HONG KONG (Reuters) - Hong Kong's securities regulator said on Thursday it had reached an agreement with its Chinese counterpart on a proposal to introduce an investor identification system next year for "northbound" trading under the Stock Connect program with China.
"Northbound" trading means foreign investors from Hong Kong buying and selling shares in Shanghai and Shenzhen under the "Connect" scheme, as part of Beijing's efforts to open its markets more widely to foreign investors.
Chinese investors' ability to trade Hong Kong securities is referred to as "southbound" trading.
The move to monitor such trading was first announced by Hong Kong's Securities and Futures Commission (SFC) last month.
The SFC and the China Securities Regulatory Commission (CSRC) have agreed to introduce an identification regime for southbound trading as soon as possible after the northbound system is implemented, the Hong Kong regulator said on Thursday.
The northbound trading identification system is scheduled to be implemented by the third quarter of 2018, it added.
To help detect any potential market misconduct, investor identification processes that let securities regulators track stock trades in real time are already used by some markets in Asia, such as China, South Korea and Taiwan.
"This is critical to safeguard market integrity and to strengthen the protection of investors in both markets," Ashley Alder, chief executive of the SFC, said in the statement, referring to China and Hong Kong stock markets.
"We also aim to implement an investor identification regime to cover all trading on the SEHK (stock exchange of Hong Kong) in the longer term. This is in line with similar initiatives in other leading global markets."
The investor identification regime for northbound trading will involve the collection and use of personal data by the Hong Kong stock exchange and its units, as well as its transfer to the mainland exchanges and the CSRC, the SFC said.
(This version of the story was refiled to correct a typographical error in paragraph 3)