(Yicai Global) Oct. 21 -- Financial regulators in the Hong Kong Special Administrative Region and the Chinese mainland are pushing to allow the southbound trading of stocks via the Shanghai-Hong Kong Stock Connect to be priced in yuan, according to Hong Kong’s financial secretary.

The Securities and Futures Commission of Hong Kong, the Hong Kong Stock Exchange and the Hong Kong Monetary Authority have formed a working team to look into the matter, Shanghai Securities News reported today, citing Paul Chan. 

Southbound trading via the stock link started in 2014, with Hong Kong shares bought by mainland investors all Hong Kong dollar-denominated under the current scheme. Yuan funds must be changed into Hong Kong dollars during settlement, but the exchange rate is determined after the market closes, posing risks from rate fluctuations that are hard to avoid. 

The launch of the Wealth Management Connect for the Guangdong-Hong Kong-Macau Greater Bay Area and the Southbound Bond Connect, together with the Shenzhen municipal government’s recent issuance of offshore local government yuan bonds in Hong Kong, has increased the portfolio of yuan-denominated financial products in the Hong Kong market. 

Chan also said regulators aim to spur the growth of Hong Kong’s offshore yuan market in multiple ways, including improving the fluidity of offshore yuan and offering effective two-way channels for yuan funds between the offshore and onshore markets. 

The regulators will also facilitate the growth of yuan-denominated products in the offshore market, including more diversified issuance of bonds and corresponding transactions, as well as yuan wealth management products. Issuance and trading of yuan securities will also be boosted to provide listed companies and investors with more options for yuan-based investment and financing. 

Editor: Tom Litting