Citi 2018 FinReg Outlook

THE QUOTA QUESTION One big question remains: Will ETF Connect be subject to a quota regime? Under the MRF quota rules, cross-border investors in the MRF funds cannot exceed 50% of the fund’s total net assets. This restriction has hampered the program’s growth, especially for Hong Kong funds being sold into Mainland China. However, the Stock Connect programs do not include any quota restrictions. The industry hopes that, like Stock Connect, ETF Connect will not be subject to a quota regime. If this is the case, ETF connect may become the preferred cross-border route for accessing Mainland Chinese investors. A WAITING GAME Hong Kong’s fund management industry has high hopes for ETF Connect. It is seen as potentially one of the most efficient ways to access Mainland Chinese investors without having to establish a local fund. As Mainland fund managers continue to face many restrictions on where they can invest assets, ETF Connect is an attractive proposition for both institutional and high net-worth Mainland investors. While there has been no clear indication of an official start date, most observers believe ETF Connect will commence during the second half of the year. In the meantime, the industry eagerly awaits further details to see if the reality will live up to the hype. KEY MILESTONES 2014 2015 2016 2017 2018 Shanghai-Hong Kong Stock Connect Mainland-Hong Kong Mutual Recognition of Funds Shenzhen-Hong Kong Stock Connect Bond Connect ETF Connect “ETF Connect could become an important channel for accessing Mainland Chinese investors.” Citi Custody & Fund Services – FinReg Outlook 2018 41 40