclusive.

Hong Kong Association of Banks (HKAB):  Hong Kong Association of Banks responsible to issues rules of conduct for banks. HKAB regulations also cover clearing house activities.

In the Hong Kong market, more than 99% of listed equity securities are CCASS eligible i.e. in a book entry form. At the same time, Central Depository HK also allows the participants to withdraw shares in form of physical certificates.

Unlisted securities are not CCASS eligible and usually in physical form.

For equities, the minimum trading spread is applied in various minimum price variation unit as per table below:

* agreed between counterparts

Stock Connect- CHN (Off-shore), HKD & USD

Bond Connect- CHN (Off-shore) & CNY (On-shore)

Over-the-Counter (OTC) exists, with the settlement cycle being agreed between counterparts.

Book-Entry: CCASS settles all broker-to-broker and broker-to-custodian transactions for securities held at the depository. CCASS provides matching of trade and settlement details between participants on a batch basis. There are four settlement protocols: Continuous Net Settlement (CNS), Isolated Trades (IT), Settlement Instructions (SI), and Clearing Agency Transactions. Broker-to-custodian transactions settle via the SI system. 

On trade date, the details of the trades executed on the SEHK are transmitted electronically to CCASS, and reported to the involved participants.

On Trade Date +1, the local subcustodian, on a best effort basis, pre-matches the trades with the counterparties. 

On Trade Date+2, the settlement between brokers and subcustodians occurs, through one of the four settlement batches during the day, with HKSCC interposing itself between the brokers and guaranteeing settlement of securities. CCASS runs two pre-matching runs at 17:00 and 18:00 to pre-match the settlement instructions for settlement the day after.

After the last batch settlement run at 15:45, HKSCC delivers payment instructions via CCASS's settlement bank to the Hong Kong Interbank Clearing Limited (HKICL) in the evening of SD. Money settlement arrangement was improved from T+3 finality to T+2 finality on July 25, 2011. The enhancement has eliminated the overnight exposure risk for market participants and aligns the process in the international best practice.

HKEX is now ready to support the trading, clearing and settlement of products denominated in RMB. The same as processing transactions in USD products under current practice, trading related fees and charges for cash market will continue to be collected by SEHK from relevant Exchange Participants in HKD regardless of the trading denominations of the products.

Debt issues and certificates of deposit clear through the CMU. The CMU can settle securities traded in HKD, USD, EUR and RMB or other foreign securities as authorised by HKMA. Participants must agree on the settlement currency, amount and mode, either real-time or end of day, prior to settlement. Trades are prematched both within and outside the CMU platform with scripless settlement typically on T+1, T+2 or T+3 as per the agreement between the counterparties.

CMU implemented the below enhancements in November 2013:

1. Extension of CMU real-time settlement window to run from 08:30 Hong Kong Time (HKT) up to 18:30 HKT and the cut-off time for real-time securities transfer extended from 16:00 HKT to 18:30 HKT.
   
   In addition, the end-of-day (EoD) batch settlement run has been rescheduled to start earlier at 16:00 HKT instead of 16:05 HKT while the cut-off time for instructions using EoD settlement mode remains at 16:00 HKT.
   
   Hence, if a transaction cannot be settled during the EoD run, CMU participants will have opportunity to settle it again during the extended real-time window which will be until 18:30 HKT provided sufficient securities and funds are available.

1.  
2. Support for past-settlement-date instructions
   Previously, CMU system canceled unmatched securities transfer instruction after completion of the EoD run and CMU participants could not create securities transfer or house transfer instructions with past settlement date. 
   
   In order to minimise the burden to CMU participants to re-input the instruction on next business day, CMU system will now carry forward those unmatched instructions with the original transaction details for a maximum of 10 calendar days. Also, CMU participants will be allowed to input securities transfer or house transfer instructions with settlement date back-dated up to 10 calendar days from the current value date. 
3. Support for linked transactions
   Previously, there was no support of linked transactions in CMU and the settlement of each transaction was treated independently. 
   
   After the enhancement, a CMU participant may link specific receipt with delivery instructions involving identical securities and identical securities account during real-time or EoD run by using a pool reference with length up to 16 characters, under field tag 20C::POOL in sub-sequence A1 of MT540-543. 
   
   The linked transactions will only link up the securities movement between one receipt instruction and multiple delivery instructions. 
4. Improved enquiry/reporting for possible match instructions
   To help CMU participants monitor unmatched instructions more effectively, a new eCMT (Central Moneymarkets Unit Member Terminal accessed via SWIFTNet)/iCMT (Central Moneymarkets Unit Member Terminal accessed via the Internet) summary enquiry screen called “View Possible Match Instructions” is now available to CMU participants from mid-November this year.

In March 2012, Hong Kong Monetary Authority (HKMA), Bank Negara Malaysia (BNM) and Euroclear Bank jointly announced the launch on 30 March 2012 of a pilot platform for the cross-border investment and settlement of debt securities to enhance cross-border debt-securities and strengthen capacity in debt-securities issuance activities in the Asian region. This pilot platform will facilitate settlement of Malaysian debt securities by CMU members without direct Euroclear connection. The pilot program entails the optimisation of existing system links between CMU, BNM and Euroclear Bank and the connections between the local central depositories (CSDs) and foreign currency real-time gross settlement systems in Asia as well as sharing CSD services. This initiative would strengthen post-trade infrastructure with the supporting by an international central securities depository. It would also facilitate the harmonisation of market practices and standardisation of the issuance and settlement of debt securities to deepen Asian bond market liquidity, attract investment and increase operational efficiency.

HKSCC introduced Real-time Delivery Versus Payment (RDVP) settlement. CCASS participants can settle against payment trades by RDVP, where settlement risk is contained.

The procedures for settling RDVP are as follows:

• both the delivering and receiving parties must agree on the settlement method before sending a trade to CCASS. Where no settlement method is specified, the default method is Non-RDVP
• for same-day value, all RDVP trades must be sent to CCASS on or before 13:30 (local time) on settlement date
• once a RDVP purchase transaction is matched in CCASS, the subcustodian processes an interbank payment to HKSCC via CHATS (Clearing House Automatic Transfer System) on or before 15:30 (local time) on settlement date. A charge of HKD25 applies for each RDVP purchase transaction.

CCASS Settlement Process Flowchart

Physical: Note applicable. Exchange trades and trades between brokers/custodian banks and custodian banks are all within CCASS by electronic entries. Physical settlement involves physical delivery of share certificates for OTC trades between buyers and sellers.

Hong Kong's short-selling regime was enhanced after the Asian financial crisis in 1998. Only covered short selling for certain designated securities, as prescribed by the Stock Exchange of Hong Kong Ltd (SEHK), is permitted. Moreover, short selling may be executed only on the SEHK's trading system at or above the best current asking price (or the tick rule).

The rules also require a full audit trail to be kept for covered short sales, meaning, for instance, that when investors place short selling orders, they must provide documentary confirmation to their brokers or agents that the sale is shorted and it is covered. Breaches of these statutory requirements may result in criminal prosecution. A list of eligible stocks for short selling can be found at the below link:
Designated Securities Eligible for Short Selling
https://www.hkex.com.hk/eng/market/sec_tradinfo/dslist.htm

You can refer to the below links to obtain more information on short selling in HK:

Regulated Short Selling
http://www.hkex.com.hk/eng/market/sec_tradinfo/regshortsell.htm

Rule of Exchange – Short Selling Regulations
http://www.hkex.com.hk/eng/rulesreg/traderules/sehk/Documents/sch-11_eng.pdf

Short Selling of China A Shares via Northbound Stock Connect

Covered short selling of China Connect Securities through Shanghai-Hong Kong Stock Connect is allowed subject to the following conditions:
• Only eligible SSE securities are eligible for short selling. The list is published by the exchange on a regular basis. Eligible SZSE securities will also be published in the same way, once the new link has launched;
• A short selling order shall only be input during the opening call auction session or a continuous auction session;
• China Connect Exchange Participants should confirm with their clients whether the sell order is a short selling order;
• Short selling orders must be input in the China Stock Connect (CSC) in multiples of 100 shares;
• The input price for a short selling order shall not be at a price lower than the most recent execution price for that short selling security or, the previous closing price for that short selling security if no trades were executed on the given day;
• Prior to entering a short sale into the CSC, the participant shall ensure that sufficient securities have been borrowed to settle the short selling order.
• Quantity restrictions are specified for each short selling security. A daily limit of 1% and cumulative limit of 5% for a rolling period of 10 CSC trading days are applied to the HKSCC’s holding of the short selling security in the omnibus account maintained at ChinaClear (CSDC);
• China Connect Exchange Participants have to submit weekly reports to the exchange on the open short position of each short selling security;
• A large open short position report must be filed by the China Connect Exchange Participant if the open short position of any short selling security executed for themselves or for clients as at the close of the last CSC trading day of a calendar week exceeds either RMB 25 million based on the closing price of on the last CSC trading day of the week, or 0.02% of the total issued shares of the relevant short selling security.

Naked short selling is not allowed via Northbound trading.

Starting from 15 March 2017, reporting is required for reportable short positions in all Designated Securities eligible for short selling as specified by the SEHK.

Securities and Futures (Short Position Reporting) Rules (the “Rules”) became effective on 18 June 2012. Under the new Rules, net short positions, as at the close of the last trading day of each week, that amount to or exceed the threshold of 0.02% of the issued capital of a listed company, or a market value of HKD30 million, whichever is lower, are to be reported to the SFC within two business days. The duty to report is imposed on the party who has the reportable short position. The requirement will only apply to the constituent stocks of the Hang Seng Index, the Hang Seng China Enterprises Index and other financial stocks specified by the SFC. The SFC publishes weekly reports of aggregated short positions.

From 3 July 2012, the short selling eligibility criterion related to market capitalization and turnover velocity (i.e. ratio of aggregate turnover during the preceding 12 months to market capitalization) increased from HKD 1 billion to HKD 3 billion and from 40% to 50% respectively. The changes reflect the fact that the average market capitalization of listed companies in Hong Kong has grown by around three times and the market turnover velocity has increased from around 40 per cent to over 50 per cent in the past decade. 

The short position information complements the information on short selling transactions provided by the Stock Exchange and will further enhance the SFC's ability to monitor short selling activities in the Hong Kong markets, including detection of significant build up of short positions.

Investors and intermediaries could face criminal prosecution for illegal short selling if they sell placing shares before completion of a placement. According to Securities and Futures Ordinance (SFO), a person shall not sell securities at or through a recognized stock market unless at the time he sells them:

• he has or, where he is selling as an agent, his principal has; or
• he believes and has reasonable grounds to believe that he has or, where he is selling as an agent, that this principal has,

a presently exercisable and unconditional right to vest the securities in the purchaser of them.

It follows that anyone who sells these conditional placing shares before completion of a placement runs the risk of committing illegal short selling, contrary to the SFO, unless the person (or where the person is selling as an agent, his principal has) already held a sufficient number of shares to settle the trade.

SFC licensees or registered persons who illegally short sell may also be subject to the SFC's disciplinary action. Under the SFO, illegal short selling is a criminal offence which carries a maximum penalty of HKD100,000 fine and two years of imprisonment upon conviction.

Turn-around trades are allowed and feasible to be settled in CCASS.

CMU's enhancements in November 2013 include the support of linked transactions by using a pool reference under TAG 20C::POOL in subsequence A1 of MT540 to 543. Turn-around trades are since supported in CMU.

Hong Kong Securities Clearing Company Limited (HKSCC) clears eligible securities through the Central Clearing and Settlement System (CCASS), including ordinary shares, preference shares, registered warrants, debt securities, exchange fund notes and provisional allotment letters relating to nil paid rights, exchange traded funds, unit trust, funds and foreign securities traded on the SEHK.

The Central Moneymarkets Unit (CMU) Service operated by the Hong Kong Monetary Authority (HKMA) acts as clearing agent for fixed/floating rate certificates of deposit, commercial papers, corporate bonds and notes, exchange fund bills and notes, and other money market and capital market bearer instruments as specified by HKMA.

The HKMA operates a HKD, USD, EUR and RMB clearing system that allows real time and end-of-day delivery versus payment settlement of HKD, USD or EUR, RMB debt securities deposited in the CMU.

Hong Kong Securities Clearing Company Limited (HKSCC) is one of the two central securities depositories in Hong Kong the other being the Central Moneymarkets Unit (CMU). It uses a system called the Central Clearing and Settlement System (CCASS), an electronic book-entry system that settles all eligible securities traded/listed in the SEHK.

Effective from April 26, 2010, Hong Kong Securities Clearing Company Limited (HKSCC) has broadened its eligible securities asset classes to admit over-the-counter (OTC) structured products (including but not limited to Equity Linked Investments (ELIs) and Equity Linked Notes (ELNs)) that have been authorised by the Securities and Futures Commission (SFC) into CCASS.

The Central Moneymarkets Unit (CMU) is the central securities depository in Hong Kong for debt instruments. CMU provides depository, clearing and settlement services for fixed income and money market instruments. Specifically it settles Exchange Fund Bills and Notes, fixed rate bonds and notes, fixed rate certificates of deposit, floating rate CDs, commercial paper and any other debt instruments as specified by it.

Since December 1994, the CMU has established linkages with international clearing systems including Euroclear and Clearstream. Links have also been established between the CMU and other depositories in Australia, New Zealand, Korea and China for the purpose of facilitating cross border trades in securities in the Asian time zone and the trading of Asian bonds.

The Hong Kong Monetary Authority (HKMA), owner of the CMU, has become a custodian participant in the CCASS system. As such CMU members can choose to hold equity securities in their CMU accounts under the linkage between CMU and CCASS effective from June 28, 2010. There is no operational impact to our existing clients on CCASS and CMU settlement.

Central Clearing and Settlement System (CCASS) – is a computerised book-entry clearing and settlement system for transactions in securities listed on HKEX.

Eligible debt securities are immobilised or dematerialised in the Central Money Markets Unit (CMU) and CCASS.

BIS is an international organisation which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

For CMU, it follows BIS model 1 for real-time settlement or BIS model 3 for the batch settlement run.
For CCASS, it follows BIS model 1 for real-time SI settlement and CNS trade follows BIS model 3.

Book-Entry: All stocks in CCASS are registered in the name of HKSCC Nominees Ltd and immobilised within CCASS. Settlement in CCASS is by book entries in CCASS and re-registration is not required.

Physical: Registration is not mandatory for physical securities. However, registration is necessary to ensure the authenticity of the shares and to protect the investor's entitlements. In order to effect the transfer of shares, the transferor and transferee must both sign the transfer deed before registration can take place.

Share certificates are forwarded to the registrar along with an endorsed transfer deed. A standard registration tariff list and registration periods can be provided on request. The SEHK has mandated a standard registration tariff list and registration periods.

x-Settle.: Computershare, has introduced an enhanced cross-border removal service by implementing an optional online removal portal - xSettle. 

Currently, shares registrars may instruct to execute removal of some particular securities from Hong Kong (HK) Register to overseas Register (e.g. United Kingdom (UK) Register) and vice versa. The stock removal is currently processed on a paper-based basis. According to Computershare, in addition to the current paper application, an optional online removal portal – xSettle has implemented in HK. xSettle is a “paperless” end-to-end process for market participants who wish to apply expedited removal service. Please note that the service fee under the current paper-base model and xSettle model is different.

At of today, the following stocks are eligible to be removed between HK and UK via x-Settle.

• HSBC Holdings PLC (ISIN GB0005405286)
• Glencore International Plc (ISIN JE00B4T3BW64)
• Kazakhmys Plc (ISIN GB00B0HZPV38)
• Standard Chartered Plc (ISIN GB0004082847)

The x–Settle web application also supports the HDR cancellation requests. It covers all HDR (i.e. the depository programme listed on the Hong Kong Stock Exchange) products in the Hong Kong market issued by JP Morgan.

The share registrars, appointed by the companies, handle the name registration, issuance of new certificates, corporate action events such as proxy voting, share splitting, subscription of rights, exercise of warrants, dividend distribution, bonus issue etc.

Physical registration usually takes 10 business days during which time the shares cannot be sold. Express registration is available subject to prior arrangement with the registrar.

1. Under Part XV of the Securities and Futures Ordinance (SFO), substantial shareholders who purchase more than 5% of the voting capital of any company must disclose their holdings to both the Stock Exchange of Hong Kong and the company concerned within 3 days of the purchase. If ownership interest changes, further notification is required.
2. Disclosure of relevant interest in shares under S.329 of the SFO - A listed corporation may carry out an investigation in relation to:
   (a) any interest in shares comprised in its relevant share capital;
   (b) any short position in shares comprised in its relevant share capital;
   (c) where shares comprised in its relevant share capital are the underlying shares of any equity derivatives, any interest in those equity derivatives
3. Under the Securities & Futures (Short Position Reporting) Rules, a short position hitting the threshold of 0.02% of the issued share capital of a listed company, or a market value of HKD30 million, whichever is lower, has to be reported to SFC on a weekly basis. The reportable short position must be reported to the Securities and Futures Commission (SFC) within 2 business days from the last trading day of each week. The aggregated shorts positions reported will be published 3 business days later, usually on a Friday. According to the SFC, as a rule of thumb, the person/entity who beneficially owns the short position has the obligation to report. The SFC has provided an online reporting system via it website.

Failure to comply with the reporting requirements in this market may lead to penalties and / or other sanctions.

Part XV of the SFO - All holdings in excess of 5% or more of the voting shares of the company, when a holding falls below 5%, and subsequent changes of 1% (increase or decrease) must be disclosed by the beneficial owners to the issuer and the SEHK within three business days.

Any shareholder is liable to conviction on indictment to a fine of HKD 100,000 and two years of imprisonment if failing to perform a duty of disclosure or if providing a false or misleading statement.

Failure to settle in CCASS may result in fines, compulsory stock borrowing or buy-ins imposed by the HKSCC on SD+1. Under continuous net settlement, short positions at close of business on T+2 will be subject to a buy-in at 10:00 (local time) on T+3, unless an exemption is granted.

Brokers participants applying for exemption from buy-in have to submit an application form to the HKSCC by fax no later than 20:00 on TD+2. If the exemption is granted, the participant must settle all overdue short positions by day-end of TD+3, if not HKSCC may consider executing a buy-in on TD+4.

As from January 23, 2008, amendments to the CCASS Operational Procedures were implemented to expand the scope for buy-in exemption. Previously, all the fourteen permissible exemption conditions were exclusive to the broker community. Under the expanded buy-in exemption scope, custodian participants are allowed to seek buy-in exemption under the following two conditions:

1. The Participant applying for exemption or the delivering participant (e.g. the custodian participant) has sufficient eligible securities (such securities which is from time to time designated and accepted by HKSCC for deposit, clearance and settlement in CCASS) in its stock account on T+2 to cover the relevant short position and the participant applying for exemption or the delivering participant has received valid instruction from the selling client to make delivery of the relevant eligible securities for settlement on T+2 but is unable to do so due to clerical error or as a result of a system limitation.

2. The custodian participant has made a deposit of sufficient eligible securities into the CCASS Depository prior to 16:15 on a settlement day but the CCASS Depository is unable to process the stock deposit before the final batch settlement run.

Charges: The party in default shall be responsible for any difference in price resulting from the buy-in and all incidental expenses, including a 0.5% buy-in penalty charge up to a maximum of HKD 100,000.00 imposed by HKSCC.

Under China Stock Connect, HKSCC will close out short positions by executing a compulsory buy-in on the morning of T+1 where no exemption has been granted to the short China Connect broker. The broker must apply for the exemption before 8.00pm on SD (T+0), and if granted must cover the short position by T+1. (There is a range of two situations whereby an exemption may be granted as described in CCASS Operational Procedures Section 10A.6.2A). The defaulting party will be liable for the default fee (at 1% multiplied by the market value based upon the closing price quoted on the exchange on the due date) of the corresponding short stock position, subject to a maximum fee of HKD 200,000 for each corresponding short stock position.

Both the lender and the borrower have to comply with a number of criteria and enter into a Securities Lending and Borrowing Agreement in order to qualify for the stamp duty exemption.

An Investor Compensation Scheme (ICF) has been introduced by the Securities and Futures Commission (SFC), which replaces the previous two schemes that were The Unified Exchange Compensation Fund (UECF) and the Commodity Exchange Compensation Fund (CECF)

The investor compensation scheme is based on a per-investor compensation limit of HKD 150,000 for trading securities and futures contracts respectively. It protects investors who suffer loss through intermediary default. The coverage has been extended to a much broader range of intermediaries, including exchange and non-exchange participants, banks and securities margin financiers. Brokers receive coverage from the Fidelity Insurance the Fidelity Fund and Guarantee Scheme. The new investor compensation scheme is mainly for retail investors, most institutional investors are excluded from the scheme.

The Stock Exchange of Hong Kong Limited ("HKEX") had announced that The Securities and Futures (Investor Compensation – Levy) (Amendment) Rules 2005 ("Amendment Rules") would come into effect on October 28, 2005. According to the Amendment Rules, The Securities and Futures Commission ("SFC") would issue an exemption notice suspending the payment of the levy if the net asset value of the compensation fund exceeds HKD 1.4billion. If the net asset value of the ICF falls below HKD 1 billion, SFC will terminate the exemption notice and reinstate the levy. 

However, as the current net asset value of the ICF has already exceeded HKD 1.4 billion, SFC has issued an exemption notice and the Investor Compensation Levy has been suspended with effect from December 19, 2005. In the past, investors were required to pay investor compensation levies at 0.002% on each side of securities transactions executed on the Stock Exchange of Hong Kong and HKD 0.5 (0.1 for smaller size contracts) per side of a contract on futures transactions executed on the Hong Kong Futures Exchange.

Money laundering prevention is one of the core responsibilities and Know Your Customer (KYC) is a fundamental principle of all Anti-Money Laundering (AML) controls. The subcustodian's control procedures for AML comply with the Hong Kong Monetary Authority (HKMA)'s requirements. 

Before starting a new business relationship, the following KYC information must be obtained:

• Full customer identification evidence;
• The reason for the relationship, stated in sufficient detail to provide a clear understanding of the purpose of the account and the nature of the customer's business or employment;
• An indication of the anticipated volume and type of activity to be conducted across the account; and
• Understanding of the source of funds passing through the account. For certain types of customers, it will also be appropriate to record the underlying source of wealth.

On top of the above information, some basic documents are also required from the new customer, including:

• Board resolution for account opening.
• Memorandum & Articles of Association.
• Certificate of Incorporation.
• Business Registration Certificate.

Effective from 1 April 2012, financial institutions like banks, securities firms, insurance companies, intermediaries, and remittance agents & money changers have a statutory obligation to conduct customer due diligence on their customers and keep relevant records for a specified period according to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance. For more details, please visit the link at HKMA.

None.

Hong Kong has no restrictions on investments by overseas investors with 
the exception of Television Broadcasts (TVB) shares, the Tracker Fund of 
Hong Kong, Hong Kong Exchanges and Clearing Ltd (HKEX).

1. According to the Broadcasting Ordinance (Cap. 562) ("BO"), a domestic free television programme service licensee is subject to the restrictions on an "unqualified voting controller" (UVC) (i.e. a voting controller who is not an ordinary resident in Hong Kong), who shall not, without the prior approval in writing of the Communications Authority, hold, or acquire, more than 2 per cent of the total voting control of a domestic free television programme licensee. Approvals are also required if holding further exceed the thresholds of (a) 6 per cent or more but not more than 10 per cent; or (b) more than 10 per cent. At present, Television Broadcasting Ltd ("TVB") is the only domestic free television programme licensee listed on the Stock Exchange of Hong Kong Limited.

2. Hong Kong Exchanges and Clearing Ltd (not more than 5% by any one investor, except with written approval of the Securities and Futures Commission (SFC). There is no domicile restriction. 

3. Under the terms of the trust deeds of the Tracker Fund of Hong Kong, units may not be held by any US person as defined by Regulation S under the US Securities Act, other than a US person who is, both a "qualified institutional buyer" as defined in Rule 144A of the same Act, and a "qualified purchaser" as defined in section 2 of the US Investment Company Act.

Funds can be repatriated freely.

There is no FX restriction in Hong Kong market. Investors can freely remit HKD in and out.

All payments are cleared through the Hong Kong Interbank Clearing Limited (HKICL), which is the clearing house for all HKD payments. HKICL is jointly owned and operated by the Hong Kong Association of Banks (HKAB) and the Hong Kong Monetary Authority (HKMA). Its clearing services are available only to fully licensed banks in Hong Kong.

Payment for trades settled through Central Clearing and Settlement System (CCASS) occurs via different forms of electronic funds transfer methods, depending on the settlement mode.

For inter-broker trades settled via the continuous net settlement (CNS) system, the HKSCC issues direct debit instructions (DDI) and direct credit instructions (DCI) against the net funds paying and net funds receiving brokers respectively.

An electronic payment instruction (EPI) is generated by the HKSCC to settle payments between CCASS participants arising from trades settled via the Isolated Trade (IT) mode and the Settlement Instructions (SI) method.

The DCI/DDI and EPI payment instructions are sent to the Hong Kong Interbank ClearingLimited at the end of each day, where they are cleared during an end of day batch run. Electronic funds transfers receive same day value, and finalised on the same day.

Securities related payments can also be effected via the Clearing House Automatic Transfer System (CHATS), a real time electronic inter-bank funds transfer system. Payments through CHATS are final and irrevocable as soon as the funds are transferred. All payments for debt instruments settled through the Central Moneymarkets Unit (CMU) are made via CHATS. Payments for trades settled via the SI mode can also be made through CHATS.

Overdraft is allowed for current accounts.

Announcements on dividend payments are available on HKEXnews web page and the issuers’ websites. Dividends are usually paid twice a year, in April and October, and entitlements are paid based on settled positions on record date. Payment date is usually two to four weeks after the record date (i.e. last day for registration). For shares deposited with HKSCC, dividends are credited directly to the holder account on payment date while dividends on physical shares are paid by cheque to the registered holder.

For fixed income securities, interest payments are usually made on quarter, semi-annual or annual basis according to the terms of the instruments with any announcements generally made one week before payment. The CMU advises the paying agents on the bond holder details and interest payments are usually made through CHATS unless the bonds are held physically in which case payments are made by cheque. Where there is a coupon, it will need to be detached from the bond and presented to the paying agent by the custodian. For other physical securities (e.g. CDs, Bills of Exchange) the securities need to be physically presented to the paying agent and then re-deposited into safe custody. A similar process is followed for redemptions.

Semi-annual or annual.

Quarterly, semi-annual or annual.

Actual/365-day or actual/360-day basis.

It is a regulatory requirement for all listed companies to announce corporate actions including, income payments, publicly through the Stock Exchange's website, although some companies will also post their announcement in the newspapers(this is optional). As such, information obtained from Stock Exchange's website becomes the primary and major source of information for income payments of the local companies.

Where the entitlement has been affected by late settling trades, our subcustodian will proactively file the claim. Afterwards, they will contact the counterparty to request them to refund the dividend on payable day.

If it is a rights entitlement, our subcustodian will also proactively file the claim.

Not applicable in Hong Kong.

Annual general meetings are announced three to four weeks in advance, and extraordinary general meetings two weeks in advance.

Normally provided in English and Chinese.

Can be obtained from HKEX's website for soft copies or upon request, subject to availability.

Not required.

Proxy Voting Summary

There is no withholding tax on Hong Kong sourced dividends or interest income, or capital gains tax for the trading of securities listed on the Hong Kong market except for: 

1. Manulife Financial Corporation - Canadian withholding tax of 25%
2. NASDAQ stocks (under NASDAQ/AMEX Pilot programme) - US withholding tax of 30%
3. iShares ((under NASDAQ/AMEX Pilot programme) - US withholding tax of 30%
4. H shares and Chinese-controlled offshore enterprises - PRC withholding tax of 10%(non-resident corporate) and individual income tax of up to 20% (non-resident individual).
5. Following the listing of Prada S.p.a. (ISIN: IT0003874101) on the Exchange in June 2011, withholding tax on dividends and capital gain tax implication to the stock under the Italian Companies Law and Taxation should be observed. For details of the Italian tax aspects relevant to the shareholders of the Company, please refer to Prada's Tax booklet via the below hyperlink:
   http://www.pradagroup.com/documents/reports/Booklet_SB10112011_combined.pdf
6. Coach Inc, HDR shares (ISIN: US1897541124) – US WHT of 30%
7. Dyam Japan Holdings Co Ltd (ISIN: JP3491910000) – Japan WHT of maximum 20%
8. L'Occitance International S.A. (ISIN: LU0501835309) – Luxembourg WHTof maximum 15%

N.B. The above information provided is by no means purporting to be comprehensive and constituting as legal or tax advice. Consulting professional tax advice is important and highly recommended

Stock Connect
Hong Kong and overseas investors investing through Stock Connect are required to pay tax on cash dividend and/or bonus shares of China Connect securities (Shanghai and Shenzhen) at the standard rate of 10%. This is withheld and paid to the relevant tax authority by the issuers. Where a favourable rate is applicable due to a tax treaty, the investor may apply to the tax authority for a refund of overpaid taxes.

Regarding the CNY-denominated bonds settled in Central Moneymarkets Unit (CMU) in Hong Kong where the issuer is registered in the PRC, the 10% standard rate without any treaty are generally still valid, except the ones being exempted by the China Ministry of Finance. However, having said that, in most bond prospectus, it contains tax gross up clauses, that is, the bond issuer will effectively absorb the tax and pay to the investors for the net return that was declared in the prospectus. As such, the offshore investor may rely on such prospectus to reduce their reporting liability.

N.B. The above information provided is by no means purporting to be comprehensive and constituting as legal or tax advice. Consulting professional tax advice is important and highly recommended.

Capital Gains Tax Summary

There is no capital gains tax (CGT) and withholding tax (WHT) on principal and income arising from equities investment for both foreign and local investors in the Hong Kong market. Similarly for fixed income instruments, there's no CGT and no WHT on interest income. 

Exception
Capital gains are tax-exempt in Hong Kong market except for a foreign stock listed in Hong Kong “Prada” (ISIN: IT0003874101) which levies the CGT on the Italian tax law.

N.B. The above information provided is by no means purporting to be comprehensive and constituting as legal or tax advise. Consulting professional tax advice is important and highly recommended.

Stock Connect
CGT, value added tax (VAT) and individual income tax are temporarily waived on the gains derived by foreign investors trading Chinese A-shares through Shenzhen-Hong Kong Stock Connect as well as Shanghai-Hong Kong Stock Connect. However, these trades are subject to stamp duty in accordance with the prevailing stock trading regulations in China and the dividends paid by these securities will be subject to 10% withholding tax, with the withholding obligation held by the company distributing the dividend.

Bond Connect
Bond connect investments are temporarily exempt from capital gains.

Hong Kong has signed double taxation avoidance agreements with countries/territories. Please refer to the Inland Revenue Department's below website for details:
http://www.ird.gov.hk/eng/tax/dta_inc.htm

N.B. The above information provided is by no means purporting to be comprehensive and constituting as legal or tax advice. Consulting professional tax advice is important and highly recommended.

Securities listed on exchange are subject to a stamp duty at a rate of 0.13% payable by both seller and buyer and rounded up to the nearest HKD. Nevertheless, there are some securities that are exempt from stamp duty. There is no stamp duty on ETFs listed on the Stock Exchange of Hong Kong. Debt instruments are also exempt from stamp duty apart from a few exceptions as identified by the exchange.

Transactions with no change in beneficial ownership can be exempted by applying to Inland Revenue. An embossed stamp duty of HKD 5 per transfer deed, payable by the first seller, is levied on physical shares.

Market Charges

CCASS / HKSCC Charges - Please refer to HKEx's below website for details:

https://www.hkex.com.hk/Services/Rules-and-Forms-and-Fees/Fees/Securities-(Hong-Kong)/Clearing-and-Settlement/Operational?sc_lang=en

With effective from November 1, 2014, the transaction levy fee is lowered from 0.003% to 0.0027%. This fee is payable to the SFC by both the buyer and seller upon trade execution.  The Commission Levy for buyers and sellers of standard futures and options contracts will be reduced from $0.60 to $0.54 per contract; and the Commission Levy for buyers and sellers of Mini Hang Seng Index Futures, Mini H-shares Index Futures, Mini Hang Seng Index Options and Stock Futures contracts will be reduced from $0.12 to $0.10.

Stamp duty is no longer be applicable to any sale or purchase of ETF units and for any transfer of ETF units effective February 13, 2015. 

General Tax Details Summary

HONG KONG Holiday Calendar

• Hong Kong Exchanges and Clearing Ltd.  http://www.hkex.com.hk/?sc_lang=en
• Financial Services Bureaufstb.gov.hk
• Securities and Futures Commissionhttp://www.sfc.hk
• Hong Kong Monetary Authority http://www.hkma.gov.hk/eng/index.shtml
• Hong Kong Inland Revenue Department http://www.ird.gov.hk/