HONG KONG Feb 7 China is expected to allow
brokerage firms and banks to enter the mainland stock market via
exchange-traded funds (ETFs) denominated in yuan, a move that
would terminate the monopoly of mutual fund companies in the
Market players are speculating about such a move after an
announcement in November about changes to the Renminbi Qualified
Foreign Institutional Investor (RQFII) scheme, a channel for
foreign investors to enter mainland capital markets with
Under the plan, the scheme would be expanded by 200 billion
yuan ($32.09 billion) in quotas, without specifics on who would
be allowed to take part.
China introduced the RQFII programme with an initial quota
of 20 billion yuan to invest in mainly onshore bond markets in
late 2011, and raised it by 50 billion yuan last April to allow
investment in its stock markets through ETFs.
However, only Chinese fund houses or their joint ventures
have been given approval to launch such ETFs so far, given other
financial institutions did not meet the requirement that their
parent companies have relevant experience in mainland China.
The Hong Kong Securities and Futures Commission (SFC) on
Wednesday listed additional minimum requirements on its website
for management companies that want to launch RQFII ETF products,
but do not have a mainland parent company with related
It requires the management company to have at least one key
employee with at least 2 years of management experience with a
physical A-share ETF portfolio, and the ETFs need to adopt a
full physical replication strategy.
Physical yuan ETFs invest in all constituent stocks with the
same weightings as those in the benchmark. By comparison,
synthetic ETFs use swaps or other derivatives to gain exposure
to a benchmark.
The company must also retain a reputable mainland, Hong Kong
or international firm acceptable to the SFC as its investment
adviser for at least 1 year after listing of the RQFII physical
The SFC said it may consider modifying or not requiring
strict compliance with the above requirements on a case-by-case
basis if the company has a proven track record in managing ETFs
in reputable markets.
Trading of RQFII A-share ETFs was quite active in the past
few months and asset managers accelerated their pace of applying
for additional quotas, boosted by foreign investors seeking
The benchmark Shanghai Composite Index has jumped
more than 20 percent since December, outperforming the MSCI's
broadest index of Asia-Pacific shares outside Japan
($1 = 6.2317 Chinese yuan)
(Reporting by Michelle Chen; Editing by Kim Coghill)