SFC updates guidance to prepare for HKD-RMB Dual Counter Model

On June 6, 2023 the Securities and Futures Commission of Hong Kong, SFC, issued a press statement to inform that it has published updated versions of its Guidance Note on Short Selling Reporting and Stock Lending Record Keeping Requirements and corresponding frequently asked questions (FAQs) to prepare for the implementation of the HKD-RMB Dual Counter Model on June 19, 2023.
The Guidance Note clarifies that dual counter transactions are not considered „naked“ or uncovered short sales and thus prohibited by the Securities and Futures Ordinance (Section 170)
(1) if an investor purchases a security initially at one counter and subsequently sells it at another counter (the sale is treated as a regular sale) or
(2) if a market maker operating under the Dual Counter Model sells a security at one counter and buys it at another counter provided that certain specified conditions are met (Note 3 of the guidance).
In the FAQs, the following question has been revised – as quoted:
Question 10: How to report the short position of specified share with multiple trading counters? How to determine whether the reporting threshold is reached and which counter should be used for reporting?
Answer: With effect from 15 March 2017, the Rules require reporting of reportable short positions in all Designated Securities which are determined by the SEHK. Both the HKD and RMB counters of a security traded under the HKD-RMB Dual Counter Model are on the list of Designated Securities. To enhance market transparency, net short position of individual counters should be reported separately.
To determine whether and how the position of individual counters should be reported, a person should aggregate the positions (be it long or short) of all relevant counters which belong to the same security for the purpose of determining whether the aggregated short position reaches the reporting threshold. In this connection, temporary counter (not on the list of Designated Security) or other counters traded in different currencies (on the list of Designated Security) should be taken into account.
For Designated Security with multi-currency counters, it is expected that the net short position(s) of the counter(s) which attribute to the resulting aggregated short position should be reported. In other words, a person should (1) calculate the net short position of each counter by netting off the long positions of other counters of the same Designated Security; (2) identify the counter(s) which attribute to the aggregated short position; and (3) report the net position value(s) of that counter(s) separately. The same principle should be used in reporting the short position in a Designated Security with HKD-RMB Dual Counter Arrangement. Please refer to the list of Dual Counter Securities published on the HKEX’s website.
Below are examples using a security with both HKD and RMB counters, based on the reporting threshold of HK$30 million, to illustrate the above guiding principles: […]