THE Hong Kong stock exchange has rebuffed claims that its landmark Shanghai trading link is being hampered by overseas regulatory hurdles, amid growing pressure to address investor protection concerns that have dampened trading volumes.

    The Hong Kong Exchanges and Clearing (HKEx), operator of the Hong Kong exchange, said in a statement late Tuesday evening that it has been working with overseas investors and regulators to familiarize them with the mechanics of the Hong Kong-Shanghai stock connect. Launched Nov. 17, the link allows foreign investors to directly trade Shanghai shares via the Hong Kong exchange for the first time.

    The HKEx and mainland regulators have come under pressure to address technical and legal aspects of the link that have made it difficult for U.S. and European Union-regulated funds to participate. These include settlement rules and uncertainty over the enforceability of shareholder rights under Chinese law.

    The HKEx statement followed the release of new data Tuesday by the Hong Kong Investment Funds Association (HKIFA). The investor group said only 13 of 41 asset managers that responded to a survey indicated they had invested through the Hong Kong-Shanghai stock connect program.

    “In general, we had a positive response from our members on the potential opportunities of using the stock connect program in the long term,” Bruno Lee, chairman of the HKIFA told a news conference in Hong Kong on Tuesday. “But we do need more details before firms can fully leverage the program.”

    The HKIFA said a key concern cited by funds was uncertainty over whether investors are assured legal entitlement to Shanghai shares held on their behalf by the HKEx’s clearing house.

    Shares and bonds bought by mutual funds are typically held by custodians on behalf of the investor, a concept known as beneficial ownership. Industry insiders say legal opinion is divided over whether investors could enforce their rights to shares held under beneficial ownership in China, should the HKEx’s clearing house go bust.

    On Tuesday, the HKEx reassured investors they retain ownership rights under such circumstances. (SD-Agencies)