(Yicai Global) Dec. 20 -- With the aim of cracking down on “fake offshore capital,” China’s securities watchdog intends to prohibit Hong Kong brokers from allowing Chinese mainlanders to trade A-shares through the northbound routes of the Hong Kong-mainland stock connect programs.

The China Securities Regulatory Commission published for feedback on Dec. 17 amendments to the existing rules. The changes would not come into force until at least Jan. 16 next year, and mainlanders who trade A-shares -- those listed in the mainland -- via the northbound routes would have a year from the time they take effect to buy and sell A-shares, and only sell them after the transitional period.

The move targets mainland investors who opened trading accounts in Hong Kong to access the northbound routes, according to the CSRC. The practice, which accounts for only about 1 percent of investment in A-shares through the stock connects, is not in line with the original purpose of the northbound legs, the CSRC said.

Hong Kong brokerages have about 1.7 million individual mainland clients, the regulator noted, adding that most of them do not trade. Over 98 percent also opened mainland trading accounts to directly buy and sell A-shares, it said. The two ways of trading can carry the risk of cross-border illegal activities, leaving the market a negative impression, the CSRC said.

The watchdog vowed to continue to improve the stock connect mechanisms and deepen coordination in cross-border supervision and law enforcement to maintain the smooth operation and healthy development of the links as well as that of the mainland and Hong Kong markets.

Before the draft amendments were released, Reuters reported on Dec. 17 that Chinese officials were planning to ban online brokerages such as Futu Holdings and Up Fintech Holding from offering offshore trading services to mainland clients.

That day Futu [NASDAQ: FUTU] and Up Fintech [NASDAQ: TIGR] opened 8.8 percent and 15.6 percent lower at USD34.34 and USD4.17, respectively. But both stocks ended up after the draft rule amendments were released clarifying that the ban would target all Hong Kong brokers and not just those online.

The stock connects were opened to link the Hong Kong bourse with that in Shanghai in late 2014 and with the Shenzhen stock exchange in late 2016.

Editors: Zhang Yushuo, Futura Costaglione, Xiao Yi