INVESTORS won’t be able to sell Shanghai-listed shares through an exchange link with Hong Kong stock exchange unless they transfer the stock to a broker before trading starts that day, according to Hong Kong Exchanges & Clearing Ltd. (HKEx).

    Shares must be transferred prior to 7:30 a.m. if investors want to execute the trades, HKEx chief executive Charles Li wrote in a blog posting published Sunday. This will allow the two exchanges to settle the trades in compliance with mainland rules, he wrote.

    Pressure is increasing on Hong Kong’s exchange to provide clarity on trading rules before a link starts with Shanghai that will give foreigners unprecedented access to the mainland’s US$3.6 trillion stock market. While the new system won’t be “perfect,” the country needs the program to progress, according to Li.

    “If we wait for the mainland market to align with Hong Kong’s, we could be waiting a decade or longer,” Li wrote. “While we have managed to find a solution to most of the challenges of aligning two very different markets, some of the differences were so significant that our solutions will inevitably constrain the market.”

    The rule on sell orders is more restrictive than the so-called T+2 settlement system used in Hong Kong and other major stock markets, which allows investors to buy and sell shares without transferring cash or the securities before the trades.

    The program will only operate on days where trading and clearing arrangements are open in both Shanghai and Hong Kong, while investors will be protected by regulators of the market in which they’re buying stocks, Li wrote. Investors in yuan shares will be overseen by the China Securities Regulatory Commission, while mainland purchasers of Hong Kong-listed equities will be under the scope of the city’s Securities and Futures Commission, he said.

    Quotas imposed on trading will be on a first-come, first-served basis, regardless of size or other factors, according to Li. The exchange will strictly monitor buy orders to minimize the price gaps between orders and the most recent transaction prices, he said.

    Cross-market investors wanting to modify orders after they are issued will have to cancel them and make new ones, returning to the queue in the process, Li wrote. (SD-Agencies)