Hong Kong's Securities and Futures Commission (SFC) and Taiwan’s Financial Supervisory (FSC) Commission last week signed and exchanged a side letter detailing conditions to a bilateral memorandum of understanding (MOU), which would pave the way for the cross listing of exchange-traded funds (ETFs) in the two markets. The agreement is expected to move closer the two regulators towards a common goal of cross listing of ETFs and help increase demand for ETFs.
In a press release, Hong Kong's SFC said that under the terms of the side letter, ETFs listed on the Hong Kong or Taiwan stock exchanges and managed by licensed asset managers would be mutually recognized in each other’s jurisdiction for the purpose of cross listings and offerings. The MOU was signed in 1996. The side letter will also strengthen regulatory co-operation between the SFC and the FSC, in particular arrangements relating to information sharing and confidentiality regarding management of ETFs.
“This side letter marks a milestone in the regulatory co-operation with our Taiwan counterpart since the signing of the MOU. This is a major step forward to consolidate Hong Kong’s position as a preferred ETF platform with exposure to markets in Hong Kong, the Mainland and Taiwan. The fund management industry will benefit not only from the diversified product markets, but also increased investment flows resulting from the new measure,” said SFC’s Chairman Eddy Fong.”
These developments are part and parcel of opening of trading in shares between China and Taiwan. Plans are underway to have a platform to allow trading in 30 stocks from both countries as a start. Presently both countries' investors are forbidden from investing in each other country's listed stocks. Later it will include trading in ETFs and will lead to full liberalisation. This will allow Taiwan to bring back the 37 Taiwanese companies currently listed in HK Exchange.
An important part of the agreement will be on the convertibility of yuan with the New Taiwan dollar. Taiwan already stated that it would scrap a rule that bans companies held by Chinese investors from selling shares on Taiwan's stock exchange. Already the 60 year long ban on direct shipping, air and postal links have been lifted on December 15 last year.
A report by Asian Investor cited Deutsche Bank which said that there were 200 ETFs in the Asia-Pacific region, with 243 listings in 12 countries across 15 exchanges. It said that ETFs’ total assets under management was estimated at $57.4bn. Hong Kong is the region's second largest ETF market by AUM next to Japan, while Taiwan is the fifth largest. The report also quoted Hong Kong-based investment director for quants at BOCI-Prudential Tang Hing, who said he was eager to cross list his fund house's products between Hong Kong and Taiwan once the plan pushes ahead.
Lyxor to expand coverage in Asia, launches 5 ETFs in Singapore
News of cross listing between Taiwan and Hong Kong's ETFs came as Lyxor International Asset Management, announced early this month the launch of five new ETFs on Singapore Exchange Limited (SGX). Four of these ETFs would cover indices that track markets outside Asia and the United States, for the first time on SGX.
p/s photo: Anggun