Policy easing will support Stock Connect program

The daily yuan exchange limit for Hong Kong residents is expected to be removed before the launch of the long-waited pilot program of connecting the Shanghai and Hong Kong stock markets, a top official from the Hong Kong monetary authority said during a summit on Monday.

Hong Kong Monetary Authority (HKMA) Chief Executive Norman Chan made a comment on removing the daily exchange limit of 20,000 yuan ($3,240) per person for Hong Kong residents in response to reporters' questions at the Treasury Markets Summit 2014 in Hong Kong Monday morning, according to an e-mailed response by the authority sent to the Global Times in the late afternoon of Monday.

The HKMA communicated with the People's Bank of China very recently, and the central bank indicated that there are no major problems in removing the daily exchange upper limit, said Chan.

He noted that the HKMA will endeavor to finalize this arrangement before the launch of the Shanghai-Hong Kong Stock Connect.

The Shanghai-Hong Kong Stock Connect program, which was announced by China Securities Regulatory Commission and Hong Kong Securities and Futures Commission in April, will allow investors to trade on each others' bourses.

Removing the upper limits of Hong Kong dollar to yuan exchange for Hong Kong residents is a necessary step to push forward the pilot Shanghai-Hong Kong Stock Connect program, Li Daxiao, director of Shenzhen-based Yingda Securities Institute, told the Global Times Monday.

"The current daily quota of 20,000 yuan is too small for Hong Kong residents who plan to invest in mainland stock markets," Li noted.

The Shanghai Stock Exchange has already launched tests to examine the technological readiness of the hardware and software system for the pilot program as the bourse prepares to launch the program later this year, the Xinhua News Agency reported in August.

To minimize any potential unforeseen risk of excessive capital flows, the regulators set up a daily trading quota of 13 billion yuan during the initial period for Hong Kong investors who plan to invest in the mainland capital market, according to previous media reports.

The regulators also set a daily trading quota of 10.5 billion yuan for the mainland residents to invest in the Hong Kong bourse.

The program is expected to be officially launched in October, according to a 21st Century Business Herald report on Monday.

Li of Yingda Securities said that mainland bourses "will be boosted" if 300 billion yuan worth of investment flows into mainland markets.

Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, said the new scheme will play an important role in the reform of the mainland capital markets, which are less developed compared with Hong Kong.

The scheme will also offer opportunities for mainland investors, who have huge amounts of capital at hand but limited channels of investment, in the Hong Kong market, Dong told the Global Times on Monday.