More Luxembourg UCITS (Undertakings For The Collective Investment Of Transferable Securities) funds with existing exposure to the China A-share market as well as to Greater China equities are seriously seeking to access the Shanghai-Hong Kong Stock Connect.
This follows the approval last December of the first Luxembourg UCITS to participate in the Shanghai-Hong Kong Stock Connect. Approval of these funds participation however hinges on compliance with requirements by the Luxembourg securities regulator known as the Commission de Surveillance du Secteur Financier (CSSF) involving their depository banks.
“We currently have quite a number of funds pending approval. Basically those funds are China and Greater China funds who already having some access to A-shares. The stock connect would be an add-on to their QFII (Qualified Foreign Institutional Investor), RQFII (Renminbi Qualified Foreign Institutional Investor) strategies,” says Stephane Karolczuk, head of the Hong Kong representative office of Arendt & Medernach, a leading Luxembourg-based law firm. “They want to have access to the stock connect, just to go the extra mile to access China A-shares, sometimes because they lack quota for RQFII or QFII, sometimes for other reasons.”
The Luxembourg UCITS funds that seek to access the Stock Connect however have to ensure that they meet the CSSF-required depository bank structure that allows for synthetic delivery-versus-payment DVP to protect against counterparty risk exposure.
“I expect a lot more or those funds to access the Stock Connect. Pretty much all clients of our that have China and Greater China exposure in their UCITS funds now are considering Stock Connect. They just need to have the right depository model in place which is easily available,” Karolczuk says.
