China's stock exchanges have met the necessary requirements for same-day trading, the Shanghai Stock Exchange said on Monday, as regulators prepare to better integrate mainland and Hong Kong stock markets ahead of a cross-border investment pilot scheme.
So-called "T+0" trading allows investors to both sell and buy on the same day, and is applied in most major markets.
The bourse said regulators will experiment with changes to the current T+1 scheme, which allows investors to exit from a position only after the second day, once the Shanghai-Hong Kong stock market connector pilot scheme starts on Nov. 17.
"After nearly 20 years of development, China's stock market has undergone fundamental changes – the market is much bigger, much more liquid, and there's a much bigger proportion of professional investors," the exchange said on its official weibo microblog.
"The market has met the condition for resumption of T+0 trading."
The announcement comes after Hong Kong and Shanghai officials set a date for the launch of the Shanghai-Hong Kong stock connect that would allow investors to conduct cross-border trade in both markets.
Hong Kong, like most stock markets in developed economies, already trades on a T+0 system, but mainland markets have been trading on a T+1 system since 1995, when Beijing scrapped T+0 trading on mainland bourses due to concerns about rampant speculation.
However, having two separate settlement environments could cause operational headaches for brokerages and investors, industry insiders have said, given the need to manage investment flows under the current quota restrictions set by Beijing.
It has also begun causing problems in China as the China Securities and Regulatory Commission (CSRC) has introduced other market innovations such as stock index futures.
In 2013, a massive trading error by Everbright Securities caused sharp volatility in the market. Everbright traders were able to quickly hedge their mistake in the futures markets, but retail investors were unable to escape their positions and were stuck with heavy losses, leaving many questioning the utility of the same-day trade restriction.
