On 18 March 2020, the Stock Exchange of Hong Kong (the HKEx) announced[1] its latest enhancement to its mutual market access programme with the Shanghai and Shenzhen Stock Exchanges (Hong Kong China Stock Connect) – a new optional Master Special Segregated Account (Master SPSA) which will allow pre-trade checking of China A shares on Northbound trading at a fund manager, or aggregate level, rather than at an individual fund level.
Subject to approval from the Securities and Futures Commission and market readiness, it is expected that the Master SPSA service for fund managers will be launched in the first half of 2020.
Further information on the operation of the Master SPSA Service is set out in HKSCC’s Circular: Introduction of Master SPSA Service for Northbound Stock Connect [2] and the Master SPCA Service FAQ of 18 March 2020.
Pre-trade Checking of Northbound Sell Orders under Hong Kong China Stock Connect
Mainland investors can only sell shares listed on the Shanghai and Shenzhen Stock Exchanges which are available in their stock accounts at the end of the previous day. A sell order will be rejected if there are insufficient shares in a seller’s account. Similarly, pre-trade checking applies to all Northbound sell orders through Hong Kong China Stock Connect to prevent overselling.
Under this pre-trade checking model, sellers must first ensure there are sufficient shares in their accounts opened with their selling broker. Unless a special segregated account arrangement (SPSA) has been put in place, investors must first transfer the shares to the selling broker on T-1 in order to sell their shares on T day if the shares are kept in an account opened with a custodian.
The original SPSA arrangement was introduced on 30 March 2015 to satisfy this requirement and remove the need to transfer shares controlled by investors to executing brokers prior to a sale. Essentially, investors whose securities are maintained with custodians may sell their securities without having to pre-deliver the securities from their custodians to their executing brokers.
The following diagram illustrates how the original SPSA arrangement works.
