Jurisdiction - Hong Kong
Hong Kong – Regulatory update.

29 July, 2012


Legal News & Analysis – Asia Pacific – Hong Kong – Regulatory & Compliance


Securities and Futures (Short Position Reporting) Rules
The Securities and Futures (Short Position Reporting) Rules (the Rules) came into force on 18 June 2012 with the intent of allowing the Securities and Futures Commission (the SFC) to detect significant build-up of short positions. Net short positions in specified Hong Kong-listed shares that reach the reporting threshold as at the close of the last trading day of each week are required to be reported to the SFC. Aggregated short positions of each specified share will be published by the SFC on an anonymous basis, commencing from 7 September 2012, in order to enhance market transparency regarding short selling activities.
A person who has a reportable short position in any specified shares has the duty to notify the SFC of such position. In cases where a reportable short position is held on trust, the Rules provide that the trustee has the duty to report the short position. The Rules further provide that if the partners in a partnership have a reportable short position, then a report submitted by a
partner or an authorised person, on behalf of the partners, is regarded as having complied with the Rules. However, this provision does not release the partnership from the duty to register with the SFC (and update) the particulars (names, address and contact information) of all partners. This would cause
practical difficulties to funds that are structured as limited partnerships because of the large number of limited partners they may have and as a result of the subscriptions/redemptions of funds from time to time.
The SFC was made aware of compliance concerns from the markets and on 20 June 2012, just four business days before the deadline for the first report to the SFC under the Rules, the SFC published revised FAQs to address the concerns of the market. Subject to the proviso that a full and complete list of partners must be provided to the SFC upon request, the SFC is prepared to relax the requirement to request details of the partners for the time being until further notice. Now it is voluntary, instead of mandatory, for partnerships to register particulars of limited partners with the SFC.
The FAQs also clarify the position that where the partnership is a separate legal person in accordance with the law where the partnership is stablished, the partnership need not furnish a list of all the partners and their particulars. This type of partnership must for reporting purposes state:
  • its place of domicile; and
  • that it is reporting the short position of the partnership.
Hong Kong and China bourses to establish joint venture in Hong Kong for new products and services; and further economic ties between both markets
On 28 June 2012 Hong Kong Exchanges and Clearing Limited (HKEx), the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE) signed an agreement to establish a joint venture (JV) within the next three months in Hong Kong to: 
  • develop financial products; and
  • promote the development of China’s capital markets, enhance the competitiveness of these markets and promote the internationalisation of the three bourses.
The principal business of the JV will include the development and franchising of index-linked and other equity derivatives products; and the compilation of cross-border indices based on products traded on the three markets. Initially, the JV will develop a series of cross-border indices on which a family of index products will be introduced. The index products will include equity index futures and options based on these indices and they will be traded on HKEx’s derivatives market.
Meanwhile, there are developments in place to strengthen further the economic ties between the China and Hong Kong markets.
On 29 June 2012, the China Securities Regulatory Commission approved two exchange-traded funds (ETFs) to be listed on China's SHSE and SZSE. The ETFs will invest directly in stocks listed in Hong Kong and track a Hong Kong stock index (Hong Kong ETFs). Hong Kong Stock ETFs provide an alternative channel for China investors to participate in the Hong Kong securities market.


On the same day the SFC authorised the world's first Renminbi Qualified Foreign Institutional Investor (RQFII) A-share ETF for listing in Hong Kong. Through the RQFII investment quota granted by the China authorities, an RQFII A-share ETF seeks to track the performance of an A-share index by channelling Renminbi raised outside China to invest directly in a portfolio of A-shares, which physically replicate the performance of the underlying A-share index. Before the first RQFII A-share ETF, the existing A-share ETFs (denominated in HK dollars) could not (and remain unable to) invest directly in China stocks but replicated the investment synthetically through derivative instruments; while other existing RQFII retail funds could not invest more than 20 per cent of their funds in China A-shares. The RQFII A-share ETFs now offer Hong Kong investors an alternative channel to invest in the A-share market. A-shares are shares:
  • in Chinese companies issued in China under Chinese law;
  • denominated in Renminbi; and
  • listed on China's stock markets (SHSE or SZSE).
Currently, only Chinese residents in China can invest directly in A-shares. Non-Chinese institutional investors can invest directly in A-shares provided that they are permitted to do so under the Qualified Foreign Institutional Investors scheme through the investment quota granted under the scheme.


For further information, please contact:


Gareth Hughes, Partner, Ashurst

[email protected]


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