IFIA, which is a representative body of the international investment funds community in Ireland, said it is closer to resolving some of the issues in the Stock Connect programme, which would enable European-based UCITS funds to participate in the Stock Connect programme.
“The IFIA has been leading the interaction with the Hong Kong Stock Exchange on behalf of European domiciled fund managers with the end objective of UCITS funds being allowed to participate in the Hong Kong Stock Connect,” O’Mara said.
“We are extremely close to resolving these issues, and we are hopeful that it won’t be long before we see the first UCITS funds trading shares on the exchange.”
On 31 December, the value of UCITS Funds from 440 managers domiciled in Ireland was €1.2trn ($1.4bn).
Launched in November, the Stock Connect, also known as the "through train", links the Shanghai and Hong Kong stock exchanges, giving investors an avenue to access the opportunities in China's A-share market.
A survey carried out by the Hong Kong Investment Funds Association during November-December showed that almost all the respondents believe the Stock Connect still has key technical and legal issues that need to be resolved.
The top three issues identified were beneficial ownership, pre-trade checking, disclosure of interest and the short swing profits rule.
In early January, the Hong Kong Exchange said one of the issues frequently raised by investors is the beneficial ownership in A-shares held through the nominee structure established under Stock Connect.
“Initially, some investors were worried that they would not have proprietary rights in the A-shares held through Hong Kong Securities Clearing Company Limited (HKSCC), a wholly-owned subsidiary of HKEx, as nominee.
“However, it is now accepted by investors that they do have beneficial ownership under both Hong Kong law and Mainland China law. This means that investors will retain their proprietary rights in A-shares even if HKSCC were to become insolvent - the most important hallmark of beneficial ownership,” the Hong Kong Exchange said.
Further, the rules of HKSCC enable investors to enjoy their rights as beneficial owner including receiving dividends and voting through HKSCC as nominee holder, the exchange then clarified.
“We understand that the market needs time to get used to the idea of beneficial ownership in shares held through a nominee in the context of Mainland law even though it is not a new concept under both Mainland and Hong Kong law.
"We are committed to making this and other concepts adopted in Stock Connect properly understood by investors and other stakeholders,” Christine Wong, HKEx’s chief counsel and head of legal services had said then.
In view of these concerns, the response to the cross-border opportunity among asset managers has been tepid.
The HKIFA noted currently only 13 firms out of the 41 respondents have invested through the Stock Connect. Furthermore, the usage has not been extensive and is primarily limited to Hong Kong-domiciled funds, unauthorised funds, own accounts or other institutional mandates.