Domestic securities brokerage firms now have permission, effective immediately, to trade the mainland's "red chip" shares and exchange-traded funds (ETFs) listed on exchanges in Hong Kong and Macao, a Financial Supervisory Commission (FSC) official said yesterday.

Wu Quei-mao, chief secretary of the FSC's Futures and Securities Bureau, said the FSC has amended a regulation to allow individual investors to trade financial products using their own brokerage accounts in Taiwan.

The new measure, which allows individual investors to directly trade these financial products through local securities firms, will help the firms to enhance their business competitiveness at home and abroad. It will also increase brokerage handling fee revenues and will attract overseas Taiwanese securities brokerage firms to reinvest in Taiwan, according to Wu.

"Red chip" shares refer to listed companies controlled by mainland shareholders but incorporated in offshore locations. Most of these businesses are controlled by mainland local governments and central government agencies and are incorporated in Hong Kong.

The Hang Seng China-Affiliated Corporations Index (HSCCI) that was launched in 1997 in Hong Kong to track the performance of such companies now comprises 33 "red chips", Wu said.

Local securities firms will also be able to start trading in 97 other shares listed in Hong Kong and Macao of companies that are 30 percent directly or indirectly owned by the mainland government or private enterprises. The firms can place orders with foreign securities firms to trade their products, he added.

In addition, non-discretionary money trust funds managed by local banks can be used to trade the products, according to media reports.

Investors who want to trade the products through banks can follow the same procedures for buying and selling mutual funds, according to the FSC official.

The FSC's banking bureau is seeking a better understanding of the format for cooperation between banks and securities firms. It is also devising a mechanism to approve applications by banks to trade financial products using non-discretionary money trust funds. So far, no banks have consulted the FSC on the issue.

The government's liberalization policy on trading of shares in mainland companies has spurred some investor interest, a local securities firm said yesterday.

The firm added that investors should know they will have to pay about 0.25 percent brokerage commission on trades if they invest in the Hong Kong bourse, far higher than the 0.1425 percent they have to pay in Taiwan.

In addition, Hong Kong imposes a 0.1 percent stamp tax on stock transactions and many other transaction fees, making the cost of trading shares in Hong Kong about 24 percent higher than in Taiwan, the securities firm noted.

China Daily/CNA

(HK Edition 03/04/2010 page4)