Hong Kong uses market makers for yuan-denominated stocks

A government minister said the new connection scheme mechanism is expected to boost trading, helping the hub recover lost ground.

A yuan trading system using a market maker mechanism will be implemented in the first half of 2023, according at the “South China Morning Post”, a local English-language daily newspaper (registration, possible paywall) which quoted a government minister discussing the developments with lawmakers on Monday.

The SCMP said the plan was first announced last month and approved by the China Securities Regulatory Commission (CSRC) last month.

The government intends to launch the new market maker mechanism with the Hong Kong Stock Exchange as part of an effort to strengthen the city’s position as a financial hub. As finenews.asia Recently reported, Singapore overtook Hong Kong to become the world’s third-largest international financial center due to the prolonged period of strict travel restrictions related to COVID-19.

Small business

The exchange has allowed companies to issue yuan-denominated shares since 2010, but limited turnover prompted very few to take the step, the SCMP said.

Christopher Hui Ching-yuthe government secretary responsible for financial services and the treasury, told the newspaper that a market maker mechanism will alleviate this problem, as it promotes liquidity, limits spreads as well as excessive price fluctuations.

According to the SCMP, the government intends to submit a bill by the end of the year exempting market makers from paying stamp duty if they provide liquidity for yuan-denominated shares. These duties currently account for 90 percent of trade costs, Hui said Monday. Additionally, mainland-based traders can currently only trade shares of the city in Hong Kong dollars, which would remove an additional hurdle and limit exposure to currency fluctuations.

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