Will HKD-traded securities and RMB-traded securities be transferable ?
Transferability between the HKD-traded and RMB-traded securities (from one counter to another counter without change in legal ownership) will help to ensure the efficiency of arbitrage and thereby maintain the prices of the two counters in the secondary market within a reasonable gap. Therefore, we favour allowing transferability between the two counters.
Will dual-counter with transferability breach the RMB20K conversion limit for banks with individual customers ?
No. Under the dual-counter model with transferability, where an investor bought HKD-traded securities and subsequently converted them into RMB-traded securities and sold them on the RMB counter, the transactions do not actually involve a net increase of RMB funds in the offshore market. It only entails the transfer of RMB funds in the offshore market from one investor to another. Furthermore, the daily conversion limit only applies to banks' RMB currency exchange business with personal customers.
How will the market cap of the issuer be calculated ?
At the initial launch of the Dual Tranche, Dual Counter model or Dual Counter (“DC”) model, HKEx will calculate the market capitalization of a listed company or ETF which has both RMB-traded securities and HKD-traded securities by multiplying the total number of issued shares/units (including both counters) with the price of the HKD counter. HKEx will continuously review this calculation method, taking into account the development of market practice for the DTDC/ DC model, relative liquidity of the dual counters and market feedback.
Will dividends be paid in HKD or RMB ?
Any dividend policy (and for that matter other corporate actions) will have to be consistent with the fact that the securities of the two counters are the same class of securities. Subject to the above and insofar as dividend payment is concerned, the issuer may offer an option to all the holders of the securities to elect to take a dividend in the currency in which the dividend is declared or in an alternative currency or currencies, and set a different default currency for the respective counters in the absence of an election by the holders of the securities. In the cases in which the issuer offers to pay a dividend in RMB (as an option), it will have to consider its access to RMB for dividend payment and its obligation in that respect in relation to the availability of RMB. There should be adequate disclosure in relation to dividend payment and currency options (if any) in the prospectus.
How are "inter-counter" day trades settled?
As always, Participants should ensure they have sufficient securities available to fulfill their CNS short positions on T+2. For "inter-counter" day trades, if a Participant relies on securities received from a long position in one counter to settle its short position in another counter, CCASS Participants should submit a "Multi-counter Transfer Instruction" to HKSCC through CCASS Terminals before 3:45 p.m. In case the securities received from the long position are subject to the on-hold mechanism, Participants should effect cash prepayment to release the CNS allocated securities before effecting the inter-counter transfer. All activities related to "Multi-counter Transfer Instructions" are recorded in a CCASS report which is available to Participants for reconciliation purpose.
Will buy-in exemptions be granted for the settlement of "inter-counter" day trade?
Buy-in exemption will be considered for applications that satisfied the defined conditions. Where the Participant has an unsettled short position in one counter and has sufficient shares/units and/or long position in the other counter, following transfer of which are sufficient to settle the relevant short position on T+2, Participant can submit an “Application Form for Exemption of Buy-in” to HKSCC not later than 8:00 p.m. on T+2. Participant is required to provide HKSCC a copy of the relevant CCASS report evidencing the shares/units and/or long position are available to cover the relevant short position on T+2; evidence that the Participant has submitted a Multi-counter Transfer Instruction which is either cancelled by the system after the batch transfer run and/or a system message is returned as there are insufficient stock balance upon input of Multi-counter Transfer Instruction after the batch transfer run; and effected cash prepayment, if applicable.
Payment of dividends in HKD/RMB and guidance to Managers
Dividends of a Dual Counter HKD-denominated ETF are declared in HKD and may be paid in HKD only or, where so offered by the ETF manager, in RMB as well as HKD depending on an investor’s election. Where an investor does not have an RMB account, the investor may have to bear the fees and charges associated with the conversion of any dividend in RMB into HKD or any other currency.
Any dividend policy (and for that matter other corporate actions) will have to be consistent with the fact that units traded on the two counters are of the same class and unitholders of both counters must be treated equally.
If an ETF manager chooses to set a different default currency for dividend payment (i.e. pay dividend in RMB for RMB counter and HKD for HKD counter in the absence of an election by the unitholders), the ETF manager must offer an election to investors in both counters to choose the currency in which they would like to receive the dividend. This means that both investors in RMB counter and HKD counter can elect to receive dividend in RMB or HKD. There should be adequate disclosure in relation to dividend payment and currency options (if any) in the prospectus. Investors should refer to the prospectus in relation to details of dividend payment and if in doubt, consult the ETF manager or your brokers.
How can investors distinguish between the two counters of securities traded in HKD and RMB? Will there be any identification in their stock codes and stock short names? (updated on 11 October 2012)
An investor can distinguish between the two trading counters of a Dual Counter ETF by their stock codes and their stock short names.
Separate and unique stock codes will be assigned to the HKD and RMB counters respectively. The last four digits of the stock codes for the two counters will be the same, while the stock code for RMB counter will be a 5-digit number starting with an “8”, in line with the existing allocation arrangement.
- HKD counter - XXXX
- RMB counter - 8XXXX
The stock short names for the two counters will also be different. For the RMB counter, the stock short name will end with -R to indicate that the ETF is traded in RMB. There will be no specific marking in the stock short name of the HKD counter.
The following is an illustrative example of the stock short names:
- HKD counter – “XYZ ETF”
- RMB counter – “XYZ ETF-R”
Will the two counters have a single International Securities Identification Number (ISIN) or two separate ISINs?
The ISO 6166 standard - ISIN (International Securities Identification Number) -uniquely identifies a security. It is a 12-character alpha-numerical code that does not contain information characterizing financial instruments but serves for uniform identification of a security at trading and settlement.
ISINs are issued by the identified, responsible National Numbering Agency based upon a set of guidelines that have been established amongst all National Numbering Agencies. The Association of National Numbering Agencies (ANNA) has updated its ISIN Guidelines document to reflect this principle.
According to the assessment and agreement made with ANNA and similar to the local code arrangement, two separate and unique ISINs shall be assigned to the RMB counter and HKD counter respectively, to allow for clear identification between the two counters in the post-trade settlement and position management.
Do brokers need to enhance their systems or processes to support the dual counter trading model?
There are no additional requirements to brokers for trading within the HKD counter. For trading within the RMB counter, brokers must ensure their own readiness for trading and settlement of RMB securities.
Brokers should review and ensure that their front and back office systems as well as operations are ready to support such client trading activities.
Broker may consider if there is a need to automate their systems such that inter-counter selling as well as transfer of securities between the two counters can be done automatically.
In any case, if brokers' systems cannot handle automatic inter-counter trading and transfer, brokers should have a set of guidelines advising their clients how inter-counter trading could be processed manually and clearly communicate to their clients how these trading activities could be supported and if any additional charges are imposed.
While from a regulatory standpoint, an investor may buy from one counter and sell the same on the other counter in the same day, he/she should bear in mind that:
o Such inter-counter day trades might lead to settlement failure of the sale trades at the CCASS on T+2 if the stocks of the buy trades are only delivered by CCASS at the last settlement run on T+2, leaving not enough time to transfer the stocks to the other counter to settle the sales trades on the same day. Although under the circumstances and provided that the concernedCCASS Participants ("CP") could provide necessary documentary evidence to HKSCC, HKSCC may grant T+3 buy-in exemption, the investors may still be subject to other handling fees imposed by his/her brokers, and the consideration of the sale trades may not be available to the investor from his/her broker until T+3 or even later;
o Some EPs and CPs may not provide inter-counter day trade services initially due to various reasons including operation, system limitations, associated settlement risks (as noted above) and other business consideration.
Therefore, an investor who wishes to conduct inter-counter day trades should consult his/her broker and fully understand the services that his/her broker may provide in this regard and the associated risks and fees.
What currency/currencies will investors/brokers use to pay for RMB IPOs and trades?
For RMB IPOs, investors and brokers will be able to pay the levies and other costs (such as commission) in RMB or HKD. For secondary market trading in RMB-traded securities, brokers will have to pay the SFC levy as well as other exchange and clearing fees in HKD. For stamp duty, HKEx's understanding is that the current legislation requires the stamp duty for securities transactions, including transactions in RMB-traded securities, to be paid in HKD.