Speech at Panel on Financial Affairs

III Latest development of green and sustainable finance and carbon trading in Hong Kong

Key initiatives in developing green and sustainable finance in Hong Kong

Given the wide popularity of the offshore Renminbi (“RMB”) municipal government bonds issued by the Shenzhen Municipal People’s Government in Hong Kong in October 2021, Mr. Chan Chunying considered that the Administration should strengthen its liaison with the relevant Mainland authorities, including the Guangdong-Hong Kong-Macao Greater Bay Area (“Greater Bay Area”), to attract more municipal governments and corporates in the Mainland to use Hong Kong’s platform to issue green bonds.

The Administration advised that short-term market volatility would not have implications on the long-term development of green and sustainable finance in Hong Kong. The Administration would continue to promote the development of green and sustainable finance through different channels, including maintaining liaison with other cities of the Greater Bay Area and promoting the Green and Sustainable Finance Grant Scheme to encourage more Mainland entities to use Hong Kong’s platform for green and sustainable financing and certification.

Mr. Chan Chunying pointed out that there was a lack of green and sustainable financial products available for the participation of retail investors and small and medium-sized securities firms (“SMSFs”) in the Hong Kong market, and urged the Administration to introduce facilitative measures to help issuers launch different types of products in Hong Kong, e.g. by reducing overly complicated application procedures and overly stringent regulatory requirements, so as to facilitate participation of retail investors and SMSFs, as well as further promote market diversification.

The Administration advised that as at the end of June 2022, there were about 135 retail “environmental, social and governance” (“ESG”) funds in the Hong Kong market with a market value of about US$162 billion, and more than half of the constituent funds of Mandatory Provident Fund schemes were invested in ESG products, which amounted to a market value of HK$15.6 billion. In addition, the Government issued the inaugural retail green bond totalling HK$20 billion in May 2022. The Administration and the Securities and Futures Commission (“SFC”) would continue to communicate with the industry and enhance the approval procedures for green and sustainable financial products.

IV Legislative proposal to exempt the stamp duty on stock transfers for specified transactions conducted by market makers for dual-counter stocks

Success factors of the Dual-Counter Market Maker Regime

Mr. Chan Chunying in general supported the setting up of the DCMM regime as well as the legislative proposal, and urged the Administration to implement measures to continue to attract over RMB800 billion deposits in Hong Kong into the RMB capital market and to facilitate more Mainland capital to invest in Hong Kong, so as to enhance the liquidity of RMB-denominated stocks and widen the range of RMB products, as well as attract more asset managers to invest in RMB assets in Hong Kong, thereby further consolidating Hong Kong’s status as a global offshore RMB centre.

The Administration advised that the development of dual-counter stocks was supported by the country’s policies, and the Mainland authorities would study setting up an RMB counter under Southbound Trading under Stock Connect. Such measure would allow southbound capital to participate in investment, promote market liquidity and enrich the investment choices for Mainland investors, while creating more favourable conditions for the internationalization of RMB. The Administration would continue to ensure the orderly development of the offshore RMB market through various measures, including the Currency Swap Agreement between HKMA and the People’s Bank of China.

Monitoring mechanism

Mr. Chan Chunying enquired how real-time monitoring would be conducted to ensure that the spread in HKD and RMB counters would be narrowed so as to encourage more investors to adopt the RMB counter for trading.

The Administration advised that to ensure a smooth operation of the regime, HKEX would draw on the prevailing effective arrangements in the market making mechanism for ETFs and derivatives, and formulate in conjunction with SFC and the Inland Revenue Department detailed administrative rules and a monitoring mechanism. Real-time monitoring on the market had all along been conducted through the regulators and market making activities would also be subject to certain restrictions, with mainly two types of specified transactions to be conducted under the regime. It was expected that short-term market volatility would not be a major concern.

HKEX advised that under the DCMM regime, market makers were obliged to continuously provide bid and ask quotes within a specified range of the latest market price in the RMB counter for matching investors’ orders. Moreover, exempting the stamp duty on stocks could effectively reduce the transaction costs of arbitrage trading by market makers, thereby promoting price efficiency and narrowing the spread in two currency counters.