New | Shorting rules drag on Shanghai-Hong Kong Stock Connect prospects

Short sells on the Shanghai-Hong Kong Stock Connect have tallied a grand sum of zero since regulators opened the scheme for leveraged trading nine months ago.

That’s an odd trait for a programme that has seen strong demand from global hedge funds that have just recently gained access to the mainland Chinese market.

The rules technically allow short selling but in practise the players that do the securities lending are barred from the business.

Future demand for mainland shares bought over the cross-border scheme could be dampened if the rules are not eased, people in the industry said. It could also hurt the anticipated connection with Shenzhen’s exchange.

“There’s a limitation on trading strategies for the stock connect. Short selling is a part of that,” said Matthew Chan, head of business strategy at Depository Trust & Clearing Corporation (DTCC).

Daily quotas and operational hitches presented other challenges for global traders looking to access the Chinese market, he said.

In its first year of action, turnover on the connect with Shanghai was low, with average daily northbound investment making up just 0.6 per cent of Shanghai’s daily turnover. That for southbound turnover was less than 1 per cent of the Hong Kong stock exchange’s total.