HKEX proposes investor ID model for Stock Connect

HKEX aims to fully rollout new investor ID for northbound trading activity by the third quarter next year.
By Hayley McDowell

Hong Kong Exchanges and Clearing (HKEX) has proposed a new model for investor identification (ID) for northbound trading activity on its Stock Connect programme.

The proposed model will see exchange participants assign a unique number - known as the broker-to-client assigned number (BCAN) - to each of their clients and then forwarded to Mainland exchanges.

Participants will also tag buy and sell orders submitted with the BCAN, although the unique number will only be used by regulators for surveillance purposes and not in clearing or settlement.

HKEX published the proposed model in a paper on its website, following an agreement between the Securities and Futures Commission and the China Securities Regulatory Commission to introduce an investor ID regime.

The Asia Securities Industry & Financial Markets Association’s chief executive officer, Mark Austen, welcomed the proposed model and reiterated the ID should be at the fund manager legal entity identifier (LEI) level, rather than fund ID level.

“[This] should enable fund managers to continue to fulfil their fiduciary duty of treating their clients fairly, while preserving operational efficiency within the industry.

“With respect to the ID, we propose the use of LEI in line with global harmonisation, which most foreign institutional investors should be using already in compliance with MiFID II,” Austen said.

HKEX said it aims to fully rollout the new model in the third quarter of 2018 with market communications, system changes and rehearsals occurring between the end of this year and the second quarter next year.

“We think the current proposed model is a good approach for our market,” said Roger Lee, HKEX’s joint chief operating officer and head of markets. 

“From making data privacy protection a top priority and allowing investors a choice to opt in to decentralising the assignment of investor ID numbers, we have struck a balance in meeting the regulatory requirements and addressing market participants’ concerns.”