Exclusive - Investors seek delay to HK-Shanghai stock tie-up

By Michelle Price

HONG KONG (Reuters) - Some of the world's biggest banks and asset managers have asked the Hong Kong securities regulator to delay a landmark China stock trading link that could generate billions of dollars of trade a day due to uncertainty over the scheme rules, according to a letter seen by Reuters.

The Hong Kong-Shanghai stock connect scheme, a milestone in the opening up of China's capital markets, was widely expected to go live next Monday, but the letter sent on Friday by the Asia Securities Industry & Financial Markets Association (ASIFMA) could push its debut to late November.

The Hong Kong and Chinese governments had not announced a start date, but said in April they were looking for a launch within six months, and last month Reuters reported that Hong Kong Exchanges & Clearing Ltd (HKEx) told market participants it expected to launch on Oct. 27.

The trading link will for the first time allow international investors to trade Shanghai-listed shares via the Hong Kong stock exchange. Meanwhile, mainland investors will be able to trade Hong Kong-listed shares via the Shanghai bourse.

The link could push up the average daily value of stock trading in Hong Kong by about 38 percent to HK$93 billion ($12 billion) by 2015, French bank BNP Paribas has estimated.

The Shanghai bourse did not immediately respond to requests for comment but HKEx said its market infrastructure and operations were ready.

"Regulators will decide and announce the launch date," it added.

The Hong Kong regulator declined to comment, and the China Securities Regulatory Commission did not immediately respond to requests for comment.

TAX HURDLE

In the letter, ASIFMA said its members could not begin trading next week because of uncertainty surrounding some technical issues and a lack of clarity over taxation. It asked for its members to be given a month's notice before launch.

The letter added that banks would need time to calibrate trading systems and prepare client documentation.

A person familiar with the letter, which ASIFMA circulated to members on Friday, said that while many firms were technically ready to trade, uncertainty over the taxation of capital gains, dividends and other corporate profit remained a major hurdle.

The letter was signed by ASIFMA chief executive Mark Austen and copied in HKEx CEO Charles Li.

ASIFMA said in the letter it was "alarmed" at the prospect of launching next week, given the uncertainties.

Some market participants said two weeks would be enough to complete preparations for the launch.

"This is probably delaying the process, but at the end of the day, if the exchange only gives you two weeks' notice, are you not trading?" said Vincent Chan, Managing Director for Equity Research at Credit Suisse.

(Additional reporting and writing by Lisa Jucca; Editing by Will Waterman)